Conclusion of Inspection No. 95/KL-TT regarding AAV Group Joint Stock Company

On September 25, 2024, the Inspection Agency of the State Securities Commission (SSC) issued Inspection Conclusion No. 95/KL-TT regarding the inspection of AAV Group Joint Stock Company. The full text of the Inspection Conclusion is as follows:

In accordance with Inspection Decision No. 270/QĐ-TT dated June 28, 2024, regarding the inspection of AAV Group Joint Stock Company, from July 5, 2024, to August 1, 2024, the Inspection Team conducted an inspection of AAV Group Joint Stock Company regarding the implementation of information disclosure obligations and reporting; the offering/issuance of securities, and the situation of using funds raised from the offering/issuance of securities; compliance with legal regulations on corporate governance; and other related contents.

Considering the Inspection Result Report dated August 19, 2024, from the Head of the Inspection Team, the Inspection Agency of the State Securities Commission (SSC) concludes the inspection as follows:

1. General Overview

AAV Group Joint Stock Company (the Company), formerly known as Viet Tien Son Real Estate Joint Stock Company, was established under the Business Registration Certificate No. 0800819038 issued by the Department of Planning and Investment of Hai Duong Province on April 12, 2010, based on a split from Viet Tien Son Joint Stock Company, with an initial charter capital of 125,000,000,000 VND; the most recent amendment, the 17th, was issued on April 10, 2024.

On May 17, 2017, the SSC issued Document No. 2756/UBCK-GSĐC regarding the registration dossier for a public company of Viet Tien Son Real Estate Joint Stock Company. On May 25, 2018, the Hanoi Stock Exchange (HNX) issued Decision No. 287/QĐ-SGDHN approving the listing of the Company's shares (stock code: AAV); on June 25, 2018, the Company's shares were officially traded on the HNX trading system; on June 16, 2022, the Company was renamed to AAV Group Joint Stock Company (according to the Annual General Meeting of Shareholders (AGMS) Resolution No. 01/2022/NQ-ĐHĐCĐ-VTSR dated June 16, 2022 of the Company).

Currently, the Company operates under the Business Registration Certificate amended for the 17th time on April 10, 2024, with a charter capital of 689,876,610,000 VND.

• Main business line (according to the Business Registration Certificate): Real estate business, land use rights owned by the owner, user, or leased.
• Regarding shareholder structure and major shareholders: Based on the shareholder list finalized by the Vietnam Securities Depository (VSDC) as of February 27, 2024, the Company has 7,182 shareholders, including 02 major shareholders: Mr. Pham Quang Khanh (owning 23.57%) and Mr. Pham Thanh Tung (owning 5.6%).
• Regarding subsidiaries and affiliated companies:
  According to the 2023 Annual Report, the Company has 02 subsidiaries: AAV Land Joint Stock Company (the Company owns 76.96%) and Viet Tien Son Joint Stock Company (the Company owns 95%). Additionally, during the inspection period, the Company had a subsidiary, AAV Trading Joint Stock Company (which was a subsidiary of the Company until June 16, 2023).
• Charter capital and capital increase process from the time of public company registration to the time of inspection:
  According to the Company's disclosed information, from the time of public company registration to the time of inspection, the Company implemented 05 offerings/issuances, including 03 stock issuances to pay dividends, 01 public offering, and 01 private placement of shares, increasing capital from 125,000,000,000 VND to 689,876,610,000 VND. Among these, during the inspection period from 2022 to the present, the Company had 01 issuance of 2,331,481 shares to pay 2021 dividends to existing shareholders (ES) at a ratio of 100:3.5, increasing capital from 666,561,800,000 VND to 689,876,610,000 VND.
• Regarding financial situation: According to the consolidated Financial Statements (FS) for 2022 and 2023 audited by TTP Audit Joint Stock Company and the Q1/2024 FS self-prepared by the Company, the Company's net profit after corporate income tax for 2022, 2023, and Q1 2024 were 3,516,456,338 VND, -17,328,079,341 VND, and -3,345,265,495 VND, respectively.

