Circular No. 62/1999/TT-BTC guides the management and use of capital and assets in state-owned enterprises

CIRCULAR

Guidelines for managing and using capital and assets in state-owned enterprises

Pursuant to Decree No. 59/CP dated October 3, 1996 of the Government promulgating the Financial Management and Business Accounting Regulations for State-Owned Enterprises;

Pursuant to Decree No. 27/1999/NĐ-CP dated April 20, 1999 of the Government amending and supplementing the Financial Management and Business Accounting Regulations for State-Owned Enterprises issued together with Decree No. 59/CP dated October 3, 1996 of the Government;

The Ministry of Finance provides guidelines for managing and using capital and assets in state-owned enterprises as follows:

I. GENERAL PROVISIONS

1\. The subjects to which this Circular applies are state-owned enterprises as defined in Article 1 of the Financial Management and Business Accounting Regulations issued together with Decree No. 59/CP dated October 3, 1996 of the Government.

2\. Assets of state-owned enterprises include: fixed assets and long-term investments, current assets and short-term investments formed from state capital and other sources of capital.

All assets leased for operation, borrowed, held in custody, processed, sold on commission, or stored for others are not considered assets of the enterprise.

3\. The statutory capital of state-owned enterprises is the minimum amount of capital required to establish a state-owned enterprise as prescribed by the Government for each business sector.

4\. The registered capital of state-owned enterprises is the state-owned capital recorded in the charter of the state-owned enterprise. The enterprise must publicly announce its registered capital and any changes to it.

5\. State-owned capital at the enterprise is the total value of assets managed and used by the enterprise minus (-) liabilities at the reporting date.

6\. Capital under the management and use of state-owned enterprises includes: liabilities and state-owned capital;

Liabilities include: short-term debts, long-term debts, and other debts.

The Chairman of the Board of Directors (for enterprises with a Board of Directors). The General Director (for enterprises without a Board of Directors) must develop regulations on managing capital and assets to concretize the provisions of this Circular for their enterprises in order to effectively utilize various types of capital for business operations, preserve and develop state capital, and fulfill obligations to repay debts.

8\. State-owned enterprises are liable for their business activities before the law and creditors within the scope of state-owned capital at the enterprise.

II\. CAPITAL INVESTMENT AND CAPITAL ALLOCATION TO ENTERPRISES

1\. Capital investment:

1.1\. The State invests capital in newly established state-owned enterprises in important industries and fields:

- Newly established state-owned enterprises must comply with all procedures and formalities currently stipulated in Decree No. 50/CP dated August 28, 1996 of the Government regarding the establishment, restructuring, dissolution, and bankruptcy of state-owned enterprises.

- Authorities with jurisdiction when deciding to establish new enterprises must ensure sufficient actual capital at the time of establishment, not less than the statutory capital level prescribed for each industry in Decree No. 50/CP dated August 28, 1996 of the Government.

1.2\. During the course of business, based on production and business efficiency, economic and social development tasks assigned by the State to the enterprise, and the State budget capacity, the State will consider additional investment for the enterprise in necessary cases.

2\. Capital allocation to enterprises:

State-owned enterprises are allocated state-owned capital currently existing in the enterprise after being inspected and appraised according to the current regulations of the State.

2.1\. The amount of capital allocated to the enterprise is determined as follows:

a\. For newly established enterprises, it is the state capital recorded in the final accounts of basic construction investment transferred to production and business, supplemented state registered capital, and other state-owned capital (if any).

b\. For operating enterprises and those re-established (mergers, divisions) it is the state-owned capital currently existing in the enterprise or member enterprises, after being inspected and appraised according to the current regulations of the State.

Before allocating capital, the enterprise must clearly identify financial issues (excess, shortage, loss, damage, deterioration, stagnant, unused, pending liquidation, difficult-to-collect receivables, accumulated losses, unreimbursed expenses, and other asset losses), causes, and responsibilities of related persons for these issues to handle them according to the current system. Financial issues resulting from implementing State policies must be reported to the competent State authority for handling. Unresolvable financial issues must be clearly recorded in the capital allocation dossier. Re-established enterprises and enterprises receiving merged enterprises inherit rights and fulfill all obligations of state-owned enterprises before the merger, consolidation, or division.

Additional capital due to tax exemptions or reductions under the Law on Encouraging Domestic Investment or refunded government payments according to decisions of competent State authorities are considered to originate from the budget:

Such additional capital and supplementary capital provided by the State after capital allocation are included in the state capital allocated to the enterprise.

2.2\. Capital allocation must be completed no later than 60 days after the enterprise receives the business registration certificate. For state-owned holding companies, within 30 days of receiving capital, the holding company must organize capital allocation to member enterprises. The total capital allocated to independent and dependent member enterprises must not be lower than the state capital allocated to the holding company. Within 15 days after completing capital allocation to member enterprises, the state-owned holding company must submit a consolidated report and capital allocation minutes to the financial management authority and the head of the authority that decided to establish the enterprise.

