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
In a criminal case involving a business, from time to time, the courts will need to decide on the civil liability of the criminal and other persons including those who are not aware of the crime relating to the case. For example, if A commits a fraud against B and uses the monies obtained from B to repay a debt between A and C who is not aware of A’s crime. In addition to deciding on whether A is guilty or not, the court will need to decide whether (1) requesting A to compensate B for the loss that B suffers or (2) requesting C to return the monies C receives from A to B (assuming that A is convicted). However, it appears that the court does not have a consistent approach. In this post, we discuss the approaches that the courts took in some significant criminal cases for the last decade.
Huyen Nhu Case – 2014
Huynh Thu Huyen Nhu was the head of a transaction office of Vietinbank (a large State-owned bank). Huyen Nhu has offered high interest rate (exceeding the interest rate cap provided by law) to various companies to convince them to deposit their monies with a branch of Vietinbank. After those companies made the deposit under instructions of Huyen Nhu, Huyen Nhu used fake documents and payment instruction to cause Vietinbank to transfer the deposit to Huyen Nhu’s designated accounts. Huyen Nhu used most of the amount obtained through her fraud to repay her debts to several individuals. The damages caused by Huyen Nhu is reported to be around VND 4000 billion (about US$ 200 million at such time), being largest bank fraud at the time.
In addition to convicting Huyen Nhu of the crime of committing fraud to appropriate properties (lừa đảo chiếm đoạt tài sản), the court also requested Huyen Nhu to compensate all the relevant companies for the losses that such companies suffer. The relevant companies took the view that they are not victim of Huyen Nhu’s fraudulent acts but Vietinbank is. Therefore, the relevant companies requested Vietinbank to repay them the deposits they made with Vietinbank. However, the court rejected such view and considered those companies to be victims of Huyen Nhu’s fraudulent acts. The court confiscated the amount of interests that Huyen Nhu paid her lenders but did not require these lenders to return the entire amount they received from Huyen Nhu.
On 22 October 2024, the Government of Vietnam issued Decree 135/2024 on mechanisms and policies incentivising the development of “self-generation and self-consumption rooftop solar power” (Self-Consumption RSP). Unfortunately, there is still a great deal of ambiguity in the provisions of Decree 135/2024 that might create unnecessary confusion in applying and administering the implementation of Decree 135/2024. Please see our discussion of a few ambiguous provisions of Decree 135/2024 below.
1) Potential risk from Decree 135/2024’s scope of application – Decree 135/2024 is said to only govern Self-Consumption RSP [systems] that are installed on the roof of construction works that were invested and constructed in strict compliance with law, including regulations on investment, construction, land, environment, safety, firefighting and fire prevention. As such, any noncompliance of the underlying building may cause the rooftop solar system to not be recognised as a Self-Consumption RSP system and therefore cannot enjoy the incentives policies under Decree 135/2024. It is unclear (i) whether mitigated noncompliance in the past (before the Self-Consumption RSP system is installed) would cause the building to be considered not “invested and constructed in strict compliance with law” and therefore prevents the installation of Self-Consumption RSP system on said building, and (i) whether noncompliance that arises after the Self-Consumption RSP system is installed and operated would affect the applicability of Decree 135/2024 to such system and what the outcome would be.
The National Assembly of Vietnam adopted a new law (the Amended Investment Law) to amend and supplement several provisions in Investment Law 2020. Most provisions of the Amended Investment Law take effect from 1 January 2025, except certain cases will take effect from 1 July 2025. In this post, we discuss some notable points in this Amended Investment Law.
Special Investment Procedures
The key point in this Amended Investment Law is the introduction of a special investment procedure (Special Procedure) which allows the eligible investors in certain high-tech sectors to obtain the investment registration certificate (IRC) and implement its project in a shorter time and reduces procedures, including waiver of various approvals and procedures.
The project utilizing the Special Procedure are exempt from various standard approvals and procedures, including IPA, technology appraisal, environmental impact assessment report, detail planning, construction permit and other approvals and permits in construction, fire fighting and prevention. The issued IRC serves as document for land lease or conversion of land use purpose. However, before commencing construction, investors are obliged to submit a report on the project's economic-technical construction investment, along with the corresponding appraisal report, to the relevant Authority.
This Special Procedure prevails relevant regulations under other laws enacted before 15 January 2025 when there is any difference between the Special Procedure and such other laws. For projects having IPA or IRC before the effective date of Amended Investment Law and eligible for utilizing the Special Procedure, the investor of such project can choose to apply the Special Procedure. The Special Procedure is still subject to further guidance from the Government and Ministry of Planning and Investment.
