Vietnamese bankruptcy regulations
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.
Basic knowledge
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.
Bankrupt status
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.
Assets liquidation
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.
Voidable transactions
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
The most common form of security which is created over houses and buildings is mortgage (thế chấp). However, the Civil Code 2015 also provides for other forms of securities. In this blog, we will discuss whether other forms of securities could be created over houses and buildings.
Pledge (Cầm cố) – Unlikely
Pledge of property means the delivery by one party of “property” under its ownership to another party as security for the performance of an obligation. Since the term “property” includes both moveable properties and immovable properties, it is arguable that a pledge could be created over houses and buildings being immovable properties. However, Article 310.2 of the Civil Code 2015 provides that “Where an immoveable property is the subject matter of a pledge in accordance with law, the pledge of the immoveable property shall be enforceable against a third person as from the time of registration.”
Reference to “in accordance with law” suggests that pledge could only be created over an immovable property if a law specifically allows it. However, currently the Land Law 2024 and the Residentially Housing Law 2023 only specifically allow mortgages to be created over residential houses or assets attached to land.
Article 23.1 of Vietnam's 2023 Law on Real Estate Business explicitly allows real estate developers to sell future properties, such as houses, buildings, or floor areas within a building. However, the law is silent on the leasing of future properties (except for hire purchase transactions). This omission has led to uncertainty regarding the legality of such transactions.
On the one hand, leasing of future properties was clearly permitted in a similar Article of the Law on Real Estate Business 2014. Accordingly, one could argue that the omission of leasing from Article 23.1 of the Law on Real Estate Business 2023 indicates that a real estate developer cannot lease future properties.
Under Article 84.2 of the Civil Code 2015, a branch (chi nhánh) of a legal entity has the duties to perform all or parts of the legal entity’s functions. However, a branch is not allowed under the Civil Code 2015 to act as an authorized representative of a legal entity. Accordingly, it is not clear in what capacity a branch would perform the functions of a legal entity.
Logically, in order for a branch to perform all or parts of the legal entity’s functions, either
Option 1: a branch could be allowed to act as an authorized representative of a legal entity under another law; or
Option 2: a branch could perform the functions of a legal entity in its own name and capacity. In other words, a branch can perform the functions of a legal entity without needing an authorization from the parent entity and the action (or inaction) of a branch will be deemed an action or inaction of the parent entity.
The term “economic organisation” (tổ chức kinh tế) was first introduced under the Investment Law 2014 and refers to, among other things, any company or organisation incorporated in Vietnam. Over time, the term “economic organisation” has been used consistently in other legislations and allows for a consistent application of the law. However, the Land Law 2024 has introduced significant confusion as to the meaning of the term “economic organisation”. In particular, it is not clear under the Land Law 2024, if the term “economic organisation” only refers to companies or organisations, which are not controlled by foreign investors and do not include companies or organisations which are controlled by foreign investors. The lack of clarity has important implication on how the Land Law 2024 is implemented. For example, if the term “economic organisations” under the Land Law 2024 includes organisations which are controlled by foreign investors then a foreign bank branch could have a clear legal basis to take mortgage over land use rights and assets attached to land.
The corporate bond crisis in Vietnam started in 2022 during which many corporate bonds issued before September 2022 under Decree 153/2020 were defaulted by the issuers (Pre-2022 Bonds). To facilitate the potential restructuring of Pre-2022 Bonds, in 2023, the Government issued Decree 8/2023 which allows for the bond issuers and the bondholders to agree to amend the terms of a Pre-2022 Bonds including the extension of the duration for the Pre-2022 Bonds to up to two years. However, the rights of a bondholder who disagrees with a restructuring proposal for a Pre-2022 Bond are not clear.
Under Decree 8/2023, the duration and the repayment schedule of a Pre-2022 Bond could be extended if the proposed extension is approved by bondholders representing 65% or more of the total number of outstanding bonds. Decree 8/2023 further provides that for bondholders who do not agree to changes in the conditions and terms of a Pre-2022 Bond (dissenting bondholders), the issuer is required to negotiate with the dissenting bondholders. If a dissenting bondholder does not accept the proposed negotiation plan, the issuer must fully fulfill its obligations to that dissenting bondholder in accordance with the original bond issuance plan. This requirement holds even if the proposed changes have been approved by the other bondholders who hold 65% of the outstanding bonds.
Under anti-money laundering (AML) regulations, reporting entities (e.g., credit institutions) are required to be aware of several key watchlists, maintained by relevant Vietnamese authorities, to ensure compliance with their AML obligations. This blog will introduce those watchlists and discuss specific requirements related to them.
Essential watchlists under AML regulations
Under AML regulations, the Vietnamese Government maintains the following watchlists:
(1) A Blacklist (danh sách đen in Vietnamese): including (a) list of organizations and individuals involved in terrorism and terrorism financing compiled by the Ministry of Public Security (MPS), and (b) a list of organizations and individuals designated as being involved in the proliferation and financing of the proliferation of weapons of mass destruction, compiled by the Ministry of National Defense (MND);
(2) A warning list/Grey list (danh sách cảnh báo in Vietnamese): A list of organizations and individuals compiled by the State Bank of Vietnam (SBV) to warn about those with a high risk of money laundering; and
(3) A list of Foreign politically exposed person (PEP List) (danh sách cá nhân nước ngoài có ảnh hưởng chính trị in Vietnamese): A list of foreigners who hold a senior position in foreign agencies, organizations, and international organizations, notified by the SBV.
There are no specific guidelines on how to access these watchlists or the procedure for screening data against them. However, except for the Grey List, which has not yet been published by the SBV, the Blacklist ((1)(a) and (1)(b)) and PEP List can be found via the national portals of the MPS, MND, and SBV (see embedded links).