DISCUSSION ON COSTS OF TRUSTEES, ASSET MANAGEMENT AND LIQUIDATION ENTERPRISES VIETNAM 2024

DISCUSSION ON COSTS OF TRUSTEES, ASSET MANAGEMENT AND LIQUIDATION ENTERPRISES VIETNAM 2024

DISCUSSION ON COSTS OF TRUSTEES, ASSET MANAGEMENT AND LIQUIDATION ENTERPRISES IN VIETNAM 2024

LEGAL REGULATIONS AND IMPLEMENTATION PRACTICE

Judge Phung Thi Nhu Mai

Economic Court, People’s Court of Ho Chi Minh City

I. Current legal basis on the costs of Trustees and Asset Management Enterprises liquidation of assets in bankruptcy case

1. Bankruptcy Law 2014:

According to the provisions of the Bankruptcy Law 2014, the Trustee and the  Asset management and liquidation enterprise have the following rights and obligations:

“ Article 16. Rights and obligations of the Trustee, asset management and liquidation enterprise

1. Asset management, business operations supervision, asset liquidation of insolvent enterprises and cooperatives, including:

a) Verify, collect and manage documents and evidence related to the operations of enterprises and cooperatives;

b) Prepare a list of assets, a list of creditors, and a list of debtors;

c) Preserve assets; prevent the sale or transfer of assets without the permission of the Judge; prevent the dissipation of assets; maximize the value of assets of enterprises and cooperatives when selling or liquidating assets;

d) Supervise business activities of enterprises and cooperatives according to the provisions of law;

d) Hire individuals and organizations to perform work according to the provisions of law;

e) Propose to the Judge the sale of assets of enterprises and cooperatives to cover bankruptcy costs;

g) Sale of assets by decision of the Judge to cover bankruptcy costs;

h) Organize the valuation and liquidation of assets according to the provisions of this Law; report to the civil enforcement agency and notify relevant participants in bankruptcy proceedings about assigning individuals and organizations to carry out asset liquidation;

i) Deposit the collected amounts into the account opened at the bank by the People’s Court or competent civil enforcement agency.

2. Represent the enterprise or cooperative in case the enterprise or cooperative does not have a legal representative.

3. Report on the status of assets, debts and operations of enterprises and cooperatives, participate in developing plans to restore business operations of insolvent enterprises and cooperatives.

4. Request the Judge to carry out the following tasks:

a) Collect documents and evidence;

b) Declare the transaction invalid and decide to recover the assets of the enterprise or cooperative that were illegally sold or transferred;

c) Apply temporary emergency measures; apply administrative sanctions; transfer the case to a competent authority for criminal handling according to the provisions of law.

5. Receive remuneration and perform professional insurance responsibilities according to the provisions of law.

6. Report on the performance of their duties and powers at the request of the Judge and the civil enforcement agency; be responsible to the Judge, the civil enforcement agency and the law for the performance of their duties and powers.”

2. Decree No. 22/2015/ND-CP dated February 16, 2015 of the Government detailing a number of articles of the Bankruptcy Law on Trustees and the practice of asset management and liquidation (Decree 22/2015):

As cited above, the 2014 Bankruptcy Law only provides very briefly in clause Article 16 on the Trustee and the Enterprise managing and liquidating assets “entitled to remuneration” does not specifically regulate this content. However, Decree 22/2015 has specific provisions as follows:

“Article 21. Expenses of the Trustee, asset management and liquidation enterprise

1. The expenses of the Trustee, asset management and liquidation enterprise shall be paid from the asset value of the insolvent enterprise or cooperative. The expenses of the Trustee, asset management and liquidation enterprise shall include the remuneration of the Trustee, asset management and liquidation enterprise and other expenses.

2. Remuneration is calculated based on the following bases:

a) Time spent by the Trustee to perform his duties;

b) The efforts of the Trustee in performing the duties;

c) Results of the performance of the duties of the Trustee.

