Inspection Conclusion No. 111/KL-TT regarding the inspection of Hoang Huy Financial Service Investment Joint Stock Company

On November 18, 2024, the Inspection Agency of the State Securities Commission (SSC) issued Inspection Conclusion No. 111/KL-TT regarding the inspection of Hoang Huy Financial Service Investment Joint Stock Company. The full text of the conclusion is as follows:

In accordance with Decision No. 321/QĐ-TT dated August 16, 2024, regarding the inspection of Hoang Huy Financial Service Investment Joint Stock Company (the Company/TCH), from August 23, 2024, to September 20, 2024, the Inspection Team conducted the inspection of the Company.

Considering the Inspection Result Report dated October 9, 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
   Hoang Huy Financial Service Investment Joint Stock Company, formerly Hoang Huy Trading Limited Liability Company (LLC), was established in 1995 with main business lines of manufacturing, assembling, and trading motorcycles, trucks, and real estate. In 2007, the Company converted from an LLC to a Joint Stock Company (JSC) under the name Hoang Huy Financial Service Investment JSC with charter capital of 1,200,000,000,000 VND.

In 2016, the Company registered as a public company with the SSC and listed its shares on the Ho Chi Minh City Stock Exchange (HSX). The Company's shares officially began trading on October 5, 2016, with the stock code TCH, totaling 329,994,572 shares.

At the time of inspection, the Company operated under Enterprise Registration Certificate No. 0200117929 (17th amendment) issued by the Department of Planning and Investment of Hai Phong City on July 8, 2022, with charter capital of 6,682,158,430,000 VND. The legal representative is Ms. Hoang Thi Huyen - General Director of the Company.

• Main business lines: Real estate trading, land use rights owned by owners or lessees; Wholesale trade of cars and other motor vehicles (excluding auction activities)...

• Shareholder structure and major shareholders: According to the shareholder list certified by the Vietnam Securities Depository (VSDC) on May 27, 2024, for the organization of the 2024 Annual General Meeting of Shareholders (AGMS), the Company had 34,750 shareholders, including one major shareholder who is an individual (owning 262,120,987 shares, corresponding to an ownership ratio of 39.23%).

• Subsidiaries and affiliated companies: According to the Company's report, at the time of inspection, the Company had 09 subsidiaries, including 07 directly owned subsidiaries (Hoang Huy Investment JSC; CRV Real Estate Group JSC; Thinh Hiep Construction JSC; Thinh Phat Real Estate Construction JSC; To Hieu Investment JSC; Hoang Giang Service Development JSC; Pruksa Vietnam LLC), 02 indirectly owned subsidiaries through CRV Real Estate Group JSC (Dai Loc Housing Development JSC; Dai Thinh Vuong Construction JSC), and no affiliated companies.

• Charter capital and capital increase process from public registration to the time of inspection: The Company has a fiscal year ending on March 31 annually. According to the audited consolidated financial statements (CFS) for the years 2021, 2022, and 2023 (audited by AASC Audit Company LLC), and the quarterly CFS prepared by the Company, the owner's equity capital of the Company at the beginning of the 2021 fiscal year (April 1, 2021) was 3,841,602,840,000 VND, increasing to 6,682,158,430,000 VND at the end of the 2021 fiscal year (March 31, 2022), and remained unchanged at the end of the 2022 fiscal year (March 31, 2023), 2023 fiscal year (March 31, 2024), and Quarter 1/2024 (June 30, 2024).

• Production and business results: The Company's net profit after corporate income tax (NPAT) for the years 2021, 2022, and 2023 (according to audited consolidated financial statements) were 609,306,682,620 VND, 480,168,967,913 VND, and 1,243,150,278,974 VND, respectively.

2. Inspection and Verification Results

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

2.1.1. Regarding the process and organization of ID

• The Company issued an ID Regulation in accordance with Clause 1, Article 300 of Government Decree No. 155/2020/NĐ-CP dated December 31, 2020, detailing the implementation of some articles of the Securities Law.
• The Company established an electronic information page at http://www.hoanghuy.vn. The Company's electronic information page has a dedicated section for shareholder relations and sub-sections to implement ID.
• The authorized person for ID is Ms. Phung Thi Thu Huong, authorized from June 27, 2016, under authorization document No. 34/TCH-CV dated June 27, 2016, signed by Mr. Do Huu Ha - the legal representative of the Company.
• The Company implements reporting and ID via the SSC's ID System (IDS Plus), the HSX electronic information page, and the Company's electronic information page in accordance with Clause 4, Article 7 of Circular No. 96/2020/TT-BTC dated November 16, 2020, of the Minister of the Ministry of Finance guiding ID on the securities market.

