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
Decree 163 of the Government on logistics services was issued on 30 December 2017 (Decree 163/2017). It is going to take effect on 20 February 2018 and replace Decree 140 of the Government on logistics services dated 5 September 2007 (Decree 140/2007). Below are salient changes in Decree 163/2017.
Decree 163/2017 no longer requires the logistics services providers to meet the condition of adequate equipment and personnel. That condition was applied to some logistics services, but under Decree 163/2017, the logistics services providers have only to meet conditions specific to the logistics service that they provide.
Decree 163/2017 allows foreign investors to apply, at their discretion, investment conditions regarding logistics services under an international treaty where multiple treaties are applicable.
Decree 163/2017 classifies logistics services in accordance with Vietnam’s commitments to the WTO. By contrast, Decree 140/2007 has its own classification of logistics services which is not consistent with the description of logistics services under the WTO Commitments. And the investment conditions and foreign ownership limit provided in Decree 163/2017 are generally consistent with the WTO Commitments. Therefore, it is easier to compare the Decree 163/2017 with the WTO Commitments.
The table below sets out the applicable foreign ownership limit under Decree 163/2017, to the extent possible, in comparison with Decree 140/2007:
On 15 January 2018, the Government issued Decree 9/2018 on sale and purchase of goods and other directly-related activities by FIEs. Decree 9/2018 took effect immediately and replaces the outdated Decree 23/2007. Several issues arise from this Decree 9/2018. Unfortunately, most of these issues will likely make the operation and investment by FIEs in the sectors covered by Decree 9/2018 more (sometimes much more) challenging. In particular,
In November 2017, the National Assembly passed various amendments to the Law on Credit Institutions 2010 (LCI Amendments). About two-thirds of the LCI Amendments focus on restructuring, rescue, and liquidation of a credit institution. This probably explains the relatively short period between the issuance of the LCI Amendment and its effective date. The LCI Amendments will take effect from 15 January 2018, less than two months after issuance. The National Assembly usually give a new law six months to one year to take effect. This seems to indicate a sense of urgency by the State Bank of Vietnam (SBV) in dealing with various banks which have been rescued by the SBV for the last couple of years.
In addition to the provisions on restructuring, rescue, and liquidation of a credit institution, the LCI Amendments contain a host of other amendments which aim to improve the governance and operation of a credit institution. These amendments include:
Decree 126/2017 replacing Decree 59/2011 on equitisation of State-owned enterprises introduces various new requirements for a strategic investor who invests during the equitisation of a State-owned enterprise (equitised SOE). These new requirements (especially the pricing requirement) are more difficult for a strategic investor to satisfy. In particular,
- The equitized SOE must decide to select the strategic investor and the strategic investor must commit to invest before publication of the public offering document for the public auction. Under Decree 59/2011, the strategic investor may decide to invest either before or after the public auction;
- Despite being required to commit to invest before the public auction, in most cases, the strategic investor must pay a price not lower than the average bidding price at the public auction. Under Decree 59/2011, there is no such requirement and the minimum price is the lowest successful bidding price. This requirement under Decree 126/201 seems to repeat the mistake under Decree 109/2007. There is unlikely any sensible investor who will commit to invest without knowing the price that it has to pay first;
The Sabeco – ThaiBev transaction announced on Monday is no doubt the biggest equity deal in Vietnam so far. The deal structure (see below) as reported by newspaper involves Vietnam Beverage acquiring 53.59% shares in Sabeco. Vietnam Beverage is wholly owned by Vietnam F&B Alliance Investment. Thai Bev, in turn, owns 49% of Vietnam F&B Alliance Investment. From the look of it, it appears that ThaiBev is investing in Sabeco by setting up a “non-foreign” investor through various corporate layering.