Circular No. 127/2012/TT-BTC guides on standards, conditions, and procedures for recognizing organizations providing enterprise valuation services.

CIRCULAR

Guidelines on standards, conditions, and procedures for recognizing organizations providing enterprise valuation services

Organizations providing enterprise valuation services

_______________________

Pursuant to Decree No. 118/2008/NĐ-CP dated November 27, 2008, of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Finance;

Pursuant to Decree No. 101/2005/NĐ-CP dated August 3, 2005 of the Government on appraisal;

Pursuant to Decree No. 59/2011/NĐ-CP dated July 18, 2011 of the Government on converting state-owned enterprises with 100% state capital into joint-stock companies;

Considering the proposal of the Director of the Department of Financial Institutions and Financial Organizations;

The Minister of Finance issues this Circular guiding on standards, conditions, and procedures for recognizing organizations providing enterprise valuation services for the purpose of joint-stock conversion as follows:

PART I

GENERAL PROVISIONS

Article 1. Scope and Applicability

Article 1. This Circular guides on standards, conditions, and procedures for recognizing organizations providing enterprise valuation services for state-owned enterprises with 100% state capital that are being converted into joint-stock companies (hereinafter referred to as valuation consulting organizations).

Article 2. The objects subject to this Circular are valuation consulting organizations, competent authorities deciding on the privatization plans, and related organizations and individuals.

Article 2. Explanation of terms

In addition to the terms defined in Decree No. 59/2011/NĐ-CP dated July 18, 2011 of the Government on converting state-owned enterprises with 100% state capital into joint-stock companies (hereinafter referred to as Decree No. 59/2011/NĐ-CP), the following terms in this Circular shall be understood as follows:

Point 1. "Competent authority deciding on the privatization plan" means the authority deciding on the privatization plan of state-owned enterprises with 100% state capital as stipulated in Decree No. 59/2011/NĐ-CP.

Point 2. "State competent authority for inspection and audit" includes auditing bodies at all levels, the State Audit Office, and other state authorities authorized to inspect and audit the activities of enterprise valuation for state-owned enterprises being converted into joint-stock companies.

Point 3. "Business operation license" means the business registration certificate, investment certificate, or establishment and operation permit of the enterprise as prescribed in the Enterprise Law, Investment Law, and relevant laws.

Chapter II

STANDARDS, CONDITIONS AND PROCEDURES FOR RECOGNIZING VALUATION CONSULTING ORGANIZATIONS

Article 3. Standards and Conditions of Valuation Consulting Organizations

Clause 1. Domestic valuation consulting organizations registering to provide enterprise valuation services for joint-stock conversion must meet the following standards and conditions:

Point a. They must be auditing firms, securities firms, enterprise appraisal businesses with valuation functions and comply with organizational and operational requirements for each type of business as stipulated by Vietnamese law;

Point b. They must have a business process for determining enterprise value consistent with Decree No. 59/2011/NĐ-CP, related guiding documents, and any amendments or supplements thereto (if applicable);

Point c. They must have at least five (05) years of experience in one (01) of the following fields: enterprise appraisal, auditing, accounting, financial advisory, and ownership transfer advisory. In the three (03) years immediately preceding the submission of the application for enterprise valuation service, they must have provided at least thirty (30) contracts in the aforementioned fields each year;

Point d. They must have at least three (03) valuation experts who have been issued a valuation expert card by the Ministry of Finance and registered to practice as full-time valuation experts in their organization;

Point đ. They must meet the criteria regarding the quantity and quality of staff working in the fields and industries in which the organization operates as stipulated in point a of this Clause;

Point e. They must not have been administratively penalized with aggravating circumstances according to the decision of the administrative penalty authority in the field of enterprise appraisal and determination of enterprise value in the five (05) consecutive years prior to the year of applying for enterprise valuation service provision.

If an organization requesting to provide enterprise valuation services is found by the state competent authority for inspection and audit to have committed violations in enterprise appraisal and determination of enterprise value and is currently undergoing legal processing, it also does not meet the standards and conditions for registering as a valuation consulting organization under this Circular.