2.3. The Minister of Finance or the authorized person shall be the entity providing capital to state-owned enterprises. The Chairman of the Board of Directors, General Director, or Director (for enterprises with a Board of Directors), Director (for enterprises without a Board of Directors) shall be the signatory for receiving capital. For state-owned enterprises that are members of State Holding Companies, the capital provider shall be the General Director of the Holding Company, and the capital recipient shall be the Director of the member enterprise.

For state-owned holding companies established pursuant to Decision No. 90/TTg and Decision No. 91/TTg dated March 7, 1994 of the Prime Minister, when transferring capital, there must be the presence of a representative from the agency that decided on the establishment of the enterprise.

III. RAISING CAPITAL

In addition to the state investment capital, state-owned enterprises must independently raise capital through various forms such as issuing bonds, stocks, borrowing, accepting joint venture contributions, and other forms to develop their business operations and bear responsibility for raising capital. The raising of capital shall not change the form of ownership of the enterprise and must comply with current laws.

For state-owned enterprises that are commercial banks or other credit organizations, the raising of capital must follow the provisions of the "State Bank Law" and the "Law on Credit Organizations" and guiding documents.

1. Raising capital domestically:

- State-owned enterprises may issue bonds to raise capital for business development according to the provisions of Decree No. 120/CP dated September 17, 1994 of the Government on the issuance of corporate bonds and Circular No. 91/TC/KBNN dated November 5, 1994 of the Ministry of Finance, and other current legal regulations.

- Enterprises may enter into contracts, engage in joint ventures, or collaborate with domestic organizations and individuals to supplement their business capital.

- Enterprises may borrow from credit institutions (commercial banks, financial companies), other enterprises, and individuals (including employees within the enterprise) for investment and development.

In principle, the interest rate for raising capital through borrowing or issuing bonds by enterprises shall be based on the actual interest rate but shall not exceed the ceiling interest rate set by the State Bank of Vietnam for credit institutions. Based on this principle, the interest rate for raising capital must be recorded in the agreement or loan contract and accounted for as part of the enterprise's financial expenses.

2. Raising foreign capital:

State-owned enterprises may borrow short-term, medium-term, and long-term loans from foreign organizations and individuals to develop their businesses, in accordance with the regulations stipulated in the Regulation on Management of Foreign Borrowing and Repayment attached to Decree No. 90/1998/NĐ-CP dated November 7, 1998 of the Government. Special cases where the State guarantees foreign borrowing must be decided by the Prime Minister. If not approved by the Prime Minister, the guarantor organization shall be responsible for the foreign borrowing of the enterprise according to the signed contract.

3. Responsibility for using and repaying raised capital:

The raising of capital must be carefully calculated and considered for economic efficiency. Raised capital shall only be used for business purposes and not for other purposes. Raised capital must be strictly managed and operated efficiently. Enterprises must repay principal and interest according to the commitments made when raising capital.

The Board of Directors (for enterprises with a Board of Directors), Director (for enterprises without a Board of Directors) shall be responsible for approving the capital-raising plan. If the capital-raising plan is ineffective leading to asset losses, the Board of Directors and Director shall be responsible according to Article 40 of Decree No. 27/1999/NĐ-CP dated April 20, 1999 of the Government.

The General Director or Director shall be responsible for establishing and implementing the capital-raising plan, using capital for its intended purpose effectively. If presenting an ineffective capital-raising plan or implementing the plan incorrectly, resulting in asset losses due to improper use of capital, the General Director or Director shall be responsible according to Article 40 of Decree No. 27/1999/NĐ-CP dated April 20, 1999 of the Government.

IV. MANAGEMENT AND USE OF CAPITAL AND ASSETS

A. MANAGEMENT AND USE OF CAPITAL AND ASSETS WITHIN THE ENTERPRISE:

1. Enterprises have the responsibility to open and record accounting books accurately reflecting all existing assets and capital according to the current accounting and statistical regulations; truthfully and promptly reflecting the situation of asset and capital usage and changes during the enterprise's business operations.

2. Enterprises have the right to use capital and funds for business operations according to the principle of effectiveness, preservation, and development of capital. If using types of capital and funds for purposes other than those specified for these types of capital and funds, it must be done according to the principle of repayment, such as using reserve funds, reward funds, welfare funds... for business operations, they must be returned when needed.

Enterprises have the right to adjust the structure of assets and types of capital for effective business development, preservation, and development of capital.

State-owned holding companies have the right to mobilize assets belonging to state-owned capital of member enterprises according to the following principles:

- To use various types of assets reasonably and effectively within the holding company;

- To prevent loss;

- The mobilization plan must be approved by the Board of Directors and decided by the General Director; Mobilization must be carried out according to the principle of increasing or decreasing capital.

