Vietnam bankruptcy filing: how the process works for firms

Vietnam bankruptcy filing starts when someone asks a people's court to open bankruptcy procedures for a firm that cannot pay its debts. The Law on Bankruptcy, No. 51/2014/QH13, was passed on 19 June 2014 and took effect on 1 January 2015. It covers enterprises and cooperatives set up under Vietnamese law. This guide walks through who can file, what to hand in, and the steps that follow.

Sources: Law on Bankruptcy No. 51/2014/QH13, Articles 2, 3 and 4 and the closing article on effect (English translation on luatvietnam.vn); Vietnam Law Magazine, "The new Law on Bankruptcy at a glance", 23 October 2014.

When a firm counts as insolvent

The law uses a plain test. Under Article 4, an insolvent enterprise is one that fails to pay its debts within 3 months after they become due. Bankruptcy is a later step. It means an insolvent firm that a people's court has declared bankrupt.

This difference matters. A firm can be insolvent for a long time and never be declared bankrupt. The court may open procedures, the firm may recover, or the creditors may agree on a rescue plan.

Source: Law on Bankruptcy No. 51/2014/QH13, Article 4, Clauses 1 and 2.

Who can file, and who must

Several groups have the right to file under Article 5.

• Unsecured and partly secured creditors, when the firm has not paid for 3 months after the due date.
• Employees, or their trade union, when salaries or other debts to staff are 3 months overdue.
• Shareholders or groups of shareholders who hold at least 20 percent of the common shares for at least 6 months in a row, when a joint-stock company is insolvent.
• Members of a cooperative, or cooperatives that belong to a union of cooperatives.

Some people have a duty to file, not just a right. The legal representative of the firm must file when the firm becomes insolvent. So must the owner of a private enterprise, the chair of the board of a joint-stock company, the chair of the members' council of a limited liability company with two or more members, the owner of a one-member company, and the unlimited liability partners of a partnership. Article 28 adds that anyone who fails to file when required can be held responsible under the law.

Sources: Law on Bankruptcy No. 51/2014/QH13, Article 5, Clauses 1 to 6, and Article 28, Clause 5.

Where and how to file

The petition goes to the people's court that has power over the case. District-level courts handle firms based in their district. Provincial-level courts take cases that involve assets abroad, parties living abroad, branches or real estate in different districts, or a complex case they pick up themselves. A petition can be handed in directly or sent by post. The filing date is the day the court receives it or the postmark date.

A firm filing for itself must include a petition with the date, the court, the firm's name and address, and the grounds. It must also attach several papers:

• Financial statements for the last three years, or for the whole life of the firm if it is younger.
• A written explanation of why the firm is insolvent, and a report on the rescue steps that did not work.
• A detailed list of assets and where they are.
• A list of creditors and a list of debtors, showing which debts are due and which are secured.
• Papers on how the firm was set up, and any price appraisal of remaining assets.

Sources: Law on Bankruptcy No. 51/2014/QH13, Articles 8, 28 and 30.

From petition to a court decision

The court moves in short steps. Within 3 working days of receiving a petition, the chief justice assigns a judge. Within another 3 working days, the judge checks the papers. If the petition is valid, the filer is told to pay a bankruptcy fee and an advance for expenses, unless the filer is exempt. If something is missing, the filer gets a deadline to fix it, which cannot be longer than 10 working days. The judge may also forward the petition to the right court or return it.

Once the petition is accepted, the judge has 30 days to decide whether to open bankruptcy procedures. The judge opens them when the firm is insolvent. The decision takes effect the day it is issued, and the court sends it out within 3 working days. A party can ask for a review within 7 working days, and a panel of three judges at the next higher court decides it.

Sources: Law on Bankruptcy No. 51/2014/QH13, Articles 31, 32, 34, 42, 43 and 44.

What happens after procedures open

Within 3 working days of the opening decision, the judge appoints an asset management officer or an asset management and liquidation firm. From then on the firm has limits. It may not hide, scatter or give away assets, pay unsecured debts, give up claims, or turn unsecured debts into secured ones. Deals of that kind are void. The firm must also report to the asset manager before it borrows, pledges, sells or leases assets, or pays salaries.

Creditors have 30 days after the opening decision to send their debt claims to the asset manager. The asset manager then takes inventory of the assets. A judge calls a creditors' meeting within 20 days after the inventory is complete, with notices sent at least 15 days ahead.

Sources: Law on Bankruptcy No. 51/2014/QH13, Articles 45, 48, 49, 66 and 75.

Rescue or bankruptcy declaration

The creditors' meeting passes a resolution with one of three outcomes. It can ask to stop the case if the firm is no longer insolvent. It can ask for steps to restore the business. Or it can ask the court to declare the firm bankrupt.

If creditors choose rescue, the firm prepares a plan with the creditors and the asset manager. Measures can include raising capital, cutting or delaying debts, changing products, restructuring management, and selling shares or assets. If the plan sets no term, it runs for three years from approval. If the meeting fails to reach a result, the court must declare the firm bankrupt within 15 days of the report.

After a bankruptcy declaration, assets are divided in a set order. Bankruptcy expenses come first. Next come staff salaries, severance, and social and health insurance. Then come debts that arose during the rescue effort. Last come taxes owed to the State and unsecured debts. Whatever is left goes to the owners. Interest on debts stops from the date of declaration. A summary route also exists for firms with no money to pay the fee or the expenses, and the court can declare them bankrupt within 30 days of its notice.

Sources: Law on Bankruptcy No. 51/2014/QH13, Articles 52, 54, 83, 88, 89, 105 and 106.