Tackling abrupt investor exodus

11:10 | 31/08/2019
Recent years have seen an increasing number of foreign investors fleeing Vietnam after running into financial troubles. They left behind significant payment obligations in workers’ salaries, tax, and social insurance, affecting hundreds of thousands of workers – while remaining a persistent blind spot for the legal system. Anh Thu reports.
tackling abrupt investor exodus
Workers at some foreign-owned factories are particularly vulnerable to absconding investors

Nearly 2,000 employees recently returned to work at the headquarters of Taiwanese-invested footwear manufacturer Kai Yang Vietnam Co., Ltd. in the northern city of Haiphong, after its doors were shut for 10 days since Taiwanese director general Huang Chang Che, along with 17 experts and technicians, fled the country without an explanation and leaving a bank debt of VND150 billion (nearly $6.5 million) and an insurance owe of VND9 billion ($391,304).

Tran Minh Thi, who is currently eight months pregnant, said she has been working for Kai Yang Vietnam for 12 years and still hopes for stable work and that the company will provide her with the necessary insurance when she gives birth.

Luckily for Thi and other unpaid workers of Kai Yang Vietnam, they were rescued by Jenny Koo, chairwoman of H&S Ltd., a partner of Kai Yang Vietnam, after Koo promised that she and her colleagues would try their best to pay half of the unpaid July wages this week.

The road for Kai Yang Vietnam remains bumpy. This is the latest in a list of runaway foreign investors in Vietnam, a rare happy ending among successive stories of misery.

ALERT SITUATION

Tran Thi Thanh Ha, deputy director of the Vietnam General Confederation of Labour’s Labour Relations Department, cited statistics from Vietnam Social Security which showed that insolvent companies and those that halted operations and waited for dissolution owed more than VND1 trillion ($43.3 million) in social insurance and unemployment insurance premium payments for nearly 60,000 labourers as of October 31, 2018.

Ho Chi Minh City is a hotspot for runaway foreign employers, with 20 reported cases of investors leaving the country after running into bankruptcy during 2013-2018, according to the city’s Labour Federation.

According to the federation, some 4,282 workers, more than 3,700 of whom worked for textile businesses, were left in the lurch as their employers owed them VND23 billion ($1 million) in salaries and more than VND58 billion ($2.5 million) in social insurance.

Deadbeat businesspeople have also been a headache for local authorities in the southern province of Dong Nai. More than 5,000 labourers were affected as their employers failed to pay salaries, social insurance, unemployment insurance, and health insurance.

One such case took place at KL Texwell Vina in early February 2018 right before the Lunar New Year when the labourers came to work as usual and saw the factory gate closed. The company leaders were reported to have silently returned to their home country, without paying the January salary of their nearly 2,000 workers. The skipped wages amount to more than VND13.7 billion ($595,700) while unpaid social insurance fees owed to the workers kicked up to more than VND17.5 billion ($760,900).

In this context, Dong Nai People’s Committee used the local budget to pay out to workers as well as give them a Tet bonus to stabilise their situation. After the Tet holiday, the company’s workers could not return to work because the factory was still closed.

It was reported that the South Korean General Consulate in Vietnam could not contact KL Texwell Vina’s leaders and that the company’s subsidiaries in three other countries had also stopped operating in a similar fashion.

In another case, the Management Board of Saigon High-Tech Park (SHTP) released an announcement asking QSIC Vietnam Ltd.’s leaders who disappeared in late 2016 to contact related Vietnamese agencies to determine the fate of their foreign-invested project in the park. QSIC received its investment certificate in 2005 and stopped operating at SHTP in December 2016. Since then the park leaders could not contact the investors.

QSIC and KL Texwell Vina are just two examples. Similar cases can be found on the national information portal on foreign investment, such as K&P, Exon Vietnam, or Shin Kwang Global Vietnam, TK-Vina, Sohwa, and Coreka Partners, whose leaders left their headquarters late last year and have been uncontactable since then by relevant Vietnamese management agencies.

