In 2012, many
Vietnamese companies are facing difficulties and have to cease operation. In
other developed countries, the bankruptcy law plays an important role in the
restructuring of a company having financial difficulties. The same cannot be
said for Vietnam. However, to some extent, bankruptcy is still a credible
option in theory for corporate restructuring in Vietnam. Therefore, a good
understanding of Vietnamese bankruptcy law is still necessary.
Under Vietnamese legislation, there is no concept of personal insolvency but only concept of bankruptcy for enterprises.
In Vietnam, the regulations on bankruptcy of companies and reorganization and restructuring of companies in bankruptcy process are mainly provided in:
- The Law on Bankruptcy; and
- Resolution 3 of the Supreme Court dated 28 April 2005.
The average timing from the petition filing until the deletion off the registry book of a bankrupt company is about 150 days assuming that no recovery plan is adopted and implemented. If there is an appeal against the court’s decision to commence the liquidation procedures, a period of at least 90 days will be added for the court of higher level to consider the appeal.
An enterprise is considered bankrupt if it is “unable to pay the due debts upon request by the creditors”. Resolution 3 further clarifies that “due debts” are the unsecured debts or partly secured debts, which is expressly recognized by the relevant parties, supported by adequate evidencing documents and free of dispute.
Filing and acceptance of a petition for bankruptcy proceedings
Petition: An unsecured or partly secured creditor of a company by noticing that the company is in bankrupt status will have the right to file a petition for bankruptcy proceedings against such company together with evidence of the bankrupt status
Court’s fee: The petitioner must make an advance of the bankruptcy fees, determined the court
Court: The competent court in charge of bankruptcy cases is the provincial court of the locality where the company in bankruptcy registered for its business registration.
Acceptance of bankruptcy hearing: The Court will issue a decision whether to commence the bankruptcy proceedings within 30 days from the date of acceptance of the petition for bankruptcy proceedings. Creditors and debtors of the company are also entitled for being noticed of such decision.
Commencement of bankruptcy proceedings
Company’s operation: After the issuance of the court’s decision to commence bankruptcy proceedings, the business activities of the company in bankruptcy will be subject to the supervision and inspection of the judge in charge of the case and the Board for Asset Management and Liquidation (Liquidation Board).
Standstill: After the issuance of the court’s decision to commence bankruptcy proceedings, the disposal of the company’s secured assets for secured creditors will be temporarily suspended.
List of company’s assets: Within 30 days from the date of receiving the court’s decision to commence bankruptcy proceedings, the company will have to list out an inventory of its assets in accordance with the detailed list submitted to the court and determine the value of such assets.
Preparation of the list of creditors: Within 60 days from the last day of publication of the court's decision to commence bankruptcy proceedings, creditors of the company must submit to the court their detailed request for debt payment. Within 15 days from the expiration of the above 60 days, the Liquidation Board must prepare a list of creditors with details of the debts thereof.
Convention of the Creditors Meeting: Within 30 days from the completion of the list of creditors or the list of company’s assets, depending on which date comes first, the competent court will convene the first meeting of the company’s creditors to discuss the company’s situation and approve a resolution to recover the company’s business, if the creditors consider that the company is recoverable. If the creditors consider that the company is not recoverable then the court will decide to commence the liquidation procedures.
Recovery of business activities
The plan will then be subjected to the approval of the second meeting of the company’s creditors. The maximum term for the company to implement the business recovery plan is 3 years from the last day of publication of the Court’s adoption of the creditor’s resolution approving the company’s recovery plan
Within 30 days from the approval of the resolution to recover the company’s business, the company is required to prepare and submit the plan to recover its business activities to the Court, specifying the necessary measures to recover the operations as well as the conditions, term and schedule for repayment of debts.
Commence the liquidation procedures: The court will decide to commence the liquidation procedures for the company’s assets in the following cases: (1) the failure of the first creditor’s meeting, (2) the company fails to propose a recovery plan, (3) the company implements improperly the approved recovery plan or (4) the creditors do not approve the company’s recovery plan.
Settlement of undue debts: Where the court decides to commence the liquidation procedures, any undue debts of the company existing at that time will be treated as due debts, without any interest for the undue period.
Settlement of secured debts: Where the court issues decision on commencing the liquidation procedures, debts secured by the company’s assets before the courts’ acceptance of bankruptcy hearing will be given priority in payment by such assets.
Priority of assets distribution: Where the court decides to commence the liquidation procedures, the assets of such liquidated company will be distributed in the priority order of (1) bankruptcy fees, (2) unpaid salary, severance allowances, social insurance and other benefits of its employees, and (3) unsecured debts.
Termination of the liquidation procedures: The court will decide to terminate the assets liquidation procedures when the company has no more assets to carry out the assets distribution or the assets distribution has been fully completed.
Declaration of bankruptcy
The court will make the decision to declare the bankruptcy of the company along with the decision to terminate the liquidation procedures thereof. Within 10 days from the date of such decision, the court will forward the decision to the business registration office for deleting the bankrupt company’s name from the business registry.
Under the Law on Bankruptcy, inter alia, the following transactions may be held by the court to be invalid if conducted within three months prior to the date of acceptance of the bankruptcy application (the suspect period):
- settlement of any bilateral contract under which the obligations of the Counterparty are apparently greater than those of the other party; and
On 28 December 2018, the State Bank of Vietnam (SBV) issued Circular 42 amending current foreign currency borrowing regulations (in Circular 24 of the SBV dated 8 December 2015, as amended from time to time (Circular 24/2015)) (Circular 42/2018). Circular 42/2018 will take effect from 1 January 2019.
Changes to permitted lending purpose
Vietnamese banks only lend in foreign currency for a few limited purposes. Circular 42/2018 has following changes to these purposes:
On 20 June 2018, the Ministry of Justice issued Circular 8 on the registration and provision of information on security interest and contracts (Circular 8/2018). Circular 8/2018 will replace Circular 5/2011 on the same subject from 4 August 2018.
Name of the object of the registration
The object of registration under Circular 5/2011 is secured transactions (giao dịch bảo đảm), which is in line with the Civil Code 2005. However, the term “secured transaction” is almost removed from the Civil Code 2015 and the registration is now the registration of security interest (biện pháp bảo đảm). Circular 8/2018 adopts such approach and determined the object of registration is security interest to be consistent with the new Civil Code 2015.