In the context of an economy facing many fluctuations, many businesses fall into a state of insolvency and prolonged financial losses. In such circumstances, understanding Bankruptcy Law and the Legal Resolution Process is essential for businesses, creditors, and related parties to protect their legitimate rights and interests.
Bankruptcy is not simply the “closure of a business,” but a judicial procedure carried out under a strict legal process with the participation of the Court and relevant parties. The article below will help you understand the key regulations on bankruptcy under Vietnamese law.
What Is Bankruptcy Under the Law?
Under current regulations, an enterprise or cooperative is considered insolvent when it is unable to pay debts that have become due within the period prescribed by law.
Important points to note:
- Financial losses alone do not automatically mean bankruptcy.
- Bankruptcy must be declared by a competent People’s Court.
Therefore, a business is only officially declared bankrupt when there is a formal decision issued by the Court.
Entities Subject to Bankruptcy Law
Bankruptcy Law applies to:
- Enterprises of all types (limited liability companies, joint-stock companies, private enterprises, etc.)
- Cooperatives and unions of cooperatives
Small individual businesses that are not registered as enterprises are not subject to Bankruptcy Law and may instead be handled under other civil law provisions.
Parties Entitled to File a Petition to Commence Bankruptcy Proceedings
Under Bankruptcy Law and the Legal Resolution Process, the following parties have the right to submit a petition requesting the Court to initiate bankruptcy proceedings:
- Unsecured creditors or partially secured creditors
- Employees and grassroots trade unions
- The legal representative of the enterprise
- The owner of a private enterprise, the chairman of the board of directors, or the members’ council
Filing a bankruptcy petition does not automatically mean the business will be declared bankrupt; it is only the first step in the review process.
Bankruptcy Resolution Process Under the Law
To better understand Bankruptcy Law and the Legal Resolution Process, it is important to know the following basic steps:
Acceptance of the Petition to Commence Bankruptcy Proceedings
After receiving a valid petition, the Court will consider:
- Its jurisdiction to handle the case
- Whether the conditions for opening bankruptcy proceedings are met
If the requirements are satisfied, the Court will issue a decision to commence bankruptcy proceedings and notify the relevant parties.
Appointment of an Asset Manager or Liquidation Company
The Court will appoint:
- A bankruptcy administrator
or - An asset management and liquidation company
Their duties include:
- Inventorying assets
- Preparing the list of creditors
- Supervising the operations of the enterprise
This is an important step to ensure that asset handling is transparent and carried out in accordance with the law.
Creditors’ Meeting
After the list of creditors is completed, the Court will convene a creditors’ meeting to:
- Discuss the possibility of business recovery
- Approve a recovery plan (if any)
- Decide whether to request a declaration of bankruptcy
The creditors’ meeting plays a key role in determining the future direction of the enterprise.
Business Recovery (If Applicable)
The law allows an enterprise the opportunity to recover if:
- There is a feasible recovery plan
- The plan is approved by the creditors’ meeting
A recovery plan may include:
- Debt restructuring
- Seeking new investors
- Changing the management structure
If successfully implemented, the enterprise may continue operating and avoid being declared bankrupt.
Declaration of Bankruptcy and Asset Liquidation
If there is no recovery plan, or if the approved plan is not successfully carried out, the Court will issue a decision declaring bankruptcy.
After that, the enterprise’s assets will be:
- Liquidated
- Distributed to creditors according to the legal order of priority
Order of Asset Distribution in Bankruptcy
An important aspect of Bankruptcy Law and the Legal Resolution Process is the order of debt repayment.
Generally, the remaining assets of the enterprise will be distributed in the following order:
- Bankruptcy expenses
- Unpaid wages, severance allowances, and social insurance obligations to employees
- Financial obligations to the State
- Other outstanding debts
Asset distribution must be carried out fairly, in accordance with the law, and under the supervision of the Court.
Legal Consequences of a Bankruptcy Declaration
When a business is declared bankrupt:
- Its operations are terminated
- Its name is removed from the business registration system
- Managers may be restricted from establishing or managing businesses for a certain period of time
However, bankruptcy does not automatically result in criminal liability, except where there are unlawful acts such as fraud or illegal transfer of assets.
Difference Between Bankruptcy and Dissolution
Many people confuse bankruptcy with dissolution.
- Dissolution means terminating business operations while still being able to fully pay all debts.
- Bankruptcy refers to insolvency and must go through Court procedures.
This distinction is very important when applying the appropriate legal regulations.
Prohibited Acts During Bankruptcy Proceedings
During bankruptcy procedures, the enterprise and related parties must not:
- Conceal or transfer assets unlawfully
- Hide relevant information
- Repay debts in the wrong order of priority
- Abuse bankruptcy procedures to evade obligations
Violations may result in administrative penalties or criminal prosecution.
The Role of Bankruptcy Law in the Economy
Bankruptcy Law does not only deal with weak or insolvent businesses, but also:
- Creates a mechanism to filter and regulate the market
- Protects the rights and interests of creditors and employees
- Provides opportunities for business restructuring
In a market economy, bankruptcy is a natural phenomenon. What matters is that the process is carried out transparently and in accordance with the law.
Important Notes for Businesses Facing the Risk of Bankruptcy
If a business is experiencing financial difficulties, it should:
- Proactively review its financial situation
- Work with creditors to find restructuring solutions
- Seek advice from lawyers or financial experts
- Avoid transactions that may indicate legal violations
Early and transparent action will help minimize losses and protect the rights and interests of all parties involved.
Conclusion
Understanding Bankruptcy Law and the Legal Resolution Process is essential for businesses, investors, and employees alike. Bankruptcy is not merely an end, but also a legal mechanism designed to ensure fairness and transparency in handling financial obligations.
Complying with proper procedures, cooperating with competent authorities, and maintaining transparency of information will help bankruptcy proceedings move smoothly, reduce disputes, and safeguard the legitimate rights and interests of related parties.