Enterprises implement the depreciation system for fixed assets according to current regulations.

3. State-owned enterprises must establish management, preservation, and usage regulations for enterprise assets; clearly defining the responsibilities of each department and individual in cases of damage or loss of assets.

4. Periodically and at the end of the fiscal year, enterprises must conduct a comprehensive inventory of all existing assets and capital. Accurately determine surplus, shortage, stagnant, deteriorated assets, causes, and handle responsibilities; simultaneously serving as the basis for preparing the enterprise's financial report.

5. Management of receivables and payables:

The enterprise must maintain a detailed ledger to track all receivables, both within and outside the enterprise.

Periodically (monthly, quarterly), the enterprise must reconcile, summarize, and analyze the status of receivables, particularly those overdue, past due, and difficult to collect. For uncollectible debts, the extent, cause, responsibility, and measures for handling must be clearly determined. If caused by negligence, the person at fault must compensate. The Board of Directors, General Director, or Director (for enterprises without a Board of Directors) shall decide on the compensation amount. Any shortfall between the loss and the compensation provided by the party at fault shall be covered by the enterprise's financial reserve fund. If the financial reserve fund is insufficient, the shortfall shall be recorded as extraordinary expenses for the period.

Debts that truly cannot be collected (as stipulated in Circular No. 64 TC/TCDN dated September 15, 1998, issued by the Ministry of Finance regarding guidelines for establishing and using reserves for inventory write-downs, doubtful accounts, and securities write-downs at state-owned enterprises) shall be recorded as business operation costs while continuing to be tracked in accounting books (off-balance-sheet accounts) and regularly urged for recovery. Any proceeds from debt collection, after deducting collection costs, shall be recorded as extraordinary income for the enterprise.

The Board of Directors, General Director, or Director (for enterprises without a Board of Directors) shall be responsible to the State for the enterprise's receivables. Depending on the severity of the violation, if the debtor fails to fully repay the debt or lacks the ability to repay due to subjective shortcomings, the creditor may face administrative penalties, material compensation; if it constitutes a crime, criminal liability shall be pursued.

6- Leasing, Pledging, Selling, Liquidating Assets:

6.1- Leasing, Pledging Assets:

The enterprise has the right to lease its assets under its management and control to domestic organizations and individuals to enhance utilization efficiency and increase revenue, but must monitor and recover the assets upon expiration of the lease term.

For leased operational assets, the enterprise must still depreciate them according to prescribed regulations.

The enterprise can pledge or mortgage its managed and utilized assets to borrow funds or provide guarantees at financial institutions in accordance with the procedures and formalities stipulated by law.

The enterprise may not pledge, mortgage, or lease assets borrowed, rented, held in custody, or mortgaged from other enterprises without the consent of the owners of such assets.

For assets consisting of the entire main production technology chain of the enterprise, as specified by the economic and technical management agency, leasing, pledging, or mortgaging must be approved by the enterprise establishment decision-making body.

6.2- Selling, Liquidating Assets:

a) Selling: The enterprise may sell unused or obsolete assets to recover capital for more effective business purposes;

For assets consisting of the entire main production technology chain of the enterprise, as specified by the economic and technical management agency, selling must be agreed upon in writing by the enterprise establishment decision-making body.

b) Liquidation: The enterprise may liquidate substandard, deteriorated assets; obsolete assets that are damaged beyond repair; obsolete technology assets that are unnecessary or ineffective and cannot be sold in their current condition. For assets consisting of the entire main production technology chain of the enterprise, as specified by the economic and technical management agency, liquidation must be approved by the enterprise establishment decision-making body.

When selling or liquidating, the enterprise must establish an evaluation committee to assess the technical condition and appraise the value of the assets. Assets being sold must be auctioned publicly. If liquidation involves dismantling or destruction, a liquidation committee must be organized, decided by the General Director or Director of the enterprise.

The difference between the proceeds from the sale or liquidation of assets and their remaining book value, along with any selling or liquidation costs, shall be recorded as part of the enterprise's operating results (other income).

7- Handling Asset Losses:

All asset losses of the enterprise must be documented to determine the extent, cause, and responsibility. If:

7.1- The asset loss is due to subjective reasons of the collective or individual, the person causing the loss must compensate according to the law. The Board of Directors or Director (for enterprises without a Board of Directors) shall decide on the compensation amount and bear responsibility for their decision.

7.2- If insured assets suffer losses, the insurance organizations shall compensate the enterprise for damages, losses, and shortages according to the Insurance Contract.

7.3- The value of the loss, after compensating with personal or collective compensation from insurance organizations, if insufficient, shall be covered by the enterprise's financial reserve fund. If the financial reserve fund is insufficient, the shortfall shall be recorded as extraordinary expenses for the period.

