Law on Bankruptcy

LLM. Bui Doan Danh Thao

Learning objectives
1 When is an enterprise/cooperative
considered as bankrupt?

2 How is an enterprise/cooperative
declared bankrupt?

3
How does bankruptcy affect the
creditors and managers?
1. When is an enterprise/cooperative considered as
bankrupt? (Article 4.2 of the law on bankruptcy 2014)

“Bankruptcy is a legal status of an insolvent entity that

is declared bankrupt by the people’s court”
1. When is an enterprise/cooperative considered as
bankrupt? (Article 4.2 of the law on bankruptcy 2014)

Insolvency

Bankrupt
Enterprise/
cooperative
Declaration
of the court
 When is an enterprise/cooperative insolvent?
(Article 4.1 of the law on bankruptcy 2014)

Failure to pay due

debts within 3 months

1. When is an enterprise/cooperative considered as bankrupt?

Notes: Insolvency of an enterprise/cooperative

Reflects serious financial difficulties

Does not mean having no property left

Not always shown in the appearance

Does not matter how much debt an

enterprise/cooperative cannot pay

Does not always result in bankruptcy

1. When is an enterprise/cooperative considered as bankrupt?
Learning objectives
1 When is an enterprise/cooperative
considered as bankrupt?

2 How is an enterprise/cooperative
declared bankrupt?

3
How does bankruptcy affect the
creditors and managers?
2. How is an enterprise/cooperative declared
bankrupt?
Regular procedure Simplified procedure

Request for a Request for a

bankruptcy process bankruptcy process

Accept the Dismiss the Accept the Dismiss the

request request request request

Initiate Refuse to initiate

bankruptcy bankruptcy
process process

Declare Declare
Resume business
bankrupt and bankrupt and
operations
liquidate assets liquidate assets
When will the bankruptcy case be settled by a simplified
procedure?
• The person requesting bankruptcy is:
• The enterprise/cooperative legal representative
• The owner of private enterprises or single member LLC, general partners of
Partnerships
• The chairman of a member’s council of a multi member LLC or of a
management board of a JSC
1 • Shareholders or groups of shareholders holding at least 20% of ordinary
shares for at least 6 consecutive months
• The insolvent entity cannot afford the bankruptcy fee
and advance

• The insolvent entity cannot afford the bankruptcy cost

after the court accepts the request
2
2. How is an enterprise/cooperative declared
bankrupt by regular procedures?

Request for a
bankruptcy process

Dismiss the
Accept the request request

Initiate bankruptcy Refuse to initiate

process bankruptcy process

Resume business Declare bankrupt and

operations liquidate assets
1st step: Request for a bankruptcy process
Who can request for a bankruptcy process? (Art 5)
Who When
Unsecured debt creditors After 3 months from
Creditors
Partly secured debt creditor the payment due date
Employees After 3 months from
Employees the pay date of
An internal/the superior trade Union salaries or other debts
The legal representative
A shareholder or a group of
shareholders owing at least 20% of
Enterprises/ ordinary shares for at least 6 When the entity is
cooperatives consecutive months insolvent
A member of a cooperative
Owner of PE/1M Ltd. Co, chairman
of the MC of Ltd. Co/MB of JSC
1st step: Request for a bankruptcy process
To whom can requesters send the request?(Art 8)
Provincial people’s court District people’s court
(entities registered in) (the headquarter located in)
Overseas assets or
involving entities Cases not under
the competence of
Branches/representative the provincial
office located in district of people’s court
various provinces

Real estate in district

of various provinces
Complicated bankruptcy
cases under the competence
of district people’s court
Exercise: To which court should the requester
submit their request?

• Gia Hong private enterprise in Binh Phuoc

• ABC bakery has branches in various districts

of Ho Chi Minh

• Viettel group has projects in Laos and Africa

• Muong Thanh company has hotels in various

provinces
1st step: Request for a bankruptcy process
How to write a request?
Requesters Contents of a request

Creditors Article 26

Employees or representatives of trade

Article 27
unions

Insolvent enterprises/cooperatives

Shareholders, groups of shareholders, Article 28

members of cooperatives/cooperative
union
 st
1 step: Request for a bankruptcy process
How to submit the request? (Art 30)

Directly Submit
submit by post
2. How is an enterprise/cooperative declared
bankrupt by regular procedures?

Request for a
bankruptcy process

Dismiss the
Accept the request request

Initiate bankruptcy Refuse to initiate

process bankruptcy process

Resume business Declare bankrupt and

operations liquidate assets
2nd step: Handling with the request
Who will handle the request? (Art 31)

A judge
The executive
judge
A group of 3
judges
3 working days
2nd step: Handling the request
In which cases will the court dismiss the request?
(Art 35)

The
The initiation
bankruptcy fee
of bankruptcy
The requester and
process
is not entitled bankruptcy
already made
to request advance (if
by another
applicable)
court
not paid
No amendment
to the request
made within 10 The request
days working withdrawn
days of
notification
2nd step: Handling the request
Can the decision on dismissal of the request be
reconsidered? (Art 36)

The Cancel the

requester dismissal
The
Or
executive The Uphold the
The judge executive dismissal
people’s Uphold the judge of
procuracy dismissal the
higher
court Cancel the
dismissal
3 working days 3 working days

5 working days 7 working days

2nd step: Handling the request
In which case will the court accept the request?
(Art 39)

The fee and advance

The request is (if applicable) paid
regular within 15 days from
the receipt
2nd step: Handling the request
Effect of the acceptance of the request

Suspend the settlement related to financial

obligations of the insolvent enterprises/cooperatives
2nd step: Handling the request
When will the court dismiss or accept the request?