Clause 2. Foreign valuation consulting organizations not establishing a legal entity in Vietnam may only provide enterprise valuation services for joint-stock conversion when cooperating or forming a consortium with domestic valuation consulting organizations recognized by the Ministry of Finance in accordance with this Circular. The conditions for foreign organizations to cooperate or form a consortium with domestic valuation consulting organizations include:

Point a. They must be organizations operating in the fields of enterprise appraisal, auditing, accounting, financial advisory, and ownership transfer advisory in accordance with the laws of the country where their headquarters are located;

Point b. They must have at least five (05) years of experience in one of the following fields: enterprise appraisal, auditing, accounting, securities, financial advisory, and ownership transfer advisory.

Article 4. Documents for registration to become a valuation consulting organization (new registration)

1. Application form for registration to become a valuation consulting organization according to the model attached as Appendix 1 to this Circular.

2. Certified copy of the business operation license of the enterprise.

3. Business process for determining enterprise value that is expected to be applied and is consistent with legal provisions.

4. Report on the results of performing service contracts in the following fields: asset appraisal, auditing, accounting, financial advisory, ownership transfer advisory in the three (03) consecutive years immediately preceding the year of applying for valuation consulting services, according to the model attached as Appendix 2 to this Circular;

5. List of registered asset appraisers at the enterprise, accompanied by the following documents:

a) Certified copy of the asset appraiser card issued by the Ministry of Finance;

b) Copy of the labor contract signed between the valuation consulting organization and the asset appraiser;

6. Financial statements of two (02) consecutive years immediately preceding the year of applying to become a valuation consulting organization. The financial statements must be audited by an independent auditing organization operating legally in Vietnam;

7. Commitment letter from the legal representative of the enterprise regarding:

a) Ensuring the accuracy and truthfulness of the documents and materials submitted for the provision of valuation consulting services as stipulated in this Article;

b) Applying the business process for determining enterprise value registered according to Clause 3 of this Article when recognized as a valuation consulting organization and such process complies with current legal regulations;

c) Not violating the provisions of this Circular;

Article 5. Procedure and formalities for recognizing new registration of valuation consulting organizations

1. The recognition of organizations registering to become valuation consulting organizations for the first time will be reviewed and announced annually by the Ministry of Finance.

2. Organizations meeting the criteria and conditions stipulated in Article 3 of this Circular wishing to become valuation consulting organizations for the next year shall submit one (01) set of documents as prescribed in Article 4 of this Circular to the Ministry of Finance. The submission period is from October 1 to October 31 each year.

3. Within five (05) working days from the date of receipt of the documents, the Ministry of Finance will check the completeness and validity of the documents and request the enterprise to supplement the documents (if necessary).

4. Based on the criteria and conditions stipulated in Article 3 of this Circular, the Ministry of Finance will review the documents and approve organizations that meet the conditions to provide enterprise value determination services. In cases where the documents do not meet the conditions, the Ministry of Finance will issue a notification letter to the enterprise detailing the reasons for rejection.

5. The Ministry of Finance will announce the list of valuation consulting organizations applicable from January 1 to December 31 of the following year in writing and on the Ministry's electronic news website.

Article 6. Annual evaluation of activities of valuation consulting organizations

1. Annually, valuation consulting organizations recognized by the Ministry of Finance will be reviewed and evaluated to continue providing enterprise value determination services in the following year. The evaluation includes:

a) Ensuring the standards and conditions of valuation consulting organizations as stipulated in points a, b, d, đ, and e of Clause 1 of Article 3 of this Circular;

b) Fully and timely submitting reports on their operations to the Ministry of Finance as stipulated in Article 9 of this Circular;

2. Process for evaluating the continued operation of valuation consulting organizations:

a) From October 1 to October 31 each year, valuation consulting organizations are responsible for submitting reports on their operational results as stipulated in Article 9 of this Circular;

b) Based on the reports of valuation consulting organizations as stipulated in point a of this Clause, reports and information from organizations specified in Articles 11, 12, and 13 of this Circular, the Ministry of Finance will review the conditions of valuation consulting organizations as stipulated in Clause 1 of this Article. Organizations that meet the conditions will continue to provide enterprise value determination services in the following year and will be announced in the list of valuation consulting organizations as stipulated in this Circular.

3. Valuation consulting organizations removed from the list of valuation consulting organizations as stipulated in this Article may continue to perform existing contracts but are not allowed to sign new contracts from the date the Ministry of Finance announces their removal from the list of valuation consulting organizations.

