Thuduc House (TDH) Faces Tax Refund Misappropriation Case, Board Resignations

Overview

Thuduc House Joint Stock Company (TDH) is grappling with legal and financial repercussions from a 365.5 billion VND value-added tax refund misappropriation case dating to 2017-2019. This has resulted in negative retained earnings, a maintained warning status on the Ho Chi Minh City Stock Exchange (HoSE), and the recent resignation of its entire board of directors.

Key Facts

• The core issue involves 365.5 billion VND in misappropriated VAT refunds from electronic component business activities in 2017-2019.
• Thuduc House provisioned 620.2 billion VND in total costs in its 2021 financial statements, leading to negative retained earnings.
• In July 2024, the company received 32.3 billion VND in enforcement payments from defendants in the case.
• The Ho Chi Minh City Tax Department has been issuing monthly tax enforcement decisions exceeding 91 billion VND to Thuduc House since March 2023.
• The company has filed a lawsuit against these administrative decisions, with a first-instance trial scheduled for August 7, 2024, but later postponed on September 9, 2024.
• The entire three-member board of directors resigned sequentially in late 2024, including the Chairman on January 13, 2025.
• HoSE decided on August 30, 2024, to maintain a warning status for TDH stock due to negative retained earnings as of June 30, 2024.

What Happened

According to a company report dated January 14, 2025, Thuduc House is addressing issues related to its stock warning status. The negative retained earnings stem from a 365.5 billion VND VAT refund misappropriation case linked to its electronic component business from 2017 to 2019. Pending a court verdict and adhering to accounting prudence principles, the company provisioned this amount as an expense, approved at its 2021 annual general meeting. It also reviewed long-standing debts and investments, leading to a total provision of 620.2 billion VND in its 2021 financial statements.

In June 2024, Thuduc House received an appellate judgment from the Ho Chi Minh City People’s Court regarding the electronic component case. Subsequently, in July 2024, it obtained 32.3 billion VND from defendants. On August 9, 2024, the Ho Chi Minh City Tax Department received 365.5 billion VND from the Civil Judgment Enforcement Department, funds Thuduc House had deposited with the Ministry of Public Security for investigation. Concurrently, the tax department has issued monthly enforcement decisions over 91 billion VND since March 2023, which Thuduc House is contesting in court. The administrative lawsuit saw a first-instance trial scheduled for August 7, 2024, but was postponed on September 9, 2024.

Market Context

TDH trades on the Ho Chi Minh City Stock Exchange (HoSE), where it has been under a warning status since at least August 30, 2024, due to negative retained earnings. This legal and financial overhang has likely contributed to investor uncertainty, reflecting broader challenges in Vietnam’s real estate sector, which has faced liquidity and regulatory scrutiny. The stock’s performance may be influenced by resolutions to these ongoing disputes and leadership stability.

Strategic Significance

The case underscores severe governance and compliance risks at Thuduc House, impacting its financial health and investor confidence. The full board resignation signals potential internal turmoil or strategic shifts, complicating recovery efforts. For long-term investors, the key issue is whether the company can settle its tax liabilities, restore positive equity, and stabilize management to refocus on its core real estate development operations amid a tough sector environment.

What to Watch

• Resolution of the administrative lawsuit against the Ho Chi Minh City Tax Department’s enforcement decisions.
• Appointment of new board members and executive leadership to fill the vacancies.
• Updates on the company’s efforts to address negative retained earnings and potentially lift the HoSE warning status.
• Further financial disclosures, including quarterly reports, to assess the impact of legal provisions on profitability.
• Any additional enforcement actions or settlements related to the 365.5 billion VND tax refund case.