Implementation of Laws on Trustees in Vietnam 2024
Practical Implementation of Laws on Trustees and Asset Management and Liquidation Practices; Some Difficulties, Obstacles, and Recommendations for Legal Amendments
Trustee Dinh Xuan Hong
Sai Gon Asset Management and Liquidation Partnership
The Bankruptcy Law of 2014 has come into effect and is now being implemented in practice. Its positive impact is reflected in the significant increase in the number of cases initiating bankruptcy procedures and the number of enterprises declared bankrupt. Over the past ten years, the number of trustees and asset management and liquidation enterprises has not only increased but has also gained more experience in their professional activities. The judges across various court levels have been assigned more specialized roles, improving the efficiency and ease of handling cases.
In the face of ever-changing economic conditions, challenges, and the aftermath of the Covid-19 pandemic and economic crises, many enterprises still wish to declare bankruptcy. However, for various reasons, their application files encounter obstacles. Our company, Saigon Asset Management and Liquidation Partnership, is recognized as one of the first enterprises in Ho Chi Minh City to receive operational licensing in 2015. Our team of trustees has handled numerous cases, facing many obstacles and challenges.
Based on our practical experience, we present some issues as follows:
I. SOME DIFFICULTIES AND PROBLEMS
- The issue of filing a petition to open bankruptcy proceedings
This can be considered the most difficult stage in the process of resolving bankruptcy cases. This stage mainly falls within the scope of legal advice from lawyers, guiding enterprises through the procedures. There are primarily two common problems related to filing bankruptcy petitions:
Firstly, the petition for initiating bankruptcy procedures filed by creditors is governed by Article 26 of the Bankruptcy Law, with specific issues arising at point đ: “đ) Due debt. The petition must be accompanied by evidence proving the due debt.”
What constitutes a “due debt” in cases where an “enterprise or cooperative unable to pay debts is an enterprise or cooperative that fails to fulfill its payment obligations within 3 months from the due date.” (Clause 1, Article 14).
This stage usually requires multiple explanations to be accepted by the Court to initiate bankruptcy proceedings.
For example:
Example 1: VTHĐ Joint Stock Company requests to open bankruptcy procedures for CVP Agricultural LLC. Both parties have a debt reconciliation record; VTHĐ JSC has issued invoices; CVP Agricultural LLC has repeatedly notified of debt extensions; VTHD JSC has also issued debt collection notices.
Example 2: TB Real Estate Investment LLC and ĐTT Construction LLC signed a construction contract for the KDC project. Both parties have accepted the work, with a confirmation of acceptance (The contract specifies that within 15 days from acceptance, ĐTT Construction LLC will send invoices and payment requests, and TB Real Estate Investment LLC will make the payment). ĐTT Construction LLC has sent payment requests, but TB Real Estate Investment LLC has not made the payment.
Example 3: CL Factory LLC and VM Equipment LLC signed a contract to purchase equipment. CL Factory LLC made an initial payment of 30%. Upon equipment delivery and installation, 95% of the payment will be made upon acceptance. VM Equipment LLC has completed the installation, put the equipment into operation, and issued invoices, but CL Factory LLC has not completed the acceptance.
In the above examples, the payment deadlines have passed. When the bankruptcy petition is submitted to the Court, most are guided to file commercial dispute lawsuits, return the petition, or supplement evidence.
In Example 1, the case was deemed sufficient to request the court to initiate bankruptcy proceedings. However, the court required additional documentation: “A legally effective judgment or decision from the competent court resolving the dispute between the parties.” The regulations were subsequently explained, and the court accepted the case. The time from filing the petition to the decision to open bankruptcy proceedings was 13 months.
In Example 2, the district court returned the file, determining that it lacked sufficient grounds. The petitioner then filed a complaint with the provincial court, which transferred the file back to the district court for processing. The time from filing the petition to the decision to open bankruptcy proceedings was 16 months.
In Example 3, the district court returned the file, finding it insufficient and advising the petitioner to pursue a commercial dispute lawsuit instead.
Secondly, the petition for initiating bankruptcy procedures filed by shareholders is governed by Clause 2 of Article 29 of the Bankruptcy Law. Shareholders must provide appropriate grounds for requesting the opening of bankruptcy procedures. The court requires shareholders to submit financial statements for the last three years, a list of assets, and a list of creditors and debtors of the enterprise (as per Clause 2 of Article 29). This requirement is difficult to fulfill as the internal management of the enterprise often does not provide these documents to shareholders. According to Clause 2 of Article 29, shareholders are responsible for submitting these documents “if available.”