4. Valuation consulting organizations removed from the list of valuation consulting organizations are not permitted to re-register within the next three (03) consecutive years.

Article 7. Cases to be removed from the list of valuation consulting organizations

1. Valuation consulting organizations shall automatically be removed from the list of recognized valuation consulting organizations by the Ministry of Finance in the following cases:

a) The business license is revoked.

b) Changing business fields and no longer having the business functions specified in point a, Clause 1, Article 3 of this Circular.

c) They carry out division, separation, merger, conversion, or dissolution.

d) Engaging in acts of violating laws with signs of criminal offenses according to the conclusion of competent state agencies on inspection and audit.

2. Based on reports from valuation consulting organizations as stipulated in Article 9 and materials provided by related organizations as stipulated in Articles 11, 12, and 13 of this Circular, the Ministry of Finance shall issue a decision regarding the removal of valuation consulting organizations from the list of valuation consulting organizations.

Article 8. Cases Prohibiting the Provision of Services to Determine Enterprise Value

Valuation consulting organizations shall not provide services to determine enterprise value in the following cases:

1. Being removed from the list of valuation consulting organizations as prescribed in Articles 6 and 7 of this Circular;

2. Individuals responsible for management and operation, members of the supervisory board, chief accountants (or accounting supervisors), and price appraisal officers of valuation consulting organizations are related parties with the enterprise being valued as defined in Clause 17, Article 4 of the Enterprise Law dated November 29, 2005;

3. Being an organization currently providing or having provided auditing, bookkeeping, and financial reporting services for the enterprise being valued in the two (02) consecutive years prior to the valuation.

Chapter III

REGIME OF INFORMATION AND REPORTING OF VALUATION CONSULTING ORGANIZATIONS

Article 9. Information and Reporting System

1. Annually, valuation consulting organizations recognized by the Ministry of Finance shall have the responsibility to submit reports to the Ministry of Finance on the operational situation of their organization, specifically as follows:

a) Reporting period

Report on the results of the activities of the valuation consulting organization from October 1 of the previous year to September 30 of the current year.

b) Content of report

- Comments of the authority deciding the privatization plan or the Privatization Steering Committee regarding the quality of consultancy services as stipulated in Article 11 of this Circular."

6. Amending Clause 4 Article 11 as follows:

- Comments from the authority deciding the privatization plan, the privatization steering committee on the quality of advisory services as stipulated in Article 11 of this Circular.

c) List of documents attached to the report

- A list of service provision contracts within the scope of the business license and enterprise valuation contracts completed during the reporting period according to the model specified in Appendix 2 and Appendix 3 attached to this Circular;

- Financial statements of the preceding fiscal year audited by an independent auditing organization legally operating in Vietnam and the financial statements for the first six months of the reporting year (if available), confirmed by the legal representative of the enterprise.

d) Deadline for submitting annual reports: no later than October 31 each year (as confirmed by the post office stamp). After this date, the valuation consulting organization will be considered non-compliant with the reporting regime.

2. Valuation consulting organizations shall have the responsibility to submit ad hoc reports to the Ministry of Finance in the following cases:

c) Change in business activities and no longer having the function of business activities as stipulated in Point a Clause 1 of this Circular;

b) Implementing division, merger, consolidation, conversion, dissolution, bankruptcy;

c) Changing business fields and no longer engaging in accounting, auditing, securities, financial consulting, and valuation activities;

d) Having administrative penalty decisions from the penalty decision-making agency and conclusions from state agencies with inspection and audit authority as prescribed in this Circular;

đ) Other cases at the request of the Ministry of Finance to serve state management and supervision over the provision of enterprise valuation services.

Chapter IV

OF RELATED ORGANIZATIONS AND INDIVIDUALS

Article 10. Responsibilities of appraisal consulting organizations

1. Adhere to relevant legal provisions on methods and procedures for determining enterprise value and fulfill the contents stipulated in the contract signed with customers.

2. Bear legal responsibility for the results of determining enterprise value. Appraisal consulting organizations must compensate for losses resulting from violations of legal provisions during the provision of appraisal services or be subject to penalties according to legal regulations.