3. Remuneration is calculated based on one or more of the following methods:

a) Working hours of the Trustee;

b) Lump sum remuneration;

c) The remuneration level is calculated as a percentage of the total asset value of the bankrupt enterprise or cooperative obtained after liquidation.

4. The remuneration level is specifically determined as follows:

a) In case the People’s Court issues a decision to suspend bankruptcy proceedings as prescribed in Article 86 of the Bankruptcy Law, the remuneration level shall be agreed upon by the Judge conducting the bankruptcy proceedings and the Trustee, the enterprise managing and liquidating assets based on consideration and application of the basis prescribed in Clause 2 and the method prescribed in Clause 3 of this Article;

b) In case an enterprise or cooperative is declared bankrupt according to the provisions of Clause 3, Article 80, Clause 4, Article 83, Clause 7, Article 91 of the Bankruptcy Law , the remuneration level is determined as follows:

c) In the case of an enterprise or cooperative declared bankrupt under the provisions of Point b or Point c, Clause 1, Article 95 of the Bankruptcy Law, the remuneration includes the remuneration determined on a case-by-case basis as prescribed in Point b, Clause 4 of this Article plus the remuneration for supervising the business activities of the enterprise during the process of the insolvent enterprise or cooperative implementing the business recovery plan. The remuneration for supervising the business activities of the enterprise shall be agreed upon by the Judge and the Trustee, the enterprise managing and liquidating assets based on the provisions of Clause 2 and the method prescribed in Clause 3 of this Article;

d) In the case of enterprises and cooperatives that have completed the business recovery plan prescribed in Point a, Clause 1, Article 95 of the Bankruptcy Law , the remuneration level shall be agreed upon by the Judge conducting the bankruptcy proceedings and the Trustee, the enterprise managing and liquidating assets based on the provisions in Clause 2 and the method prescribed in Clause 3 of this Article.

5. In case the Creditors’ Conference and the Trustee or the asset management and liquidation enterprise have a different agreement on the remuneration level prescribed in Clause 4 of this Article, the remuneration level shall be applied according to that agreement.

6. In case of bankruptcy of a credit institution as prescribed in Chapter VIII of the Bankruptcy Law , the remuneration of the Trustee and the asset management and liquidation enterprise shall be determined as prescribed in Point a and Point b, Clause 4 of this Article.

7 .Other expenses of the Trustee, asset management and liquidation enterprise include transportation, accommodation and other reasonable expenses for performing asset management and liquidation activities. Payment and settlement of other expenses of the Trustee, asset management and liquidation enterprise shall be carried out in accordance with current law provisions.

8. The judge conducting bankruptcy proceedings shall decide on the level of advance payment for the Trustee and the asset management and liquidation enterprise based on each specific case. The Trustee and the asset management and liquidation enterprise receiving the advance payment shall make payment and settlement in accordance with the provisions of the law on finance and accounting.

3. Official Dispatch No. 199/TANDTC-PC dated December 18, 2020: Official Dispatch of the Supreme People’s Court on announcing the results of the online resolution of some issues in bankruptcy proceedings:

The dispatch addressed various issues related to bankruptcy procedures at the court, including several aspects concerning the costs for trustees and asset management and liquidation enterprises, as follows:

“. . .

4. In cases where the advance bankruptcy costs paid by the applicant are found to be insufficient after the court issues a decision to initiate bankruptcy proceedings, can the court require the applicant to pay additional advance bankruptcy costs?

“Advance bankruptcy costs are amounts decided by the People’s Court for public announcements, advance trustee fees, and fees for asset management and liquidation enterprises.” (Clause 14, Article 4 of the Bankruptcy Law).

“The applicant for bankruptcy proceedings must pay advance bankruptcy costs, except for the cases specified in Clause 2, Article 5 and Point a, Clause 1, Article 105 of the Bankruptcy Law.” (Clause 2, Article 23 of the Bankruptcy Law).