2.1.2. Regarding compliance with legal regulations on ID
During the inspection period, the Company implemented periodic and extraordinary ID obligations as required. However, the Company had violations and shortcomings in complying with legal regulations on the ID obligations of listed organizations, specifically:

• The Company did not ID on the SSC's ID system, the HSX electronic information page, and the Company's electronic information page regarding the Explanation of the difference in net profit after tax compared to the previous period of the separate financial statements for the following periods: Quarter IV 2021, Half-year 2021, Quarter II 2021, Quarter I 2021, year 2020, and Quarter IV 2020, as required by Article 14 of Circular No. 96/2020/TT-BTC.

• The Company did not fully ID related-party transactions in the Corporate Governance Situation Report for 2021, 2022, and 2023, specifically:

  • According to the audited separate financial statements for 2021, the Company had transactions with related parties which were subsidiaries; however, in the Corporate Governance Situation Report for 2021 (reporting period January 1, 2021 – December 31, 2021), the Company did not list transactions with subsidiaries according to Appendix V issued with Circular No. 96/2020/TT-BTC.
  • According to the audited separate financial statements for 2022, the Company had sales revenue and service provision transactions with related parties which were subsidiaries (including Hoang Huy Investment Service JSC, Thinh Hiep Construction JSC, Thinh Phat Real Estate Construction JSC, Pruksa Vietnam LLC, Hoang Giang Service Development JSC); transactions occurred with subsidiaries (including Thinh Hiep Construction JSC and Thinh Phat Real Estate Construction JSC); and there was financial revenue (receiving dividends valued at 320,131,590,000 VND in July 2022 and 66,587,370,720 VND in December 2022) from the subsidiary CRV Real Estate Group JSC. However, in the Corporate Governance Situation Report for 2022, the Company did not list the aforementioned transactions according to Appendix V issued with Circular No. 96/2020/TT-BTC.
  • According to the audited separate financial statements for 2023, the Company contributed additional capital to To Hieu Investment JSC (a subsidiary of TCH); however, the Corporate Governance Situation Report for 2023 did not list this transaction according to Appendix V issued with Circular No. 96/2020/TT-BTC.

2.2. Compliance with legal regulations on corporate governance

2.2.1. Documents related to corporate governance (CG)

• During the inspection period, the Company amended the Company Charter 07 times; the most recent amendment was on July 7, 2023, and was approved by the 2023 Annual General Meeting of Shareholders. However, Clause 6, Article 42 of the most recently amended Charter on July 7, 2023, stipulated: "The responsibility for honesty and avoiding conflicts of interest regarding transactions between the Company and members of the Board of Directors (BOD), Supervisory Board (SB), General Director, other managers, and related individuals/organizations of these subjects, the BOD passes transactions with values less than or equal to 35% of the total asset value in the most recent CFS (point a), and the AGMS passes transactions with values greater than 35% (point b)" is inconsistent with Clause 2, Clause 3, Article 167 of the Enterprise Law and point b, Clause 4, Article 293 of Decree No. 155/2020/NĐ-CP (which stipulates that transactions with values from 35% upwards must be approved by the AGMS).

• The internal regulation on corporate governance (CG Regulation) was passed twice at the AGMS in 2021 and 2022.
  The CG Regulation passed in 2021 only listed the titles of articles according to the template in Appendix II issued with Circular No. 116/2020/TT-BTC dated December 31, 2020, of the Minister of the Ministry of Finance guiding certain articles on corporate governance applied to public companies under Decree No. 155/2020/NĐ-CP, but did not have specific content in the articles for the Company to implement; it did not specifically stipulate the content of applying modern information technology for shareholders to attend and express opinions at the AGMS meeting via online meetings, electronic voting, or other electronic forms, as required by Article 4 of Circular No. 116/2020/TT-BTC. The CG Regulation passed in 2022 was basically consistent with the template in Appendix II issued with Circular No. 116/2020/TT-BTC and had specific content applying modern information technology for shareholders to attend and express opinions at the AGMS meeting via online meetings, electronic voting, or other electronic forms.

• The Company has built and issued the Regulation on the Operation of the BOD and the Regulation on the Operation of the Supervisory Board (approved at the 2022 AGMS).

2.2.2. Person in charge of corporate governance
Ms. Nguyen Thi Hai Yen is the person in charge of corporate governance according to BOD Resolution No. 08/2020/NQ-HĐQT dated July 6, 2020.