Currently, many cases are pending in the courts, leading to prolonged delays in issuing decisions to open bankruptcy procedures. This is despite the detailed regulations in the Bankruptcy Law regarding procedures, processes, and timeframes for issuing such decisions:
– Clause 1 of Article 31: within three working days from receiving the petition for opening bankruptcy procedures, the Chief Justice of the People’s Court must assign a Judge or a group of three Judges to handle the petition.
– Clause 1 of Article 32: within three working days from being assigned, the Judge must review the petition and proceed as follows:
a) If the petition for opening bankruptcy procedures is valid, the Judge notifies the petitioner to pay the bankruptcy fee and advance payment, unless exempted;
b) If the petition does not meet the requirements as per Articles 26, 27, 28, or 29, the Judge notifies the petitioner to amend or supplement the petition;
c) If the petition falls under the jurisdiction of another People’s Court, it is transferred accordingly;
d) The petition for opening bankruptcy procedures is returned.
– Clause 1, Article 38: within three working days from the date of receiving a valid petition for bankruptcy procedures, the People’s Court estimates the amount of the advance payment for bankruptcy costs and notifies the petitioner to pay the bankruptcy fee and the advance payment for bankruptcy costs.
– Article 39: the People’s Court will process the petition for bankruptcy procedures upon receiving the receipt for the bankruptcy fee and the advance payment for bankruptcy costs. If the petitioner is exempt from these fees, the processing time starts from the date the People’s Court receives a valid petition for bankruptcy procedures.
– Clause 1, Article 42: within 30 days from the date of processing the petition for bankruptcy procedures, the Judge must issue a decision to either open or not open the bankruptcy procedures, except as stipulated in Article 105 of this Law.
Delays in processing or the accumulation of many pending cases often occur because the Court needs to verify related information, determine the state of the enterprise, and prove whether the enterprise is truly in a state of bankruptcy. This verification is done by inviting the petitioner, creditors, and the enterprise to work or by sending documents to agencies such as the Tax Department and Social Insurance (although this is the task of the trustees). The Court waits for responses from these agencies before assessing whether the petition for bankruptcy procedures is valid.
Furthermore, in cases involving large enterprises, even when there are sufficient grounds, because the requested enterprise is still operational, the Court may direct towards negotiation and mediation.
The delay in the processing and decision-making stages of opening bankruptcy procedures creates significant difficulties for creditors and petitioners. Enterprises that are aware they may face bankruptcy procedures often move and sell company assets. This delay inadvertently complicates the later stages of handling the bankruptcy file and causes damage to the petitioners and creditors.
- Inadequate estimates of bankruptcy costs
Currently, the People’s Court’s estimation of the advance payment for bankruptcy costs leads to inconsistencies, with each province applying different rates. This causes financial difficulties for petitioners. The advance payment for bankruptcy costs should cover various expenses: the cost of public notices, posting fees, the costs of asset seizure, protection, and storage, audit fees, valuation fees, auction costs, and trustee fees.
Generally, courts require an advance payment ranging from 70 million to 100 million VND, which is considered relatively low. However, there are cases where the People’s Court has issued a notice requiring an advance payment of up to 760,640,000 VND (seven hundred sixty million six hundred forty thousand VND) for a bankruptcy procedure initiated by ĐTT Business and Construction LLC at the People’s Court of Hanoi Province. This is an excessively high amount without specific justification, especially considering ĐTT Business and Construction LLC only had overdue debts of nearly 1.5 billion VND.
The determination of these advance payments is often based on subjective factors without concrete grounds. If the advance payment is set too low, it may not cover the costs, leading to difficulties in requesting additional funds or lacking assets for bankruptcy expenses later. Conversely, if the initial advance payment is set too high, it restricts the petitioner’s rights but prevents creditors from exploiting the right to file for bankruptcy procedures merely as a means to pressure the enterprise to repay the debts.
- Coordination mechanism between the Trustee and state management agencies
Although the Bankruptcy Law grants trustees certain rights during bankruptcy proceedings, there are still insufficient clear and specific mechanisms for trustees to exercise their rights and obligations effectively.
The court sends notices of decisions to open bankruptcy procedures to creditors, civil enforcement agencies, and tax authorities, which are also published on the national business registration portal, the People’s Court electronic portal, and in two consecutive newspaper issues. However, these notifications rarely receive responses from enforcement agencies, tax authorities, or social insurance agencies.
In the process of verification and compiling the list of creditors, we often have to send documents to these agencies and organizations. Additionally, we send requests to relevant state agencies, such as the Land Registration Office, for information about the enterprise’s assets. However, many agencies do not respond or provide information to the trustees.
