Delving Deeper: A Legal and Practical Guide to Distinguishing Dissolutions and Bankruptcies of Enterprises in Vietnam

In the vibrant tapestry of Vietnamese business, understanding the legal nuances of enterprise dissolutions and bankruptcies is crucial for entrepreneurs, investors, and managers alike. While both concepts culminate in the termination of a business’s existence, their underlying motivations, procedures, and legal implications diverge significantly. This article from NT International Law Firm, venturing beyond mere similarities, delves into the intricate legal framework and delves into real-life scenarios to empower you to accurately discern between these two crucial concepts.

Delving Deeper: A Legal and Practical Guide to Distinguishing Dissolutions and Bankruptcies of Enterprises in Vietnam

Similarities: Threads Binding the Endings

Despite their fundamental differences, dissolutions and bankruptcies share certain threads linking their destinies:

1. Closure of the Curtain: Both mark the end of an enterprise’s journey, leading to the revocation of its business registration certificate and the dissolution of its corporate structure.
2. Fulfilling Obligations: Both scenarios necessitate the meticulous settlement of outstanding liabilities, ensuring responsible closure and safeguarding creditor interests.

Divergence: Unveiling the Distinctive Paths

Divergence: Unveiling the Distinctive Paths

Beyond these shared threads, significant divergences define the nature and implications of each concept:

1. Concept and Legal Basis:

• Bankruptcy: Defined in Article 191 of the 2020 Law on Enterprise, bankruptcy occurs when a business, unable to fulfill its debt obligations, is declared insolvent by the People’s Court. It is a judicial process, driven by a court-ordered bankruptcy proceeding.
• Dissolution: As per Article 53 of the Law, dissolution represents the termination of an enterprise’s existence, initiated by either the company itself or a competent authority. It follows an administrative procedure governed by the Business Registration Authority.

2. Triggering Factors:

Bankruptcy: Two key conditions lead to a bankruptcy declaration:

• 1) Inability to Pay Debts: The enterprise cannot fulfill its payment obligations within 3 months of the due date.
• 2) Court Order: The People’s Court officially declares the enterprise bankrupt following due legal proceedings.

Dissolution: A wider range of factors can trigger dissolution:

• 1) End of Term: When the company’s charter-defined operating period concludes without extension.
• 2) Voluntary Decision: The company owner(s) or competent authority initiates a dissolution process.
• 3) Non-Compliance: Failure to maintain the minimum required number of members for 6 consecutive months.
• 4) Revocation of License: Loss of the Business Registration Certificate due to various legal violations.

3. Entities Authorized to Initiate Proceedings:

• Bankruptcy: A wider range of actors can initiate bankruptcy proceedings, including:
  • Private Business Owner
  • Joint Stock Company Chairman
  • Limited Liability Company Board Chairman
  • One-Member LLC Owner
  • Partnership Company General Partners
  • Unsecured/Partially Secured Creditors
  • Employees/Trade Unions
  • Enterprise Legal Representative
  • Major Shareholders (20% or more)
• Dissolution: Initiation is typically confined to:
  • Private Business Owner
  • Joint Stock Company General Meeting
  • Limited Liability Company Board and Owners
  • Partnership Company General Partner

4. Procedural Pathways:

• Bankruptcy: As a judicial procedure, bankruptcy hinges on a court-led process encompassing:
  • Petition Filing: An authorized party files a petition with the People’s Court.
  • Court Review and Adjudication: The court assesses the petition and, if valid, initiates bankruptcy proceedings.
  • Asset Management: Bankruptcy receivers manage the company’s assets and oversee debt repayment.
  • Liquidation: Assets are liquidated to settle outstanding debts.
• Dissolution: Following an administrative path:
  • Notification and Public Announcement: The company notifies creditors and announces its dissolution with the Business Registration Authority.
  • Asset Liquidation and Debt Settlement: Assets are liquidated and debts are settled using the established order of priority.
  • Company Termination: Upon settling all obligations, the company formally ceases to exist.

5. Order of Asset Payment:

• Bankruptcy: A strict order prioritizes debt repayment:
  • Bankruptcy Costs: Expenses incurred during the process.
  • Employee Claims: Salaries, severance pay, social insurance, and other employee benefits.
  • Post-Bankruptcy Debts: Debts incurred to revive the business during the proceedings.
  • State Debts: Taxes and other financial obligations to the government.
  • Unsecured Debts: Paid proportionately to creditors after priority claims.
  • Secured Debts: Repaid with specific assets pledged as collateral.

Real-Life Tales: Unveiling the Nuances through Case Studies

Real-Life Tales: Unveiling the Nuances through Case Studies

Understanding the theoretical framework is crucial, but witnessing its application in real-life scenarios sheds further light on the practical complexities of dissolutions and bankruptcies. Let’s delve into two captivating cases:

Case 1: Dissolution – A Strategic Exit

Imagine “ABC Food Company,” a family-owned bakery facing rising competition and declining profits. Recognizing its impending decline, the owners proactively choose dissolution over bankruptcy. They follow the administrative procedure, notifying creditors and the Business Registration Authority. Subsequently, they liquidate assets, prioritize employee claims, and settle outstanding debts. Though bittersweet, this strategy allows them to retain some control over their legacy and potentially embark on new ventures without the stigma of bankruptcy.

Case 2: Bankruptcy – A Forced Closure

In contrast, consider “XYZ Construction Company,” plagued by mismanagement and over-expansion. Unable to fulfill debt obligations, creditors initiate bankruptcy proceedings against them. The People’s Court appoints a bankruptcy receiver, who oversees asset liquidation and prioritizes debt repayment according to the legal framework. Employees face potential job losses and delayed salary payments. The company ultimately ceases to exist, leaving behind a trail of financial and legal implications.

These contrasting cases highlight the stark differences in motivation, procedure, and outcomes between dissolutions and bankruptcies. While proactive dissolutions can be a strategic maneuver, bankruptcies often entail involuntary closure and significant consequences.

Beyond the Law: Navigating the Human Cost

Beyond the Law: Navigating the Human Cost of Dissolutions and Bankruptcies of Enternprises

It’s crucial to acknowledge the human cost often accompanying both dissolutions and bankruptcies. Employees face job insecurity, potential salary arrears, and disrupted careers. Communities may grapple with lost jobs and economic downturn. Therefore, responsible practices, including employee support programs and clear communication, are essential during both processes.

Conclusion: Choosing the Right Path

Understanding the legal and practical nuances of dissolutions and bankruptcies empowers businesses to make informed decisions when faced with challenging circumstances. Proactive action can sometimes pave the way for a controlled exit through dissolution, minimizing negative impacts. However, navigating the complexities of bankruptcy requires legal expertise and careful consideration of its consequences. Regardless of the path chosen, prioritizing responsible closure, ethical debt repayment, and employee support remain paramount as businesses navigate the intricate landscape of endings in Vietnamese business.

NT International Law Firm is Here to Help You

NT International Law Firm is Here to Help You

NT International Law Firm has addressed the question of the differences between company dissolution and company bankruptcy. If you have any further questions or concerns regarding corporate law, please contact our law firm immediately for expert legal advice.

If you require any legal assistance, please feel free to reach out to us via phone at 090 252 4567 or through email: info@ntpartnerlawfirm.com. At NT INTERNATIONAL LAW FIRM, our team is committed to offering you prompt and personalized advice.

You also might be interested in:

• The 2015 Civil Code in English
• The 2015 Civil Procedure Code in English
• The 2020 Law on Enterprise in English
• The 2014 Law on Bankruptcy in English