Auditing the charter capital of the enterprise for 10 years

Block virtual capital increase before IPO: Auditing the charter capital of enterprises for 10 years

To prevent the situation of massive virtual capital increase before IPO (for example, Faros Company increased its capital nearly 2,900 times within 3 years before going public), delegates proposed to audit the contributed charter capital of the enterprise in the previous 10 years.

Delegate Nguyen Huu Toan (Lai Chau). Photo: Duy Y

Audit to determine the real capital of the enterprise before IPO

Commenting on the amendments to the Securities Law, delegate Nguyen Huu Toan (Lai Chau) said that in the draft, the Government proposed that the initial public offering (IPO) dossier must include a report on contributed charter capital within 10 years from the date of registration for the initial public offering of shares. These reports must be audited by an independent auditing company.

Many people disagree with this idea, because it will create more time and costs for businesses and may cause fear for businesses, especially difficulties in cases where businesses have a long history of establishment...

However, delegate Nguyen Huu Toan said that auditing to determine initial charter capital is a very important content to determine the actual contributed charter capital and total capital, total number of shares issued to the public and the number of shares that will continue to circulate in the secondary market.

According to the delegate, if the charter capital is not accurately determined, it is a fraud for all investors from the first purchase to the next purchases. A typical example is FLC's Faros Construction Company (stock code ROS) which increased its charter capital from the initial VND 1.5 billion to VND 4,300 billion in just 3 years (2014-2016), an increase of nearly 2,900 times, causing great consequences for the market.

Another example is Mr. Nguyen Cao Tri's Saigon Dai Ninh Company, which increased its initial charter capital (in 2010) from 300 billion VND to 2,000 billion VND in 2017. The "magic" method is as follows: The enterprise continuously pumps in and withdraws a certain amount of money through accounts, until it reaches a total revenue equal to the total charter capital.

“If we are afraid of the cost and do not audit, we will not be able to prevent it. The reason for not doing it is because we are afraid of the cost is unreasonable. In my opinion, this is a necessary regulation to ensure the transparency and cleanliness of the stock market. If there is a regulation requiring charter capital audit, cases like Faros or some other similar cases will not happen. However, the audit period should be reduced to 5 years to ensure cost savings,” suggested delegate Nguyen Huu Toan.

Regarding the opinions of the delegates, Deputy Prime Minister and Minister of Finance Ho Duc Phoc admitted that, according to the provisions of the Enterprise Law, when establishing an enterprise, it has the right to declare its charter capital and is responsible for this declaration. Therefore, there may be newly established enterprises with no money in their accounts, or even no headquarters, but their registered charter capital is recorded as 10,000-20,000 billion VND without anyone checking or controlling.

“There have been a number of incidents recently and management agencies have also proposed amending the Enterprise Law on this issue. Regarding the amended Securities Law, we have also tightened this issue to ensure that there is no exploitation in the stock market,” the Deputy Prime Minister and Minister affirmed.

Fear of "slipping through the net" of many stock manipulation acts

Another content that many National Assembly deputies are interested in is the group of acts of stock market manipulation. Delegate Nguyen Cong Long (Dong Nai) said that Clause 6, Article 12 of the draft amended Securities Law has added 5 groups of acts of stock market manipulation. The drafting agency and the reviewing agency both have the same view that it is to ensure consistency according to the provisions of Article 211 on the crime of stock market manipulation in the Penal Code.

However, the delegate said that the content of the 5 groups of acts of stock market manipulation that were added here is nothing new, only the basic elements of Article 211 of the Penal Code are included here. Meanwhile, the Penal Code was established more than 10 years ago, now the draft law is "rewriting the old version" which does not meet the requirements of fighting and preventing crime in the new situation.

According to the delegates, to prevent crimes in the securities sector, state management activities, especially the contents related to independent auditing activities as the delegates have just stated, are very important. Recently, we have seen a series of cases causing particularly serious consequences, due to weaknesses, due to loopholes in independent auditing activities. Failure to verify or authenticate the actual activities of enterprises will create loopholes, affecting the market.

Regarding this issue, delegate Pham Thi Thanh Mai (Hanoi) suggested that the use of modern tools and information technology to manipulate the stock market is currently complicated. Therefore, it is necessary to study the provisions in the draft law or documents assigned to the Government to regulate, ensuring that the provisions are capable of covering the acts performed by many tools.

Delegate Nguyen Thi Thu Thuy (Binh Dinh) also said that identifying prohibited behaviors in the stock market, avoiding creating virtual prices, virtual supply and demand to push up stock prices is very necessary. Developed countries such as the US and Japan have both legal frameworks to monitor and impose very heavy sanctions on these behaviors.

The draft amended Securities Law has added acts such as collusion, lack of transparency, manipulation of the stock market, and failure to disclose information about planned transactions of shares and public fund certificates before the transaction by insiders and related persons of these subjects.

However, the delegate suggested that the Drafting Committee should review the acts considered as stock market manipulation, prescribe mandatory time, transparent information disclosure, open and easy-to-understand information so that all investors planning to invest have full information and assign the Government to specify regulations to avoid when practical situations arise, continuing to supplement, amend and review the prescribed levels of administrative penalties in the field of securities and the stock market.

Specifically, the penalties for cases of failure to comply with the obligation to disclose information in Decree No. 156 of the Government and the proposal to increase the penalty framework for administrative violations in the securities sector to ensure deterrence, towards the development of a transparent and stable market. Accordingly, it is necessary to raise the penalty ceiling or impose a penalty many times higher than the benefits gained from the violation, plus additional penalties such as banning transactions and banning activities in the securities sector.

Source: https://baodautu.vn/chan-tang-von-ao-truoc-ipo-kiem-toan-von-dieu-le-cua-doanh-nghiep-trong-10-nam-d229419.html