2. Inspection Results

2.1. Compliance with legal regulations on information disclosure (ID)

2.1.1. Regarding the process and organization of ID

• The Company has built and issued the Company's ID Regulation in accordance with Clause 1, Article 300 of Decree No. 155/2020/NĐ-CP dated December 31, 2020, of the Government detailing the implementation of some articles of the Securities Law (Decree No. 155/2020/NĐ-CP).
• The Company has established an electronic information page at http://aavgroup.com.vn/. The Company's electronic information page has a dedicated section for shareholder relations to implement ID.
• The person authorized for ID of the Company from September 10, 2021, to February 7, 2024, was Mr. Phan Van Hai - Head of the Office and person in charge of corporate governance; the person authorized for ID of the Company from February 7, 2024, to the present is Ms. Nguyen Thi Thorm (Person in charge of governance and Company Secretary).
• Regarding ID methods: The Company has registered and used the SSC's ID system (IDS Pro system) and the HNX electronic information page system (CIMS system) in accordance with point b, c, Clause 1, Clause 9, Article 7 of Circular No. 96/2020/TT-BTC dated November 16, 2020, of the Minister of the Ministry of Finance guiding information disclosure on the securities market (Circular No. 96/2020/TT-BTC).

2.1.2. Regarding compliance with legal regulations on ID

During the inspection period, the Company implemented the obligation to ID periodic and unusual information as required. However, the Company had the following violations:

• The Company did not ID the following documents on time on the HNX electronic information page: Audited separate and consolidated FS for 2023; Explanation of differences before and after auditing the 2023 FS; violating regulations at Article 10 of Circular No. 96/2020/TT-BTC.
• The Company did not ID sufficient content as required by law:
  • In the Annual Report according to the template issued with Circular No. 96/2020/TT-BTC Appendix IV and in the Corporate Governance Situation Report according to the template issued with Circular No. 96/2020/TT-BTC Appendix V, specifically:
    ++ According to the audited 2022 FS, the Company had transactions involving advances and repayments with an internal person of the Company, Mr. Pham Van Hien - Head of the Audit Committee. However, the Company's 2022 Corporate Governance Situation Report did not present transactions with the internal person Mr. Pham Van Hien.
    ++ The Company's 2022 and 2023 Annual Reports lacked some information: Situation of implementation compared to the plan; Summary of subsidiary activities.
  • The Company did not ID sufficient content in the Q2/2024 FS self-prepared by the Company, violating regulations at Clause 1, Article 4 of Circular No. 96/2020/TT-BTC, specifically: According to the Company's audited half-yearly FS 2024 by MOORE AISC Audit and IT Services Joint Stock Company and the 6-month 2024 Corporate Governance Situation Report, the Company presented transactions with an internal person of the Company, Mr. Nguyen Thanh Hai - Deputy General Director. However, the Q2/2024 FS self-prepared by the Company did not present the aforementioned transactions in the related-party transactions section of the Company.

2.2. Compliance with legal regulations on corporate governance (CG)

2.2.1. Documents related to corporate governance (CG)

• The Company's Charter was last amended and supplemented in April 2024, approved at the AGMS Resolution No. 01/2024/NQ-ĐHĐCĐ-AAV dated April 8, 2024. The contents of the Company's Charter basically comply with the Enterprise Law and Decree No. 155/2020/NĐ-CP, and have been updated according to the Charter template issued with Circular No. 116/2020/TT-BTC dated December 31, 2020, of the Minister of the Ministry of Finance guiding some articles of Decree No. 155/2020/NĐ-CP (Circular No. 116/2020/TT-BTC).
• The Company has built and issued the Internal Regulation on Corporate Governance, the Regulation on the Operation of the Board of Directors (BOD), and the Regulation on the Operation of the Audit Committee (AC) in accordance with Decree No. 155/2020/NĐ-CP and Circular No. 116/2020/TT-BTC.