3. Manage the professional activities of their employees and have the responsibility to promptly report to the Ministry of Finance any employees who violate legal provisions during their practice as specified in this Circular.

4. Explain or provide information and data related to the results of determining enterprise value when there are complaints or upon written request from the competent authority deciding the privatization plan representing the enterprise's owner, State Audit Agency, Ministry of Finance, and other competent authorities as stipulated in this Circular and related legal documents.

5. Maintain confidentiality of customer information; store files and documents regarding enterprises that have had their values determined.

6. Fully perform reporting obligations as prescribed in Article 9 of this Circular.

Article 11. Responsibilities of the competent authority deciding the privatization plan, Privatization Steering Committee

1. Select appraisal consulting organizations from the list announced annually by the Ministry of Finance to implement advisory services for determining enterprise value according to legal regulations on converting 100% state-owned enterprises to joint-stock companies. In cases where foreign consulting firms are selected, the privatization decision-making body bases its selection on the provisions of Clause 2, Article 3 of this Circular and related legal documents and bears responsibility for such selection.

2. Manage and supervise the provision of advisory services for determining enterprise value according to contracts signed between appraisal consulting organizations and 100% state-owned enterprises under their management.

3. Refuse to pay fees for the service of determining enterprise value to appraisal consulting organizations if the results do not comply with national regulations set forth in Decree No. 59/2011/ND-CP and this Circular.

4. Provide written comments on the quality of services performed by appraisal consulting organizations for each advisory contract for determining enterprise value.

5. Report on the use of advisory services for determining enterprise value to ministries, provincial/municipal people's committees, economic groups, and state-owned corporations above them so that these bodies can provide information to the Ministry of Finance as stipulated in Clause 2, Article 12 of this Circular.

6. Promptly notify the Ministry of Finance of any violations (if any) by appraisal consulting organizations during the implementation of advisory contracts for determining enterprise value within their jurisdiction for handling according to legal regulations.

Article 12. Responsibilities of Ministries, People's Committees of provinces/cities directly under the central government, Economic Groups, State-owned Corporations

1. Direct competent authorities within their units to decide on privatization schemes to select consulting organizations for valuation in accordance with this Circular.

2. Provide information to the Ministry of Finance before October 31 each year regarding the situation of using consulting services to determine enterprise value of enterprises under their jurisdiction undergoing privatization according to the model attached as Appendix 4 to this Circular.

Article 13. Responsibilities of state agencies authorized to inspect and audit

1. Carry out inspections and audits concerning the activities of enterprises registered to provide consulting services to determine the value of privatized enterprises in accordance with current regulations.

2. Notify the Ministry of Finance about conclusions of violations by valuation consulting organizations in accordance with this Circular.

Article 14. Responsibilities of the Ministry of Finance

1. Examine, evaluate applications, select, and publish annually the List of valuation consulting organizations in accordance with this Circular.

2. Coordinate with competent authorities deciding on privatization schemes and state agencies managing the activities of valuation consulting organizations in accordance with this Circular and related legal documents.

Chapter V

IMPLEMENTATION

Article 15. Transitional Provisions

1. Valuation consulting organizations currently providing services to determine the value of enterprises based on Decisions of the Ministry of Finance are permitted to continue providing such services for wholly state-owned enterprises until December 31, 2012.

2. Regarding recognition of valuation consulting organizations for the year 2013:

a) Enterprises meeting the criteria and conditions stipulated in Article 3 of this Circular (including those specified in Clause 1 of this Article) wishing to provide services to determine enterprise value must submit registration applications in accordance with this Circular to the Ministry of Finance no later than May 31, 2012.

b) Based on the applications of enterprises specified in Point a, Clause 2 of this Article, the Ministry of Finance will review and assess the conditions of valuation consulting organizations in accordance with this Circular and announce the List of valuation consulting organizations eligible to provide services for 2013 before December 31, 2012.

Article 16. Implementation Provisions

1. This Circular takes effect from October 1, 2012.

2. This Circular replaces Decision No. 100/2007/QD-BTC dated December 6, 2007 of the Minister of Finance on issuing Regulations on Selection and Supervision of Valuation Consulting Organizations.

3. During implementation, if there are difficulties or obstacles, valuation consulting organizations and relevant units shall promptly report to the Ministry of Finance for consideration and specific guidance./.