The laws of Vietnam are complex and new legislation is constantly being introduced. What follows is no more than an introductory overview that we hope will assist investors to decide which areas of law they will need to research further.
This summary is, necessarily, selective and is no substitute for detailed legal advice.
1. The law on insolvency and bankruptcy is contained in The Law on Business Bankruptcy of 30 December 1993 together with Decree 189 CP of 23 December 1994, which details additional provisions for the implementation of the 1994 legislation (together "the Bankruptcy Laws"), and applies to Enterprises with Foreign Invested Capital and most domestic Vietnamese enterprises.
2. The Laws on Foreign Investment make express provision for liquidation of Foreign Invested Enterprises; the legislation is not wholly consistent with the Bankruptcy Laws.
3. Businesses relating to national defence, and public utility services, for example, telecommunications and insurance, may not be declared bankrupt by a Court, without a letter of authorisation from the Prime Minister, or the Head of the Agency which established the business.
An Enterprise is deemed to be in danger of bankruptcy when it has suffered losses for 2 consecutive years to the point where it is not capable of paying due debts, or if it has failed to pay staff for 3 consecutive months. In that situation, ,in Enterprise is required to take steps to try and avoid formal bankruptcy, by way of reorganisation, restructuring, recovery of debts due and similar actions. If after this, it has still not overcome its difficulties, and cannot pay debts as they fall due, then it is deemed to be bankrupt and the Bankruptcy Laws apply.
5. Who May Petition For Bankruptcy?
(A) An unsecured or partially secured creditor whose invoice has not been paid within 30 days;
(B) A representative of the Trade Union or the Workers of an Enterprise who have not been paid for 3 consecutive months;
(C) The Enterprise itself by way of Voluntary Petition.
If an Enterprise petitions for its own bankruptcy, it must, at the same time, lodge details of the rescheduling measures that it has attempted, along with a Statement of Affairs, detailing the creditors, and reporting on the business for the preceding 6 months, and copies of its annual reports for the last 2 years. In all cases the Petitioner has to pay a deposit as security for costs.
It is not entirely clear from the legislation whether a petition may he lodged within the 2 year restructuring period, though it would appear in practice that it can.
6 Form Of Bankruptcy Proceedings
Within 30 days of filing of the petition, the Chief Justice of the Economic Court must decide if there is sufficient evidence to justify proceeding with the bankruptcy. Emphasis will always be placed on attempts to restructure to avoid bankruptcy if possible. If a decision is made to proceed, then this must be published in local and central newspapers for 3 consecutive days.
The legislation provides detailed rules of procedure and for the establishment of a Property Management Committee (PMC).
The task of the PMC is, broadly, to prepare a list of assets, creditors and debtors of the Enterprise. It also supervises and controls the operation of the Enterprise, which is permitted to continue to function in the meantime until a formal declaration of bankruptcy is made.
Temporary protection orders may be made by the Court to protect assets.
7. Creditors Meeting
Within 30 days of closing of the list of creditors, a meeting of creditors must take place, presided over by the appointed judge(s). Only unsecured and partially secured creditors may vote at the creditors meeting. The legal representative of the Enterprise or his proxy must be present. So too must a minimum of half of the creditors in number, representing two thirds of the value of unsecured debts.
If creditors amounting to two thirds of the value of unsecured debts agree to the rescheduling plan put forward by the Enterprise, then there may be a temporary suspension of the proceedings. If insufficient numbers attend the meeting then it may be adjourned to a new date within 30 days. If there is insufficient attendance at the adjourned meeting, the Judge must suspend the bankruptcy.
8. Declaration Of Bankruptcy
In the event that the creditors do not accept the rescheduling plans proposed or the legal representative of the Enterprise does not attend the Creditors Meeting, or no rescheduling plan is put forward, then the Court may declare bankruptcy.
From this point the Enterprise loses the right to control its property. This is taken over by the PMC.
9. Realisation And Distribution Of Assets
As well as being advertised, the bankruptcy decision is sent to the Judgement Enforcement Office of the Department of Justice (JEO).
The JEO appoints a Property Liquidation Committee, (PLC) consisting of:-
-an Enforcement Officer, ( who shall be the Chairman), and
- representatives of the creditors, the Trade Unions and the now bankrupt Enterprise.
Members of the PMC may be appointed as members of the PLC.
The Chairman of the PLC, in conjunction with his members determines the procedures for the recovery and realisation of assets at auction.
Once the assets of the bankrupt Enterprise have been ascertained and recovered, they will be distributed in the following order:-
- Costs of the Bankruptcy;
- Unpaid wages and social insurance;
- tax liabilities
If funds remain after all creditors have been paid, such funds will be returned to the Enterprise.
10. Bankruptcy With Particular Reference To Enterprises With Foreign Invested Capital
Article 2 of Decree 189 stipulates that the bankruptcy of Wholly Foreign Owned Enterprises, or those with partial foreign investment shall comply with the Laws on Foreign Investment and the Bankruptcy Laws.
The requirement to comply with both "sets" of laws at one and the same time causes difficulties.
It should be noted that the bankruptcy of a party to a Joint Venture Contract will not automatically result in the dissolution of the Joint Venture Company, (JVC). The rationale behind this is that a JVC, when formed, becomes a new legal entity, separate and independent from its constituent parties, and that the bankruptcy of one of those parties should not automatically affect the status of the JVC itself.
NOTE: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
If you would like further advice please contact: David Ellis, Johnson Stokes & Master, 16th Floor, Princes Building, 10 Chater Road, Hong Kong; Tel 2843 4226; Fax no. : 2845 9121. Alternatively do a text search "Johnson Stokes and Master" and "Business Monitor".