In certain circumstances, decisions made by the Board of Directors may contravene the law or the company’s charter, or exceed the scope of their authority, thereby causing damage to the enterprise. In such cases, reviewing and annulling these unlawful or ultra vires decisions is essential to protect the legitimate rights and interests of the company and its stakeholders. The below article by NPLaw will analyze the legal grounds, authority, and conditions for the annulment of the Board of Directors’ decisions.

I. Understanding the annulment of the Board of Directors’ decisions

The annulment of a decision issued by the Board of Directors refers to an act of a competent corporate body (typically the Board of Members, the Board of Directors, or the General Meeting of Shareholders) issuing a resolution to terminate the validity of a previously adopted decision by the Board of Directors. It usually occurs when such a decision is deemed illegal, contrary to the company’s charter, or beyond the scope of delegated authority.

II. Legal provisions on the annulment of the Board of Directors’ decisions

1. Circumstances under which Board of Directors’ decisions may be annulled

Under the Law on Enterprise 2020, a decision of the Director/General Director may be annulled if it:

  • Contravenes the law;
  • Violates the company’s charter;
  • Exceeds the delegated authority; or
  • Causes damage to the company or its shareholders.

2. Authority to annul decisions of the Board of Directors

The Board of Directors has the authority to annul a decision of the Director/General Director if it deems such a decision inconsistent with the law or issued ultra vires, as provided in Article 153 of the Law on Enterprise 2020.

In certain cases, the General Meeting of Shareholders may also review, request, or vote to terminate the validity of such decisions if they have significant impact on corporate operations or shareholders’ rights and interests, according to Article 138 of the same Law.

3. Who has the right to request the annulment of the Board of Directors’ decision?

  • Article 115 of the Law on Enterprise 2020 stipulates that shareholders or groups of shareholders have the right to request the convening of a meeting of the Board of Directors or the General Meeting of Shareholders to deliberate and decide on main corporate matters, including the annulment of a Board of Directors’ decision that violates the law or the company’s charter.
  • Article 167 provides that shareholders, groups of shareholders, members of the Board of Directors, the Supervisory Board, or other competent authorities may request a court or arbitration tribunal to annul an internal company decision (including that of the Director/General Director) if such decision violates the law, the charter, or causes damage.
  • Articles 156 and 165 further specify that the Director/General Director operates under the supervision and direction of the Board of Directors, thereby granting the Board authority to review, evaluate, and annul unlawful decisions.

III. Questions regarding the annulment of the Board of Directors’ decisions

1. What is the procedure for annulling a decision of the Board of Directors that contravenes the company’s charter?

The Board of Directors may convene a meeting and issue a resolution to annul such a decision within its authority, as prescribed in Article 153 of the Law on Enterprise 2020. If the Board of Directors fails to act, shareholders or groups of shareholders (as provided in Article 115) may request the convening of the General Meeting of Shareholders to deliberate on the issue.

If the matter remains unresolved internally, shareholders, the Board of Directors, or the Supervisory Board may petition the Court or Arbitration Tribunal for resolution according to Article 167.

Additionally, shareholders or groups of shareholders holding at least 1% of total ordinary shares are entitled, either in their own name or on behalf of the company, to initiate a lawsuit for personal or joint liability against the Director or General Director to recover benefits or claim compensation for damage suffered by the company or others, as stipulated in Article 166 of the Law on Enterprise 2020.

2. Is it permissible to file a complaint or initiate legal proceedings to request the court to annul a decision of the Board of Directors?

Under Article 166 of the Law on Enterprise 2020, shareholders or groups of shareholders holding at least 1% of total ordinary shares are entitled, either personally or on behalf of the company, to bring legal action seeking individual or joint liability of members of the Board of Directors, the Director, or the General Director, to require restitution or compensation in the following cases:

  • Breach of managerial duties as prescribed in Article 165 of the same Law;
  • Failure to perform, incomplete performance, untimely performance, or performance in contravention of the law, the company’s charter, or resolutions/decisions of the Board of Directors;
  • Abuse of position, authority, or misuse of company information, secrets, business opportunities, or assets for personal gain or for the benefit of another organization or individual;
  • Other cases as provided by law or the company’s charter.

Procedures and formalities for initiating lawsuits shall comply with the Civil Procedure Code. Litigation costs incurred by shareholders or groups of shareholders who initiate lawsuits on behalf of the company shall be borne by the company, except where the claim is rejected.

3. What role does the Supervisory Board play in inspecting and recommending the annulment of the Board of Directors’ decisions?

The Supervisory Board has the following rights and obligations:

  • To supervise the activities of the Director/General Director (Article 168 of the Law on Enterprises 2020);
  • To detect violations and propose that the Board of Directors consider annulling or suspending decisions that violate the law or the company’s charter;
  • To report and make recommendations to the General Meeting of Shareholders where necessary.

The Supervisory Board does not have direct authority to annul decisions but plays a critical role in detecting and recommending corrective action.

IV. Legal consulting services on the annulment of the Board of Directors’ decisions

Should you have any inquiries related to the above matters or require assistance in annulling a decision of the Board of Directors, please contact NPLaw. Our team of experienced legal professionals will provide direct consultation and guidance for an effective resolution.