2.2.2. Person in charge of corporate governance

The Company appointed Mr. Phan Van Hai as the person in charge of corporate governance from June 30, 2020, according to BOD Resolution No. 3006-2/NQ-HĐQT-VTSR dated July 1, 2020; appointed Ms. Nguyen Thi Thorm as the person in charge of corporate governance from January 10, 2023, and removed Mr. Phan Van Hai from the position of person in charge of corporate governance from January 10, 2023, according to BOD Resolution No. 1001/2023/QĐ-HĐQT-AAV dated January 10, 2023.

2.2.3. Regarding the operation of the BOD, AC, and Management Board

• At the time of inspection, the Company's BOD had 03 members, including 01 non-executive BOD member and 01 independent BOD member, meeting the regulations at Clause 2, Clause 4, Article 276 of Decree No. 155/2020/NĐ-CP. During the inspection period, the Company ensured the number of BOD meetings per quarter as required by Clause 1, Article 279 of Decree No. 155/2020/NĐ-CP.
• At the time of inspection, the Company's AC had 03 members as required by Clause 1, Article 286 of Decree No. 155/2020/NĐ-CP. Mr. Dang Hong Duc - Head of the AC has a graduation certificate from Hanoi Law University as required by Clause 3, Article 286 of Decree No. 155/2020/NĐ-CP. The number of AC meetings during the inspection period ensured compliance with Clause 1, Article 289 of Decree No. 155/2020/NĐ-CP.
• Management Board: At the time of inspection, the Company had 01 General Director, 02 Deputy General Directors, and 01 Chief Accountant.

2.2.4. Regarding the organization of the AGMS

During the inspection period, the Company organized 03 annual AGMS meetings.

• The 2022 Annual AGMS was held on June 16, 2022 (the Company issued BOD Resolution No. 0903/2022/NQ-HĐQT-VTSR dated March 9, 2022, regarding the extension of the time limit for organizing the 2022 AGMS in accordance with Clause 2, Article 139 of the 2020 Enterprise Law). The time limit for organizing the annual AGMS for the years 2023 and 2024 of the Company was organized within a period of 04 months, from the date of the end of the fiscal year, as required by Article 139 of the 2020 Enterprise Law.
• The list of shareholders with the right to attend the AGMS was based on the Company's shareholder register; the list was created no more than 10 days before the date of sending the meeting invitation as required by Clause 1, Article 141 of the 2020 Enterprise Law.
• The Company ID the situation of finalizing the list of shareholders with the right to attend the 2022, 2023, and 2024 Annual AGMS, ensuring a minimum time limit of 20 days before the final registration date as required by Clause 4, Article 11 of Circular No. 96/2020/TT-BTC and Clause 1, Article 273 of Decree No. 155/2020/NĐ-CP.
• The Company sent meeting invitation notices for the AGMS meetings by direct delivery to shareholders and by registered mail to the shareholders' contact addresses via a postal unit in accordance with Clause 1, Article 143 of the 2020 Enterprise Law, ensuring a minimum time limit of 21 days before the opening date of the meeting.
• The Company posted the 2022, 2023, and 2024 Annual AGMS meeting documents on the Company's electronic information page in accordance with Article 143 of the 2020 Enterprise Law and Clause 3, Article 10 of Circular No. 96/2020/TT-BTC.
• The BOD activity report of the Company at the AGMS in 2022, 2023, and 2024 included content on the activities of independent BOD members and the evaluation results of independent members on the BOD's activities as required by Article 280 of Decree No. 155/2020/NĐ-CP.

The Company must bear full legal responsibility for the accuracy, completeness, and truthfulness of documents related to the convening and approval of AGMS results; and bear responsibility for shareholder complaints and lawsuits (if any).

2.2.5. Transactions with related parties

According to the audited separate FS for 2022 and 2023, Q2/2024 FS, 2022 and 2023 Corporate Governance Situation Reports, 6-month 2024 report, and documents provided by the Company, it shows: The Company has transactions with internal persons: Mr. Pham Van Hien - Head of the Audit Committee (Advance 34,143,248,710 VND, Repayment 37,063,645,985 VND), Ms. Nguyen Thi Thorm - Secretary and Person in charge of corporate governance (Advance 2,246,632,146 VND, Repayment 14,596,835,146 VND), and Mr. Nguyen Thanh Hai - Deputy General Director (Repayment 7,391,715,000 VND, 19,976,766,000 VND, 118,866,000 VND). These transactions were approved by the Company's BOD.