2.2.3. Regarding the BOD, Supervisory Board (SB), and Executive Board

• From January 1, 2021, to July 5, 2022, the Company's BOD had 06 members, of which 05/06 were non-executive BOD members, and 02/6 were independent BOD members. From July 5, 2022, to the time of inspection, the BOD had 05 members, of which 04/05 were non-executive BOD members, and 01/05 were independent BOD members. The BOD member structure of the Company meets the requirements of Clause 2, Clause 4, Article 276 of Decree No. 155/2020/NĐ-CP.

During the inspection period, the Company organized 61 BOD meetings, ensuring the number of BOD meetings per quarter as required by point c, Clause 3, Article 41 of the Securities Law. The Company fully kept BOD meeting minutes as required by Clause 2, Article 279 of Decree No. 155/2020/NĐ-CP. Some BOD meeting invitations (Invitations dated June 26, 2023, August 20, 2023, July 2, 2022, July 15, 2022) did not comply with the time limit for sending before the meeting (at least 03 working days) as required by Clause 6, Article 157 of the Enterprise Law, Clause 1, Article 279 of Decree No. 155/2020/NĐ-CP, and Clause 6, Article 30 of the Company Charter.

• At the time of inspection, the Company's SB had 03 members as required by Clause 1, Article 286 of Decree No. 155/2020/NĐ-CP, of which the Head of the SB graduated with a Bachelor's degree in Accounting as required by Clause 3, Article 286 of Decree No. 155/2020/NĐ-CP. During the inspection period, the SB organized 09 meetings, ensuring 02 meetings per year as required by Clause 1, Article 289 of Decree No. 155/2020/NĐ-CP. The Company fully kept minutes of SB meetings as required by Article 289 of Decree No. 155/2020/NĐ-CP.

• At the time of inspection, the Company's Executive Board had 06 people (01 General Director, 04 Deputy General Directors, 01 Chief Accountant).

2.2.4. Regarding AGMS meetings and obtaining shareholder opinions in writing
During the inspection period, the Company organized 06 AGMS meetings, including: 04 AGMS meetings for the years 2021, 2022, 2023, and 2024, and 02 rounds of obtaining shareholder opinions in writing (in 2021 and 2022).

• The Company organized 04 AGMS meetings for the years 2021, 2022, 2023, and 2024 within 04 months from the end of the fiscal year as required by Clause 2, Article 139 of the Enterprise Law.

• The Company prepared the list of shareholders with the right to attend the AGMS ensuring 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 closing of the list of shareholders with the right to attend the 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 invitations for AGMS meetings via registered mail to the shareholder's contact address through a postal unit as required by Clause 2, Article 143 of the Enterprise Law. For the AGMS meetings in 2022, 2023, and 2024, the Company sent meeting invitations ensuring a minimum time limit of 21 days before the opening of the meeting as required by Clause 1, Article 143 of the Enterprise Law. For the AGMS meeting in 2021, the Company sent the meeting invitation to the postal unit for mailing on April 25, 2021, and held the meeting on May 15, 2021 (20 days apart), which did not ensure the minimum time limit of 21 days before the opening of the meeting as required by Clause 1, Article 143 of the Enterprise Law.

• The Company posted materials for the AGMS meetings of the years, and materials for obtaining shareholder opinions in writing, on the Company's electronic information page as required by Article 143 of the 2020 Enterprise Law and Clause 3, Article 10 of Circular No. 96/2020/TT-BTC.

• The BOD Activity Report presented to the 2021 AGMS did not have full content as required by Article 280 of Decree No. 155/2020/NĐ-CP, specifically: BOD meeting minutes; Report on transactions between the company, subsidiaries, and companies controlled by the public company with more than 50% of charter capital with BOD members and their related persons; transactions between the company and companies where BOD members are founding members or managers of the enterprise in the 03 years prior to the transaction date; Remuneration, operational costs, and other benefits of the BOD and each BOD member; Report of independent BOD members on BOD activities. The BOD Activity Report presented to the 2022 AGMS did not have content on remuneration, operational costs, and other benefits of the BOD and each BOD member; Report of independent BOD members on BOD activities. At the AGMS in 2021 and 2022, independent BOD members of the Company did not prepare evaluation reports on BOD activities as required by Clause 3, Article 277 of Decree No. 155/2020/NĐ-CP.