In cases where asset losses are due to natural disasters or adversities that the enterprise cannot overcome, the Board of Directors or Director of the state-owned enterprise (for enterprises with a Board of Directors) must develop a plan to handle the losses and submit it to the finance authority. After receiving the opinion of the enterprise establishment decision-making body, the finance authority will decide on the handling or report to the Prime Minister for decision.

After handling the losses, the enterprise must adjust its accounting records according to the handling decision.

8- Revaluation of Assets:

The enterprise may revalue its assets and record increases or decreases in capital due to asset revaluation in the following situations:

8.1- Inventory and revaluation of assets as decided by the competent state authority;

8.2- Implementing shareholding, diversifying ownership forms, or converting ownership of the enterprise;

8.3- Using assets for joint ventures or contributing capital shares (when contributing assets and when receiving assets back).

The increase or decrease in state capital accounting shall be approved by the financial authority.

B- INVESTMENT OUTSIDE THE ENTERPRISE

The enterprise may use capital, assets, and land use value to invest outside the enterprise according to the principle of efficiency, preservation, development of capital, increasing income, and ensuring the task of submitting budget revenue to the State Treasury; such investments must comply with current legal regulations. When using land use value for investment outside the enterprise, it must be carried out in accordance with the provisions of the Land Law.

Forms of investment outside the enterprise include: purchasing shares, joint venture capital contribution, share capital contribution, and other forms of investment...

For joint venture investment forms:

1- Domestic joint venture investment:

- Investment in other state-owned enterprises shall be decided by the Board of Directors or the General Director (for enterprises without a Board of Directors) on the joint venture plan.

- Investment in enterprises not owned by the State shall be decided by the Board of Directors on the joint venture project. For independent enterprises (without a Board of Directors), the joint venture project must be agreed upon in writing by the authority that established the enterprise.

State-owned enterprises are not permitted to invest in enterprises belonging to other economic sectors where the manager or principal owner is the spouse, parent, child of the Chairman of the Board of Directors, General Director, Director, or Chief Accountant of that state-owned enterprise.

2- Joint venture investment with foreign investors:

If assets are used to invest in joint ventures with foreign investors in Vietnam or abroad, the enterprise must obtain approval of the joint venture project from the authority that established the enterprise or the Board of Directors if authorized by the establishment authority, and report in writing to the financial authority within fifteen days from the date of approval.

Joint venture investment with domestic and foreign investors must ensure efficiency, preservation, and development of capital; regular reports on the results of joint ventures must be submitted to the financial authority and the authority that established the enterprise.

The Board of Directors, or the General Director (for enterprises without a Board of Directors), appoints persons with management qualifications and integrity to directly manage the contributed capital in other enterprises and is responsible for the effectiveness of external investments. Management of state capital in other enterprises is carried out in accordance with current state regulations.

Overseas investment: State-owned enterprises are permitted to directly invest capital and assets abroad in accordance with Decree No. 22/1999/NĐ-CP dated April 14, 1999, of the Government "Regulations on Overseas Investment by State-Owned Enterprises."

C- CAPITAL PRESERVATION AND DEVELOPMENT

Capital preservation and development are the obligations of the enterprise to protect the interests of the State regarding the capital invested in state-owned enterprises, creating conditions for the enterprise to stabilize and develop business effectively, increase income for workers, and fulfill its obligations to the State Budget.

Measures for capital preservation are:

- Implementing the management and use of capital and assets in accordance with state regulations and this Circular;

- Purchasing insurance for assets under the management and use of the enterprise.

Insurance purchase costs are accounted for as production and business expenses.

State-owned enterprises may account for the following reserve items as business expenses or other operating costs:

+ Inventory write-down reserve: the anticipated reduction in the value of inventory materials and goods expected to occur in the next business period;

+ Reserve for doubtful debts: anticipated receivables that will not be collected in the next business period due to debtors' inability to pay;

+ Write-down reserve for securities in financial activities;

The establishment and use of these reserves shall be carried out in accordance with current regulations.

In addition to the above measures, enterprises may use profits from the following year (before or after tax) to offset losses from previous years (not exceeding five years), and account for certain losses (natural disasters, epidemics, etc.) as business expenses or results in accordance with state regulations.

V. IMPLEMENTATION PROVISIONS

This Circular replaces Circular No. 75 TC/TCDN dated November 12, 1996, guiding the management and use of capital and assets in state-owned enterprises and takes effect from the date Decree No. 27/1999/NĐ-CP dated April 20, 1999, of the Government comes into force.

All previous regulations on capital and asset management in enterprises that conflict with this Circular are abolished.

During implementation, if Ministries, sectors, and enterprises encounter difficulties, they should reflect them to the Ministry of Finance for study and amendment.