Thus, the payment of advance bankruptcy costs is a mandatory obligation for the applicant when filing for bankruptcy, and the initial amount decided by the court is an estimate based on the provisions in Clause 1, Article 38 of the Bankruptcy Law and Article 21 of Decree No. 22/2015/ND-CP dated February 16, 2015, concerning trustee and asset management and liquidation costs.

Therefore, during bankruptcy proceedings, if additional costs arise for trustees and asset management and liquidation enterprises to handle the bankruptcy process, the court has the right to request the applicant to continue paying the advance bankruptcy costs.

If the applicant does not pay the additional advance bankruptcy costs, based on the provisions of Point e, Clause 1, Article 16; Clause 6, Article 9; and Clause 3, Article 23 of the Bankruptcy Law, the judge, either on their own or at the request of the trustee, may decide to sell the insolvent enterprise’s or cooperative’s assets after initiating bankruptcy proceedings to cover the bankruptcy costs. The trustee or asset management and liquidation enterprise will be instructed to sell some assets of the insolvent enterprise or cooperative to ensure sufficient payment of the bankruptcy costs.

5. According to Article 38 of the Bankruptcy Law, within three working days from the receipt of a valid petition for initiating bankruptcy proceedings, the People’s Court estimates the advance bankruptcy costs and notifies the petitioner to pay these costs. How does the court calculate the advance bankruptcy costs?

“Advance bankruptcy costs are amounts decided by the People’s Court for public announcements, advance trustee fees, and fees for asset management and liquidation enterprises.” (Clause 14, Article 4 of the Bankruptcy Law).

“… the People’s Court estimates the advance bankruptcy costs…” (Clause 1, Article 38 of the Bankruptcy Law).

Thus, depending on each bankruptcy case, the court estimates the advance bankruptcy costs based on the local newspaper fee rates, the actual local activities of trustees, and asset management and liquidation enterprises, and the provisions in Article 21 of Decree No. 22/2015/ND-CP dated February 16, 2015, concerning trustee and asset management and liquidation costs. This estimation includes the initial advance payment for the trustee.

. . .

25. Is it necessary to include bankruptcy costs in the bankruptcy declaration decision?

According to Clause 1 of Article 54 and Point h of Clause 1 of Article 108 of the Bankruptcy Law, bankruptcy costs must be included in the plan for the distribution of assets of the bankrupt enterprise or cooperative in the bankruptcy declaration decision.

However, the judge is not required to specify the exact amount of bankruptcy costs. This is because bankruptcy costs encompass the expenses for handling bankruptcy proceedings, including trustee fees, asset management and liquidation enterprise fees, auditing fees, publication fees, and other costs as prescribed by law.

After the court issues the bankruptcy declaration decision, the civil enforcement agency executes the decision, and during this phase, additional bankruptcy costs may arise. Therefore, the court cannot precisely determine the total bankruptcy costs at the time of issuing the bankruptcy declaration decision.

. . .”

To date, the referenced documents form the legal basis for implementing the costs for trustees and asset management and liquidation enterprises in bankruptcy cases. There have been no supplementary or replacement regulations. The practical application of these regulations has encountered numerous obstacles.

II. EVALUATION OF EFFECTIVENESS OF PRACTICAL IMPLEMENTATION

According to the summary report on the implementation of the Bankruptcy Law in 2014 (established in 2024), as of December 2023, from 2015 to 2023, the courts have accepted 1,510 bankruptcy cases. Of these, the courts have decided to open bankruptcy proceedings for 554 cases and returned 66 applications, including one case where the request to open bankruptcy proceedings against a cooperative was withdrawn by the litigant, prompting the Court to return the application.

Processing times depend on the nature and complexity of each case, as well as the cooperation of the insolvent enterprise. Some bankruptcy cases have been extended for up to 10 years, while one case, still unresolved after 16 years, remains under execution. Conversely, some bankruptcy cases were resolved within one month due to the enterprise’s total inability to pay and lack of assets for implementing the property division plan.