• The SB Activity Report presented to the AGMS in 2021 and 2022 did not have the contents as required by Article 290 of Decree No. 155/2020/NĐ-CP, specifically: Remuneration, operational costs, and other benefits of the SB and each SB member; Evaluation Report on transactions between the company, subsidiaries, and companies controlled by the public company with more than 50% of charter capital with BOD members, General Director (Director), other managers of the enterprise, and their related persons; transactions between the company and companies where BOD members, General Director (Director), other managers of the enterprise are founding members or managers of the enterprise in the 03 years prior to the transaction date; Summary of SB meetings.

• Regarding the approval of AGMS decisions: For the 2021 AGMS, the contents were approved by voting at the meeting; the Company fully kept Voting Papers. For the AGMS meetings in 2022, 2023, and 2024, the contents were approved by online voting during the meeting; the Company fully kept online voting data at the meetings. For the rounds of obtaining shareholder opinions in writing in 2021 and 2022, the meeting contents were approved by sending shareholder opinion forms.

2.2.5. Regarding treasury stock transactions
During the inspection period, the Company implemented 01 round of selling 9,722,450 treasury shares in 2021 (from May 19, 2021, to June 2, 2021).

The Company ID the Report on the result of selling treasury shares, regarding the change in the number of outstanding shares with voting rights, on the SSC's ID system, the HSX electronic information page, and the Company in June 2021. However, in the 2021 Annual Report (published on June 15, 2022), it stated "5.3 Treasury stock transactions: (no transactions)" which was inaccurate and inconsistent with the information previously disclosed by the Company regarding the implementation of treasury stock transactions.

2.2.6. Regarding transactions with related parties

• According to the transaction result report of TCH, on June 25, 2021, the Company purchased 14,800,000 shares of HHS from Mr. Do Huu Ha - Chairman of the BOD of the Company. The transaction was approved according to AGMS Resolution No. 01/2021/NQ-ĐHĐCĐ and BOD Resolution No. 09/2021/NQ-HĐQT dated May 7, 2021, approving the purchase of additional HHS shares. However, the Company and Mr. Ha had not signed a written contract as required by Clause 1, Article 292 of Decree No. 155/2020/NĐ-CP.

• According to the audited separate financial statements for 2022, the Company had sales revenue and service provision transactions with related parties (subsidiaries and related persons of internal persons of the Company) including Thinh Hiep Construction JSC (according to the Office Lease Contract dated November 1, 2017, and Contract Appendix dated January 1, 2022 (effective until December 31, 2024)) and Thinh Phat Real Estate Construction JSC (according to the Office Lease Contract dated June 19, 2018, and Contract Appendix dated June 19, 2022 (effective until June 18, 2023)). However, until July 24, 2023, the Company's BOD only had Resolution No. 06/2023/NQ-HĐQT approving the Office Lease Contract with Thinh Hiep Construction JSC and Thinh Phat Real Estate Construction JSC.

2.3. Securities offering/issuance
During the inspection period, the Company implemented 02 rounds of issuing shares to convert bonds in 2021, 01 round of offering shares to the public and issuing shares to pay dividends in 2021, 01 round of issuing shares to increase equity capital from owner's equity in 2022; the Company did not implement private placement of corporate bonds.

2.3.1. 02 rounds of issuing shares to convert part of convertible bonds into common shares (increasing capital from 3,629,940,140,000 VND to 3,991,175,744,000 VND):

During the inspection period, the Company issued a total of 36,181,730 shares (divided into 02 rounds) to convert bonds from the private bond issuance round in 2019 of the Company (bond code: TCH41905, value: 598,808,000,000 VND, issued to 02 bondholders which are foreign institutional investors, including: SHINHAN-CORE TREND GLOBAL FUND 1 (accounting for 48.03% of the total distributed bonds); SHINHAN BANK CO., LTD is the trustee of Valuesystem Protect Optimus Private Investment Fund (accounting for 51.97% of the total distributed bonds)).

After the issuance, the Company implemented supplementary securities registration at VSDC and supplementary listing at HSX.

2.3.2. Round of additional share offering to existing shareholders in 2021 and issuing shares to pay 2020 dividends (increasing capital from 3,991,175,744,000 VND to 6,187,219,680,000 VND):

In 2021, the Company implemented offering 199,587,872 shares to existing shareholders at a ratio of 2:1; issued 19,958,787 shares to pay dividends according to AGMS Resolution No. 01/2021/NQ-ĐHĐCĐ dated May 15, 2021, and No. 02/2021/NQ-ĐHĐCĐ dated November 30, 2021; BOD Resolution No. 13/2021/NQ-HĐQT dated July 15, 2021, No. 15/2021/NQ-HĐQT dated October 14, 2021, and No. 18/2021/NQ-HĐQT dated October 26, 2021.