Cases when
Within 3 working days from the day
Dismissal
of appointment

When receiving the fee and advance

(if applicable)
Acceptance
When receiving the regular request
(the fee and advance exempt)
2nd step: Handling the request
When will the court inform their decision?
Case when who
Within 3 working days The requesters
Dismiss from the day on which The people’s procuracy at the
the decision is made same level
The requesters
Insolvent
Within 3 working days enterprises/cooperatives
Acceptance
from the acceptance The people’s procuracy at the
same level
Creditors
2nd step: Handling the request

Can the requesters withdraw the request?

2. How is an enterprise/cooperative declared
bankrupt by regular procedures?

Request for a
bankruptcy process

Dismiss the
Accept the request request

Initiate bankruptcy Refuse to initiate

process bankruptcy process

Resume business Declare bankrupt and

operations liquidate assets
3rd step: Initiation of bankruptcy process
In which case will the court initiate or refuse to
initiate the bankruptcy process? (Art 42)

Within 30 days from

When the acceptation

Initiate the Refuse to initiate

Decision process the process

The entity is in The entity is not

Cases insolvency in insolvency
3rd step: Initiation of bankruptcy process
Will the decision related to the initiation be reconsidered?
(Art 44)
Who can ask Who will When can How long to
settle ask settle
Creditors
Employees
Insolvent
enterprises/cooperatives
Within 07
Shareholders working days
The superior About 18
Members of cooperatives from the
people’s court working days
Debtors receipt of the
decision
Other persons having related
benefits and liabilities
The people’s procuracy at the
same level
3rd step: Initiation of bankruptcy process
How will the initiation affect insolvent entities?

• Keep running the business under supervision

1

• Postpone payment for interests even thought the interest

2 on debts is still being charged

• The legal representatives can be replaced

3

• Not allowed to disperse or hide assets, pay the unsecured

debts, making unsecured debt into a secured or partly
4 secured debt, waive the right to claim debts
3rd step: Initiation of bankruptcy process
What will happen when the bankruptcy process
is initiated?
Appoint asset • 3 working days from the receipt of the
management officers decision
or enterprises • The judge

• 30 days from the receipt of the decision

Make an inventory (extend 2 times)
of the assets • Insolvent enterprises or cooperatives

• 30 days from the decision issuing date

Send debts claim • Creditors
3rd step: Initiation of bankruptcy process
What will happen when the bankruptcy process
is initiated?
• 15 working days from the deadline for
Compile lists of sending the claim
creditors • The asset management
officer/enterprise

Compile and • 45 days from the receipt of the decision

publish lists of • The asset management
debtors officer/enterprise

Convene • 20 days from the end of the inventory

of assets or from the day the lists of
creditors’ meeting creditors made
(if applicable) • The judge
3rd step: Initiation of bankruptcy process
Creditors’ meeting
Who will attend
• Creditors
• Representatives of employees/trade union
• The guarantors having paid debts
• Requesters
• The legal representative of the entities
• The asset management officer/enterprise

When will the meeting be performed

• Attendance of creditors presenting at least 51% of the total
unsecured debts
• Reconvene the meeting within 30 days from the deferment in case
of deferment
3rd step: Initiation of bankruptcy process
Creditors’ meeting

Contents of the meeting

• Elect a creditors’ representative boards including from 3 to 5

members
• Ratify the meeting resolution

When will the meeting resolution be ratified

• Approval of more than half attending unsecured debt creditors

presenting at least 65% of the total unsecured debts
2. How is an enterprise/cooperative declared
bankrupt by regular procedures?

Request for a
bankruptcy process

Dismiss the
Accept the request request

Initiate bankruptcy Refuse to initiate

process bankruptcy process

Resume business Declare bankrupt and

operations liquidate assets
4th step: Declaration of bankruptcy or resuming
business operation

Declare bankrupt Resume the operation

The meeting resolution is The meeting resolution is

not ratified ratified
Cases provided in article
105
Fail to implement
resumption of the business
4th step: Declaration of bankruptcy or resuming
business operation
What must the entities do in case of resuming the
operation?
Make plans for resuming the business
operation within 30 days from the
approval of the meeting resolution day
Get the plan ratified if attending
creditors presenting at least 51% of
the total unsecured debts approve

Implement the plan under

supervision within 3 years
4th step: Declaration of bankruptcy or resuming
business operation
What will happen if the entities fail to implement
the plan?

The court

Suspend the Declare

implementation bankrupt
4th step: Declaration of bankruptcy or resuming
business operation
What will happen if the court declares bankrupt?

Redistribute assets
• Cost of bankruptcy
• Debts to employees
• Debts incurring for resuming
Liquidate the business operation
assets • Other financial obligations
• Members of the entities
Learning objectives
1 When is an enterprise/cooperative
considered as bankrupt?

2 How is an enterprise/cooperative
declared bankrupt?

3
How does bankruptcy affect the
creditors and managers?
3. How does bankruptcy affect the creditors and
managers?
Subjects Effects
Creditors Debt collection risks
Chairman, general directors,
Can not hold such
directors, members of management
post in any other
board – 100% state owned
state-owned company
companies
Can not be a
Managers Representatives of the capital
manager in any state-
contribution of the state
invested company
Can not be a
Managers of bankrupt entities manager of any
entities for 3 years
 Distinguish bankruptcy and dissolution
Criteria Bankruptcy dissolution
The operation duration expires
The decisions of the owners
Reason In insolvency situation The required minimum
numbers no longer remaining
for 6 consecutive months
The registration withdrawn
Authority to The business registration
The court
settle office
Does not always
Outcome Terminate the operation
terminate the operation
Managers banned to hold
No restriction applied for
State’s attitude posts in a set period of
managers
time