A new Bankruptcy Law has been issued and will become effective from 1 January 2015. The law contains various new points which hopefully will make it easier for a company to enter and exit bankruptcy process in Vietnam. In particular,
- The law for the first time introduces the use of receiver which is a private company with certain professional qualification to manage the bankruptcy process. Under the old regulations, the bankruptcy process is managed directly by the court through an asset management and liquidation unit.
- The insolvency status is defined as the inability to pay overdue debt for three months instead of the inability to pay overdue debt when due. The revised definition could help to reduce abuse of bankruptcy process to settle individual disputes.
- There is now a process for a higher court to review a decision to commence or not to commence a bankruptcy process issued by a lower court.
- Interests can continue to accrue from the time of the decision to commence a bankruptcy process to the time of the decision to declare bankruptcy. Under the old regulations, interests cease to accrue as soon as there is a decision to commence a bankruptcy process. The new provision is more protective to creditors as the bankruptcy process may well last for a couple of years;
- A secured creditor may not be able to enforce its security if the secured assets need to be used for the business recovery plan approved by the unsecured creditors.
- In terms of liquidation preference, it is now clear that taxes owed to the Government have same liquidation preference as other unsecured creditors. Debts arising from the business recovery plan have higher liquidation preference to other unsecured creditors. If the bankrupt company is a credit institution then deposits or monies paid by deposit insurance institution will have higher liquidation preference and special loans given the bankrupt credit institutions during the special control process will have the highest liquidation preference.
- The voidable preference may now extend to 6 months (instead of 3 months) or, in the case of related persons, 18 months before commencement of a bankruptcy process and to sale transaction conducted not at market price or transaction outside the scope of business of the relevant company. There is also a process to review a court’s decision to void a transaction under the voidable preference regime.
- A bank where a company which is subject to a decision to declare bankruptcy has an account is expressly prohibited from paying debts unless approved by the court.
- There are detailed procedures for liquidating assets of a bankrupt company.