Additionally, according to the draft report, the Trustee and the enterprise managing and liquidating assets handled more than 500 cases, collecting total remuneration exceeding 8 billion VND. The total tax paid amounted to over 400 million VND. Based on the report’s data, the average net remuneration for the Trustee after tax deductions was approximately 15,200,000 VND per case.

Regarding the results of judgment execution, statistics from the Ministry of Justice indicate that from January 1, 2015, to December 31, 2023, the total amount and rate of enforcement of court decisions in bankruptcy settlements showed a notable fluctuation. The enforcement rate decreased from 84.62% in 42 cases (approximately 35 cases) to 31.68% in 324 cases (around 102 cases). The total amount of money executed exceeded 1,000 billion VND.

Based on these statistical reports, the remuneration received by Trustees and asset management enterprises appears disproportionately low compared to the workload required. This discrepancy becomes more pronounced as the number and scale of bankruptcy cases accepted by the courts continue to rise.

The Bankruptcy Law 2014 lacks clear provisions for calculating advance payments for bankruptcy costs, resulting in inconsistent implementation. This legal gap complicates the process of determining fair remuneration for Trustees and asset management enterprises.

Each bankruptcy case presents unique steps and complexities during the resolution process. These may include establishing lists of domestic and international creditors, inventorying assets located in various regions, and managing assets that require preservation, storage, or evaluation. Consequently, judges face considerable difficulty in predicting the complexity of tasks involved upon receiving a request to initiate bankruptcy proceedings.

The absence of a standardized basis for calculating expected remuneration further exacerbates this issue. Many bankruptcy cases involve lengthy resolution periods and complex procedures, while advance payments often fall short of covering the necessary costs. This situation underscores the urgent need for a more precise legal framework to ensure adequate remuneration and efficient case management.

The Bankruptcy Law 2014 lacks specific regulations on funding sources to cover expenses arising during the bankruptcy settlement process in cases where enterprises and cooperatives have no remaining assets but refuse to file lawsuits to collect debts. A critical question arises: Does the asset manager have the right to request the Court to compel such enterprises to sue? Furthermore, in such scenarios, should these businesses be considered as having no assets?

Regarding bankruptcy costs, the law does not clearly mandate advance payment of such expenses by the party requesting bankruptcy proceedings. According to Article 23 of the Bankruptcy Law, in such cases, the Judge assigns the Trustee or the enterprise practicing asset management and liquidation to sell certain assets of insolvent enterprises or cooperatives to ensure coverage of bankruptcy costs. However, the law remains silent on how costs arising from asset valuation, auctions, and related expenses should be managed and paid.

The absence of explicit provisions on the authority and procedures for paying bankruptcy expenses has led to varying interpretations and implementations. In some cases, Trustees deduct expenses from the proceeds of asset sales before transferring the remaining funds to the Executor. In other cases, the Trustees transfer all collected amounts to the Executor, who subsequently pays the Trustees.

To address remuneration issues, a clear mechanism should be established for resolving disputes related to Trustee remuneration and determining the priority order for such payments. This would ensure fairness and transparency in compensating professionals involved in the bankruptcy settlement process.

III. REFERENCE TO INTERNATIONAL LAW ON THIS ISSUE

According to international practice and the provisions of Vietnamese law, the remuneration of the Trustee is calculated based on several factors, including the time spent performing duties, the efforts made, and the outcomes achieved. There are three possible methods for determining this remuneration: calculation based on the number of hours worked, a lump sum payment, or a percentage of the total assets of the bankrupt enterprise or cooperative obtained after the conclusion of the proceedings.

In France, the remuneration of the Trustee is strictly determined by law and supervised by a Judge. During pre-bankruptcy friendly mediation proceedings, settlement fees are agreed upon with the debtor but must be reviewed by the prosecutor. In liquidation proceedings, the remuneration of the Trustee is determined by law, with detailed regulations based on the nature of the tasks performed and the results achieved. In complex cases, the court may authorize a fee based on an hourly rate.