2.3. Offering/issuance of additional shares

2.3.1. The 2021 private share offering to increase capital from 366,561,800,000 VND to 666,561,800,000 VND

According to the documents provided by the Company and the Company's Report No. 41/2021/BC-VTSR dated December 6, 2021, on the results of the 2021 private share offering, it shows: In 2021, the Company issued 30,000,000 private shares to 05 investors with total proceeds of 366,000,000,000 VND to increase capital from 366,561,800,000 VND to 666,561,800,000 VND; the use of funds raised from the offering occurred from 2021 to 2022. The Company submitted the dossier for amendment of listing registration on time as required by point a, Clause 3, Article 117 of Decree No. 155/2020/NĐ-CP.

On September 10, 2021, the Company's Extraordinary AGMS approved Resolution No. 1009-2/2021/NQ-ĐHĐCĐ-VTSR on the plan to use proceeds from the 2021 private share offering; and simultaneously authorized the BOD: To decide on the detailed plan for using funds, including adjusting the plan for using funds to suit actual conditions if deemed necessary, and reporting to the AGMS at the nearest meeting, specifically: Investing in buying back shares of Viet Tien Son Joint Stock Company shareholders to hold a controlling ratio of 95% of charter capital: 65,000,000,000 VND; paying contractors for providing technology equipment and constructing the project "East Residential Area Housing Complex, Tran Hung Dao Street, Sao Do Ward, Chi Linh City, Hai Duong Province": 150,000,000,000 VND; Cooperating with International Investment and Trading Joint Stock Company (TRABINCO) to implement the "Cau Yen Residential Area Villa, Housing Complex, and Commercial Service Complex Project" in Tu Ky Town, Tu Ky District, Hai Duong Province: 140,000,000,000 VND; supplementing short-term working capital for the Company: 11,000,000,000 VND.

On October 5, 2021, the Company's BOD approved BOD Resolution No. 0510-2/2021/NQ-HĐQT-VTSR on changing the amount of proceeds from the 2021 private share offering, specifically: Investing in buying back shares of Viet Tien Son Joint Stock Company shareholders to hold a controlling ratio of 95% of charter capital: 64,220,000,000 VND; paying contractors for providing technology equipment and constructing the project "East Residential Area Housing Complex, Tran Hung Dao Street, Sao Do Ward, Chi Linh City, Hai Duong Province": 160,000,000,000 VND; Cooperating with TRABINCO to implement the "Cau Yen Residential Area Villa, Housing Complex, and Commercial Service Complex Project" in Tu Ky Town, Tu Ky District, Hai Duong Province: 140,000,000,000 VND; supplementing short-term working capital for the Company: 1,780,000,000 VND.

However, the Company did not report to the nearest Annual AGMS (2022) on the change in the plan for using funds, the amount of proceeds from the 2021 private offering, violating regulations at Clause 2, Article 9 of Decree No. 155/2020/NĐ-CP.

• Detailed situation of fund usage:

On December 8, 2021, the SSC issued Document No. 8269/UBCK-QLCB dated December 8, 2021, regarding receiving the report on the results of the Company's private share offering. According to the statement of the Company's blocked account, the Company proceeded to disburse funds from December 8, 2021.

