Binh Thuan land case’s big questions

In late 2011, local investor Pham Phu Thanh founded Nguyen Long Son Company Limited with chartered capital of VND90 billion ($4.3 million) and acted as the company’s director with a 20 per cent stake worth VND18 billion ($865,000) and another local investor contributed the remaining 80 per cent stake worth VND72 billion ($3.4 million).

Two months later, the company registered to modify its business registration licence and add two Chinese members Huang Bi Qiu who contributed 30 per cent stake worth VND27 billion ($1.3 million) and Zhong Heng Shan 60 per cent stake worth VND54 billion ($2.6 million) to act as the company’s director at a time when Thanh held just 5 per cent stake in the company. The company was then put under the control of the Chinese investors.

The change took place via stake transfer among company members. Thanh was then responsible for transferring 1.2 hectares agricultural land in Ham Duc commune into land for production-trading for the company to build a plant and another 100ha cereal land plot in Ham Chinh commune in the central province’s Ham Thuan Bac district.

The two parties, however, became involved in a dispute over the land transfer. But while the dispute has yet to be resolved, Shan submitted a document to Binh Thuan Provincial People’s Committee to seek permission for importing equipment and machinery to begin utilising the land.
Shan said in the document that he had transferred VND13.5 billion ($650,000) to Thanh to complete the land purchasing contract, but Thanh refused to hand over the real estate papers and the construction and investment licences. He also called for local authorities’ intervention and asked for permission to grow blue dragon fruits on the 100ha plot in Ham Chinh and build a plant on the plot in Ham Duc.

However, Thanh said he had received only VND10.5 billion ($505,000) from Shan and he already handed over all of the relevant papers to the Chinese investor. Besides, a lawyer for Shan asked Thanh to sign a contract on borrowing VND4.5 billion ($216,000), or 5 per cent of the company’s total capital contribution, at the interest rate of zero per cent. In return, Thanh had to give 11 red books showing the ownership of 7.5ha of land, and the documents relating to the company’s office in Ham Thuan Bac district.

With the contract, Thanh, after obtaining the investment licence, will have to transfer the stake in order to take back the red books.

However, Binh Thuan Provincial People’s Committee later refused to grant the investment licence because the company was turned into a foreign invested enterprise.

Lawyer Dinh Xuan Hong, director of a Ho Chi Minh City based law firm, assumed the  loaning contract was to ensure Chinese investors interests when acquiring 95 per cent stake in Nguyen Long Son Company Limited, but they had yet to get the investment licence.

Under current regulations, foreign investors using land in Vietnam to operate investment projects are obliged to make investment records and wade through investment project appraising process. They also have to work with competent state agencies about investment sites for land lease contracts. Meanwhile, acquiring stakes in a local firm with on-going investment  project is much simpler for foreign investors.

Lawyer Nguyen Van Damsaid foreign firms leasing land from the state have two options for land rental payment. They are making a one-off payment or paying the rentals on an annual basis whereas individuals and households using state allocated agricultural land do not have to pay rentals.

However, under Decree 84/2007/ND-CP dated May 25, 2007, clause 23, item 1 when a foreign joint venture turns into a wholly foreign-owned business like the Nguyen Long Son case the land in  the joint venture will be turned into the form the state offers the land plots for lease and the land rentals could be paid following two above said options.

Hence, if Shan put the 100ha land plot in Ham Chinh into the company this land would be subject to be leased from the state in light of current law. The company will then have to pay the land rentals through either one-off payment or annually.

“That explained why the joint venture only put this 1.2ha land for building plant in Ham Duc into the company,” Dam said.