Vietnam’s housing market has experienced rapid growth in recent years, driven by urbanization, economic development, and increasing demand. A shortage in housing supply in some big cities currently has prompted policymakers to enhance land policies to unlock resources for housing project development. As new Land Law 2024 seems to fall short in resolving the land supply constraints for residential development, on 30 November 2024, the National Assembly adopted Resolution 171 on piloting implementation of commercial housing projects through agreements on voluntary assignment of land use rights (LUR) or use of existing LUR (Resolution 171).
With its introduction of a more flexible mechanism for commercial housing development, Resolution 171 is anticipated to address the housing supply shortage. However, developers will need to wait for a detailed decree to ensure the feasibility and compliance of their proposed projects.
In the FLC and Van Thinh Phat cases, the authorities have accused the controlling shareholders of FLC and Van Thinh Phat of various crimes including crimes relating to public issuance of securities, stock manipulation or private issuance of bonds. In an apparent attempt to prevent these crimes to be recommitted, in December 2024, the National Assembly passes some important amendments to the Securities Law 2019 (2024 Amendment). The Amendment takes effect from 1 January 2025 and could impose significant risks to public companies and their shareholders in Vietnam.
Sweeping changes to the liability regime for public companies, their shareholders and advisors
Under the 2024 Amendment, organization or individuals participating in the process of preparing applicable files or reporting documents relating to securities activities and securities market (hoạt động chứng khoán và thị trường chứng khoán) will be responsible for ensuring that:
such application files and reporting documents are legal, accurate, true and complete; and
such application files and reporting documents have clear and not misleading information and contain all material content which affect decision of the authorities, organisations and investors.
Advisors, who provide advice on the application files and reporting documents relating to securities activities and securities market, must be honest and prudent and must ensure that all analysis is reasonable and prudent.
Before the 2024 Amendment, the Securities Law 2019 only imposes liabilities to issuers, underwriters, auditors and “certifying organisations” when they conduct a public offering of securities or register their securities for listing or trading. However, by referring to all securities activities and securities market, the 2024 Amendment appears to expand the liability regimes to apply to all activities in the market including those which are normally not subject to such liability such as (1) private offering of securities, (3) public disclosures by a public companies or their shareholders, (4) secondary trading of securities by investors, and (4) advisors who are involved in these activities.
In practice, it would be very difficult for public companies and their shareholders and advisors to ensure that all of the documents and information relating to their public disclosures and securities trading activities do not contain misleading information and contain all material information, which affect decision by not only investors but also the authorities and other organisations.
On 24 September 2024, the Ministry of Public Securities (MPS) published the draft law on personal data protection (Draft PDPL). Compared to Decree 13/2023, the Draft PDPL introduces several significant points related to personal data protection. This blog will explore the key highlights and implications of these new provisions.
1) Expanded scope of application
As compared to Decree 13/2023, the Draft PDPL broadens its scope to cover additional entities, being “agencies, organizations, and individuals collecting and processing personal data of foreigners within Vietnamese territories.” (Article 1.2(dd). This provision appears to enhance the protection of personal data belonging to foreign nationals. However, it remains unclear whether the provision applies solely to foreigners present in Vietnam or also to those residing abroad. The ambiguity lies in the interpretation of the phrase “within Vietnamese territories”. If it extends to foreigners outside Vietnam, it could impose significant compliance burdens on Vietnamese enterprises processing personal data of foreign nationals.
Furthermore, it is confusing that the Draft PDPL does not address the existing ambiguity in the scope of application under Decree 13/2023. Instead, it introduces another type of applicable entity that could potentially create even greater uncertainty.
2) Definition of personal data associated to “citizen”
Unlike Decree 13/2023, the Draft PDPL defines both basic personal data and, seemingly, sensitive personal data as being specifically associated to “citizens”. It is unclear why Draft PDPL limits its personal data protection to citizens rather than to all individuals, regardless of nationality or status. This approach is not in line with the term “personal data” in GDPR (which refers to that of a natural person). Furthermore, limiting protections to citizens could also infringe on the rights of non-citizens and stateless people, potentially conflicting with Article 21 of the 2013 Constitution, which guarantees privacy rights to "everyone," not just citizens.
Additionally, the term “citizen” is ambiguous, as it is unclear whether it refers to Vietnamese citizens only or also encompasses foreign citizens. If the former interpretation is adopted, this would be inconsistent with the broader scope outlined in Article 1.2(dd) of the Draft PDPL, which governs the personal data of foreigners. If the latter interpretation is adopted, it would not be reasonable for the Draft PDPL and Vietnamese authorities to govern personal data of foreign citizens (especially those who are not in Vietnam).