Based on the documents provided by the Company, the Company used the proceeds from the 2021 private share offering according to the plan approved at BOD Resolution No. 0510-2/2021/NQ-HĐQT-VTSR dated October 5, 2021, specifically: On December 8, 2021, from the blocked account, the Company transferred funds as follows: Transferred 64,220,000,000 VND to account 0989190266 at Saigon - Hanoi Joint Stock Commercial Bank (SHB) in the name of Ms. Pham Tran Ngoc Anh to buy shares of Viet Tien Son Joint Stock Company; transferred 160,000,000,000 VND to account 1019685091 at SHB in the name of Viet Thanh Construction Joint Stock Company to implement Contract No. 0610/2021/HDXD/VTSR-XDVT for providing technology equipment and constructing the project; transferred 140,000,000,000 VND to account 1013136562 at SHB in the name of International Investment and Trading Joint Stock Company (TRABINCO) to implement cooperation with TRABINCO to implement the "Cau Yen Residential Area Villa, Housing Complex, and Commercial Service Complex Project" in Tu Ky Town, Tu Ky District, Hai Duong Province; transferred 1,780,000,000 VND to account 46110008291987 at SHB in the name of Do Thi Thuan Yen (Company's cashier) for Ms. Yen to withdraw cash and deposit into the Company's fund, and on the same day, December 28, 2021, Ms. Do Thi Thuan Yen deposited 1,780,000,000 VND into the Company's fund (supplementing working capital).

2.3.2. The 2022 dividend share issuance to increase capital from 666,561,800,000 VND to 689,876,610,000 VND

The Company had a report on the results of the dividend issuance No. 102/2022/BC-AAV dated August 10, 2022, according to which the end date of the issuance was August 5, 2022; the number of shares distributed was 2,331,481 shares to 6,110 shareholders; the total number of shares after the issuance was 68,987,661 shares. On the same day, the Company ID the results of the issuance and the change in the number of voting shares outstanding on the Company's electronic information page and the Stock Exchange's page.

The Company submitted the dossier for amendment of listing registration on time as required by point a, Clause 3, Article 117 of Decree No. 155/2020/NĐ-CP.

3. Conclusion

During the inspection period, the Company basically complied with securities legal regulations regarding the inspected contents. However, the Company had some violations and shortcomings as stated in Section 2 of the Inspection Conclusion.

4. Handling measures applied within competence

During the inspection process, the Inspection Team required the Company to review, take measures to rectify, and overcome violations and shortcomings.

5. Recommendations for handling measures

5.1. Regarding the Company's violations stated in Section 2 of the Inspection Conclusion (behaviors: Not reporting changes in the plan for using funds, the amount of proceeds from the offering or issuance at the nearest AGMS; ID not on time as required by law; ID not sufficient in content as required by law), the SSC Inspection Agency recommends the SSC consider administrative penalties according to legal regulations.

5.2. The SSC Inspection Agency requests the Company to urgently take measures to rectify and overcome the shortcomings after the inspection, specifically as follows:

• Requests the Company to fully comply with regulations on the ID obligations of public companies, listed organizations, ensuring information is reported and disclosed fully, accurately, and on time as required; supplement the disclosure of information not fully disclosed in the 2022 Corporate Governance Situation Report, 2022 and 2023 Annual Reports, and the Q2/2024 FS self-prepared by the Company.
• Strictly comply with legal regulations in issuing additional shares, using proceeds from the offering/issuance; reporting obligations, ID related to the offering, issuance. The Company must bear legal responsibility and complaints, lawsuits related to receiving money, using proceeds from the 2021 private share offering.
• The Company must report to the nearest AGMS on the change in the plan for using funds, the amount of proceeds from the 2021 private offering.
• Ensure strict compliance with procedures, formalities, and legal regulations on corporate governance, the Company's Charter, the Internal Regulation on Corporate Governance in organizing AGMS, BOD, AC meetings and approving AGMS, BOD resolutions; ensure full disclosure of information as required in the Corporate Governance Situation Report, Annual Report, and FS. The Company must bear full legal responsibility for the accuracy and truthfulness of documents provided to the Inspection Team related to the convening and approval of AGMS results; bear responsibility for shareholder complaints and lawsuits.

The SSC Inspection Agency requires the Company to implement immediate rectification and overcoming measures after the inspection within a period of 30 days from the date of signing the inspection conclusion. Report results to the SSC Inspection Agency within 05 days from the date the rectification and overcoming period expires.