In general, a secured creditor will be given priority over unsecured creditors regarding certain assets of the bankrupt enterprise. However, under Vietnamese bankruptcy law, such priority comes with a cost. In particular:
- If the creditors meeting (comprising of unsecured and partly-secured creditors) may decide to use a secured asset for business recovery plan of the bankrupt enterprise, then the secured creditor may not be able to enforce the secured assets until such time as decided by the creditors. Given a secured creditor is not entitled to vote at the creditors’ meeting, this may make secured creditors less advantageous than unsecured creditors;
- If a secured creditor completes enforcing the relevant secured assets and the value of the secured assets is still less than the amount owing to the secured creditor then logically, the secured creditor should be considered as an unsecured creditor for the bankrupt enterprise. However, there is no clear provision under the bankruptcy law which allows a secured creditor to be treated as unsecured creditor after enforcement of the relevant secured assets. The law allows partly secured creditor to join a creditors’ meeting. But classification of partly secured creditor seems to be made very early in the bankruptcy proceeding and there is no clear procedure for amendment of the list of creditors once enforcement of secured assets is complete; and
- A decision of the creditors’ meeting, which will bind all creditors, require (i) more than half of the unsecured creditors to present and (ii) the consents of unsecured creditors represent at least 65% of the unsecured debts. The wording suggests that partly unsecured creditors are not entitled to vote in a creditors’ meeting. It is not clear why the Bankruptcy Law 2014 has such a provision. Since the counting of vote in the creditors’ meeting should be based on the pool of unsecured debt rather than unsecured creditor.
This post is contributed by Nguyen Hoang Duy, an associate at Venture North Law.