A comparison of Japan and Vietnam legal approaches to derivative suit

Derivative suits are claims brought by a shareholder or a group of shareholders on behalf of the company to redress for wrongdoings of the directors when those in the company’s control refuse to assert a claim usually because of a conflict of interest. The derivative suit is not only to seek recovery of damages by a plaintiff shareholder but also serves as a further threatening tool that can be a possible deterrent to the neglect of duties by directors and other officers of the company [9]. In Vietnam, the derivative suit mechanism was first adopted by Vietnamese corporate law since Decree No. 102/2010/ND-CP (Decree 102) under the term “Shareholder’s right to sue members of the Board of Management and/or Director (General Director)”, rather than “derivative suit”. The regulatory framework for derivative suits has since been revised and contemplated under the latest Law on Enterprises of Vietnam, which was passed by the National Assembly in 2014. Under this scheme, a shareholder or a group of shareholders holding at least one percent (1%) of the total number of ordinary shares in a Joint Stock Company (JSC) for six consecutive months may bring a lawsuit on behalf of the company against the directors who breach their duties. Still, the practicability and usability of this derivative suit mechanism seem questionable because of a plethora of defects and shortcomings in the statutory derivative suit along with the lack of interest in litigation on the part of shareholders. This article undertakes the analytical review of the substance of the statutory derivative suit in Vietnam and Japan and from the comparison between the two systems, provides recommendations to improve the Vietnamese legislation.