The verification, collection, and management of documents and evidence, seizure of assets, and prevention of asset dispersion by bankrupt enterprises remain challenging tasks for trustees dealing with uncooperative enterprises. We often meet with company representatives, explain their rights and obligations, and request information, financial statements, and details about their operations and assets to evaluate their potential for business recovery. Despite this, many enterprises resist cooperation; some have even closed their offices or ceased operations.
A robust mechanism for trustees to exercise their rights is to request (the Bankruptcy Law uses the term “require”) the court to issue decisions applying certain temporary emergency measures, such as asset freezing or sealing. However, the process from making a request to receiving a court decision is lengthy, and even after a decision is issued, trustees face difficulties in enforcement due to inadequate support.
Overall, the difficulty in the courts’ processing of bankruptcy petitions lies in their limited capacity and expertise. Courts often have a low positive perception of resolving bankruptcy cases. Many courts either do not accept the petitions or request additional documents, returning them for completion. Our professional discussions with judges reveal that their understanding of the Bankruptcy Law and the process of resolving business bankruptcies is minimal. Judges often consider bankruptcy cases complex and are reluctant to handle them. We frequently have to explain and consult on which tasks fall under the trustees’ responsibilities and which are the courts’ duties to ensure optimal coordination.
In many instances, enforcement officers are not fully aware of the trustee system. For example, we handled a bankruptcy case from 2011, at a time when the asset management team was still in place. After the court issued a decision appointing a trustee and terminating the asset management team’s activities, we repeatedly requested the enforcement agency managing the assets to hand over the documents and previously auctioned funds to the trustee. It was only after numerous petitions to the General Department of Civil Judgment Enforcement and the Department of Judicial Support Services that they agreed to the handover.
Furthermore, according to the regulations on executing bankruptcy declarations, “Within 5 working days from the issuance of the bankruptcy declaration, the civil enforcement agency must proactively issue an execution decision and assign an enforcement officer to execute the bankruptcy declaration.” We have yet to see this proactive approach from civil enforcement agencies. In many cases, we have sent requests and complaints about the lack of proactive enforcement, but there has been no action, leading to delays and complications in executing bankruptcy declarations.
II. PROPOSAL
- Overcoming shortcomings
In addressing corporate bankruptcy cases, it is essential not only to have legal and procedural knowledge but also a deep understanding of the Bankruptcy Law and other specialized fields such as finance, accounting, and business management. Therefore, it is necessary to enhance the skills and capabilities of those involved in bankruptcy procedures, including providing specialized training and knowledge-sharing opportunities.
It is also crucial to increase the dissemination of bankruptcy laws to state agencies to ensure cooperation and support for trustees. Promoting awareness of bankruptcy laws within the business community is equally important, emphasizing that bankruptcy is not merely the end of an insolvent enterprise but also a means to undertake procedures for business recovery.
To address procedural and regulatory issues, it is recommended that the Ministry of Justice and the Supreme People’s Court provide specific guidance. There needs to be consistency within the judiciary, including clear instructions on how to determine when an enterprise is in a state of bankruptcy, avoiding subjective or arbitrary judgments by judges. Specific guidelines on the timeframes for reviewing petitions, processing applications, issuing decisions to open bankruptcy procedures, and accountability for delays are essential.
Regarding the advance payment of bankruptcy costs, it is proposed to establish a unified application rate across different localities. This would serve as a guideline for enterprises, creditors filing for bankruptcy, and consulting units to determine the required advance payment.
Establishing a specialized court for handling corporate bankruptcy procedures is necessary. This would facilitate specialized training for judges, enforcement officers, and trustees. Focused training in business recovery, corporate restructuring, and addressing the complexities of bankruptcy procedures for large enterprises will prepare these professionals to tackle the challenges inherent in the bankruptcy process.
- Improve the expertise of the Trustee
Regarding the activities of trustees, most are early-stage trustees with limited practical experience. We hope for support in professional training and capacity building.
It is proposed to establish higher standards for obtaining trustee certificates. As of October 2023, over 2,000 trustees have been certified, with lawyers making up more than 60% of this number. However, the Law on Lawyers stipulates that lawyers must have at least two years of continuous practice under an employment contract to establish or join a law practice organization. Combined with the occupational risks and complexities of bankruptcy cases, which involve legal, business, financial, accounting, and organizational aspects, there should be stricter practice conditions. This could include competency exams, additional professional certifications, or higher experience requirements than currently stipulated.
It is also proposed to establish a professional association for trustees to facilitate experience sharing and professional development.
The above comments are contributions from the team of trustees at Saigon Asset Management and Liquidation Partnership to the seminar on “Solutions to improve the quality of asset management and liquidation practices, and proposals to address difficulties and obstacles in these activities.”
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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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