To resolve debts, last year, Agribank Asset Management Company under state-owned commercial lender Agribank held an auction to sell the assets of Lifepro Vietnam Joint Venture’s textile and garment mega-complex in the northern province of Ninh Binh’s Gian Khau Industrial Zone after runaway investors had left a loss of $136 million in the form of unpaid loans.

Compared to the 25,194 foreign-invested projects currently operating in the country, the number of runaway foreign investors is still minor. Notwithstanding, the situation has spelled out the need to scale up control over foreign-invested projects post licensing to curtail issues.

Hoang Dinh Long - Vice chairman, Haiphong Federation of Labour

Through this situation, Haiphong Federation of Labour proposes that the city government take measures to monitor the situation and activities of foreign-invested enterprises in the locality, especially when foreign experts depart at the same time, to prevent business owners from escaping.

In addition, the local labour unions need to quickly and promptly grasp the situation and warn their immediate superior trade unions and the city’s labour union about any unusual happenings at the company to predict the situation in time.

As soon as Huang Chang Che, general director of Kai Yang Vietnam Co., Ltd. and all 17 Taiwanese officials and technical staff left the company for an undisclosed reason, the chairman of Haiphong Federation of Labour together with competent authorities directly visited the company to understand the situation and sent an official report asking Haiphong People’s Committee to direct the departments, branches, and committees of Kien An district to protect the company’s assets and maintain law and order. In addition, Haiphong Federation of Labour also suggested that the company representative in Vietnam contact the business owner to clarify the situation and find a resolution. The union will also organise meetings with union officials and the supervisors of the company’s workshops to issue communications to employees keeping them calm and keeping them from harming the company’s assets. The authorities also need to take care of workers in the worst situation. At the same time, the Department of Foreign Affairs exchanged information with the Taipei Economic and Cultural Office and the Taiwan Business Association in Haiphong to take supportive measures in line with the laws.

TIGHTENING CONTROL NEEDED

Labour federations of many provinces and cities said most of deadbeat business owners silently dispersed their assets before fleeing, leaving business administration work to managers, who would also disappear after liquidating valuable assets. If caught by local authorised agencies, the managers declared they were also in the same situation as the workers.

Analysts said although most abandoned projects are of small scale, the problem leads to long-term social consequences as thousands of workers lose their jobs while their debts owed to banks, insurers, and other businesses turn sour.

A representative of Ninh Binh Department of Planning and Investment admitted that the local authorities found it difficult to solve problems left by the runaway bosses of foreign-invested enterprises.

Typically, the assets of abandoned enterprises were worth almost nothing because the facilities had been rented, so there was nothing to auction off to pay out huge money in salaries, insurance premiums, and loan repayments. The representative added that relevant authorities had asked diplomatic corps to help find fleeing bosses, but all such efforts proved futile. Localities even had to take up loans to pay off workers to minimise social impacts.

Due to the lack of legal grounds, authorised agencies also had problems with withdrawing the investment certificates of abandoned enterprises. As a result, it was impossible to liquidate these enterprises, handle their assets and debts, settle employee-related matters, and recover land for other projects, analysts said.

Nguyen Tat Nam from Ho Chi Minh City Department of Labour, Invalids and Social Affairs said that the current legal framework was not tight enough and the penalties were too light to be a deterrent. He highlighted that there is no guiding document on dealing with businesses that are slow to pay salaries or whose directors ran away. Local trade unions have also been blamed for not reporting the situation quick enough.

Additionally, there is no specific piece of legislation dealing with cases where foreign investors secretly give up their investments in Vietnam without carrying out statutory legal procedures to terminate the company and investment project.

According to the Vietnam General Confederation of Labour, although the trade unions have taken a wide range of measures to support workers, there are many formidable challenges ahead which need to be addressed soon, especially legal loopholes, and the responsibility of state management agencies in inspecting legal compliance at businesses. Trade unions have warned that businesses who are consistently slow in paying workers are likely to have financial problems and the directors may abscond.

Meanwhile, Dong Nai is making a blacklist of businesses that are running losses and owe insurance to be subject to heightened attention. “The businesses should submit a plan on how they want to use human resources and set up a contingency fund for times they cannot pay workers,” Dong Nai authorities suggested.

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