Based on the Company's Report on the result of the offering round No. 81/2021/TCH-CV dated October 18, 2021, the issuance ended on October 15, 2021; the number of shares offered: 219,546,224 shares, including 19,958,429 shares for dividends, 193,587,126 shares offered to existing shareholders, and the remaining 6,000,669 shares distributed by the Company to 03 investors.

The Company implemented supplementary securities registration at VSDC on November 3, 2021, and supplementary listing at HSX (listing effective date November 16, 2021).

According to the 2021 AGMS, the AGMS authorized the BOD to perform tasks related to the 2021 public share offering issuance. The Company's BOD implemented 02 changes in the capital utilization plan: the 1st time on October 26, 2021, based on Resolution No. 18/2021/NQ-HĐQT dated October 26, 2021; the 2nd time on November 30, 2021, based on Resolution No. 02/2021/NQ-ĐHĐCĐ dated November 30, 2021, approving the Proposal No. 09/2021/TT-HĐQT dated November 18, 2021, of the BOD. The Company reported the change in the capital utilization plan/amount raised from the offering/issuance to the SSC as required by point a, Clause 3, Article 9 of Decree No. 155/2020/NĐ-CP; simultaneously, disclosed information on the Company's Electronic Information Page, HSX, and the SSC's ID system as required by point b, Clause 3, Article 9 of Decree No. 155/2020/NĐ-CP.

According to the Report on the use of funds raised from the public share offering for the period from January 1, 2021, to December 6, 2021, audited by AASC, the documents provided by the Company show that the Company used funds raised from the public share offering to contribute capital to 02 subsidiaries according to the capital utilization plan adjusted in the 2nd round, which was approved according to AGMS Resolution No. 02/2021/NQ-ĐHĐCĐ dated November 30, 2021.

2.3.3. Round of additional share offering to existing shareholders to increase equity capital from owner's equity in 2021 (increasing capital from 6,187,219,680,000 VND to 6,682,158,430,000 VND)

In 2021, the Company implemented issuing 49,497,757 shares to existing shareholders (issuance ratio: 8%, exercise ratio: 25:2) according to AGMS Resolution No. 02/2021/NQ-ĐHĐCĐ dated November 30, 2021; BOD Resolution No. 21/2021/NQ-HĐQT dated December 3, 2021, and No. 23/2021/NQ-HĐQT dated December 31, 2021.

According to the report on the result of the share issuance round to increase equity capital from owner's equity in document No. 03/2022/TCH-CV dated January 20, 2022, the Company issued 49,493,875 shares to 39,878 shareholders. The Company implemented supplementary securities registration at VSDC on February 15, 2022, and supplementary listing at HSX (listing effective date February 21, 2022).

3. Conclusion

During the inspection period, the Company basically complied with securities law regulations regarding the inspection content. 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, urgently take measures to rectify, and overcome violations and shortcomings; implement full, accurate, and timely ID according to legal regulations; ensure full presentation of related-party transactions in the Corporate Governance Situation Report in accordance with regulations; ensure that transactions between the Company and related parties must be signed in writing, with BOD or AGMS approval according to the Enterprise Law, Decree No. 155/2020/NĐ-CP, and the Company Charter; ensure BOD meetings and sending AGMS invitations comply with the Enterprise Law and the Company Charter; ensure BOD and SB reports at the AGMS have full content as required by Decree No. 155/2020/NĐ-CP; review and amend the Company Charter to be consistent with the Enterprise Law, Decree No. 155/2020/NĐ-CP, and the most recent AGMS report.

5. Recommendations for handling measures

5.1. Regarding the Company's violations stated in Section 2 of the Inspection Conclusion still within the statute of limitations (behaviors: Not disclosing information that must be disclosed according to legal regulations; Incomplete ID according to legal regulations; Violations of regulations on transactions with shareholders, enterprise managers, and related persons of these subjects), the SSC Inspection Agency recommends the SSC consider administrative penalty for violations according to legal regulations.

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

• Regarding ID obligations: Overcome ID of unpublished documents, supplement ID of incomplete information in the Corporate Governance Situation Report for 2021, 2022, and 2023; correct inaccurate ID in the 2021 Annual Report related to treasury stock transactions; review and rectify the implementation of ID obligations, ensuring information is disclosed fully, accurately, and on time according to regulations.

• Regarding corporate governance: The Company must report to the most recent AGMS on the amendment and supplement of the Company Charter to ensure consistency with the Enterprise Law and Decree No. 155/2020/NĐ-CP.