Trustee remuneration in France generally combines results-based payments and hourly wages. Typically, the Trustee’s fee is estimated to be approximately 10% of the liquidation value of the assets. This approach reflects a balance between incentivizing efficient asset management and ensuring legal oversight.

The Bankruptcy Law should consider adopting an internationally aligned approach by establishing a framework for determining and calculating bankruptcy costs. At the beginning of the proceedings, the court could allocate a lump sum to cover expenses for an initial period, such as one to three months. This would ensure the payment of reasonable fees for preliminary administrative tasks.

The calculation of the lump sum could take into account the estimated hours the Trustee is expected to work and the projected value of the bankruptcy estate. After the Trustee has assessed the case, they could report back to the court and request an additional payment if necessary.

Depending on the goal of the proceedings, whether rehabilitation or liquidation, this two-step approach would allow participants to agree on the Trustee’s remuneration structure, incorporating both hourly rates and performance-based payments. This flexible method would also enable the court to closely monitor the Trustee’s remuneration on a case-by-case basis and make necessary adjustments as needed.

IV. PROPOSALS IN THE DRAFT AMENDMENTS TO THE BANKRUPTCY LAW 2014

Recognizing the shortcomings and challenges of the Bankruptcy Law 2014, the Draft Bankruptcy Law is currently under public consultation for amendments and supplements concerning bankruptcy costs related to Trustees and Asset Management and Liquidation Enterprises as follows:

– The proposed amendments redefine bankruptcy costs to include expenses such as asset preservation, asset appraisal and valuation, asset auctioning, asset recovery enforcement, and operational costs of the creditors’ representative committee.

– The draft law introduces the term “recovery costs,” which parallels the amended definition of bankruptcy costs but is adapted to recovery procedures.

– Additionally, the term “advance recovery costs” has been proposed, similarly reflecting the concept of advance bankruptcy costs, but adjusted for recovery procedures.

– Recovery costs and advance recovery costs are to be regulated in a manner similar to bankruptcy costs and advance bankruptcy costs, with modifications tailored to recovery procedures.

– A newly proposed provision concerns the costs incurred by Trustees and Asset Management and Liquidation Enterprises during recovery procedures. These costs include Trustees’ remuneration and performance-based bonuses, calculated based on time spent, effort exerted, and the results achieved.

– The amendments to Article 23 propose that the State Budget will advance bankruptcy costs in cases where the applicant is exempt from such payments. This adjustment aims to ensure smoother proceedings and better financial management within the bankruptcy process.

– An additional provision is introduced where, if the court lacks sufficient grounds to calculate the advance payment for bankruptcy costs, the applicant for initiating bankruptcy proceedings must make an advance payment of 50,000,000 VND (fifty million VND). In cases where the enterprise or cooperative no longer has money or assets, the applicant will not be refunded the advance payment.

– The government is also tasked with detailing regulations concerning advance bankruptcy costs. Specifically, these costs encompass the fees for trustees, asset management, and liquidation enterprises involved in bankruptcy procedures. These costs cover trustee remuneration and bonuses, calculated based on the time, effort, and results of their tasks.

– There are new provisions for handling the advance payment of bankruptcy costs and the procedures for submitting and settling these costs. Additionally, the rights and obligations of trustees, and asset management and liquidation enterprises, have been revised and supplemented (amendments to Article 16).

– Further content includes costs related to bankruptcy proceedings and the enforcement of asset recovery from enterprises and cooperatives. There is also a need to classify debts by trustees and an introduction of the right to represent in resolving bankruptcy asset disputes.

– The government is also required to detail the advance payment of bankruptcy costs, the procedures for opening and managing accounts at banks.

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“The article’s content refers to the regulations that were applicable at the time of its creation and is intended solely for reference purposes. To obtain accurate information, it is advisable to seek the guidance of a consulting lawyer.”

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