Restructuring and Insolvency in Vietnam 2024

Restructuring and Insolvency in Vietnam 2024 – Vietnam’s Supreme Court

RESTRUCTURING AND INSOLVENCY 2024

VIETNAM

Bui Thanh Tien

(Freshfields Bruckhaus Deringer)

GENERAL

Legislation

What main legislation is applicable to insolvencies and reorganizations?

General insolvency and reorganization legislation

The legislation principally applicable to the insolvency of companies established in Vietnam is Law No. 51/2014/QH13 on bankruptcy of the National Assembly of Vietnam, dated 19 June 2014 (the Bankruptcy Law 2014). The Bankruptcy Law 2014 is largely untested. We are not aware of any high-profile bankruptcy petitions that have been filed so far.

Law No. 59/2020/QH1 on enterprises (the Enterprise Law) and its implementing regulations applies generally to the reorganization or liquidation of companies in Vietnam outside of insolvency proceedings.

The reorganization or liquidation of credit institutions, which includes banks, finance companies and finance leasing companies, is also subject to Law No. 47/2010/QH12 on credit institutions, as amended (the Law on Credit Institutions) and its implementing regulations.

Vietnamese law generally

Vietnamese law generally is not well developed; it is often vague or ambiguously drafted and does not have a meaningful system of case law precedents or other interpretative aids of binding value. This is also the case in respect of the Bankruptcy Law 2014. The law often only sets out basic principles and needs implementing regulations to be effective.

Furthermore, in part because of lack of clarity, Vietnamese law in any specific instance is subject to broad interpretation, and different lawyers, governmental agencies and officials can have contrasting views on its application and interpretation. As a matter of practice, the ultimate arbiter is often the government body responsible for administering the relevant law.

Excluded entities and excluded assets

What entities are excluded from customary insolvency or reorganization proceedings and what legislation applies to them? What assets are excluded or exempt from claims of creditors?

Outside of insolvency proceedings, there are no exclusions from customary insolvency or reorganization proceedings. In insolvency proceedings, as a general rule, all companies established in Vietnam will be subject to the provisions of the Bankruptcy Law 2014.

The Bankruptcy Law 2014 does not provide for any exceptions other than the bankruptcy of credit institutions, unlike its predecessor, which provided for exceptions to insolvency proceedings – for instance, special enterprises directly servicing national defense and security, companies operating in the sectors of finance, banking and insurance and companies operating in sectors that regularly and directly provide essential public utility services (special companies).

Although the Bankruptcy Law 2014 does not exclude or contemplate different insolvency proceedings for special companies, in practice the courts could be reluctant to accept the bankruptcy petition in respect of such special companies.

Special regimes applicable to credit institutions

The Bankruptcy Law 2014 provides for special insolvency proceedings in respect of credit institutions, which includes banks, finance companies and finance leasing companies. Under the Bankruptcy Law 2014, before the court accepts a bankruptcy petition (step two of the insolvency process), an insolvent credit institution must have undergone the ‘special control’ imposed by the State Bank of Vietnam (SBV) in accordance with relevant regulations of the SBV. The court will only accept the bankruptcy petition if the SBV has issued a written decision on termination of the ‘special control’ regime or cessation of application of special measures for recovery.

Excluded assets

If any credit institution that has received special loans from the SBV or other credit institutions is declared bankrupt, it must return such special loans to the SBV or other credit institutions prior to the distribution of assets to other creditors.

Public enterprises

What procedures are followed in the insolvency of a government-owned enterprise? What remedies do creditors of insolvent public enterprises have?

The Bankruptcy Law 2014 does not contemplate different insolvency proceedings for government-owned enterprises.

Protection for large financial institutions

Has your country enacted legislation to deal with the financial difficulties of institutions that are considered ‘too big to fail’?

No. However, in practice, the state has in the past propped up institutions such as banks, shipbuilding and shipping companies and airlines that it considered ‘too big to fail’.

Courts and appeals

What courts are involved? What are the rights of appeal from court orders? Does an appellant have an automatic right of appeal or must it obtain permission? Is there a requirement to post security to proceed with an appeal?

Court involvement

There is no involvement of the court in the reorganization or liquidation of companies in Vietnam outside of insolvency proceedings under the Bankruptcy Law 2014.

In the insolvency process under the Bankruptcy Law 2014, depending on the complexity and nature of the case, the People’s Court at the provincial or district level in the locality of the insolvent company’s registered head office has jurisdiction over the company’s bankruptcy.

Right of appeal

In general, any decision or order of the court can be appealed. Under Vietnamese bankruptcy law, decisions of the court made in an insolvency proceeding can be appealed as follows.

If, after receipt of the bankruptcy petition (step one of the insolvency process), the court decides to object to the petition, within three business days of the date of receipt of an objection decision the petitioner or the People’s Procuracy at the same level may appeal the decision by requesting the chief judge of the court that made the decision to reconsider. If the petitioner or the People’s Procuracy is not satisfied with the decision of the chief judge on reconsideration, a further appeal may be made to the chief judge of the court at an immediately higher level, whose decision will be final.
After the acceptance of the bankruptcy petition (step two of the insolvency process), the decision of the court whether to commence insolvency proceedings can be appealed by any participant in the insolvency proceedings (ie, creditors, debtors, employees, the insolvent company and its shareholders and other relevant persons) or the People’s Procuracy at the same level. The request must be sent within seven business days of the date of receiving the decision to commence or not to commence insolvency proceedings. The immediately higher court has the authority to consider the appeal request, and that decision will be final.
The receiver can be changed by the court (step four of the insolvency process), and the decision on change of the receiver can be appealed by any participant in the insolvency proceedings. The request must be sent within three business days of the date of receiving the decision on change of the receiver. The chief justice of the court has the authority to consider the appeal request, and that decision will be final.
After the court issues a decision to declare the company bankrupt (step seven of the insolvency process), the petitioner, the insolvent company, the creditors or the People’s Procuracy may appeal the decision within 15 days of the date of receiving it.
The immediately higher court has the authority to consider the appeal request. The decision of the higher court may be further reconsidered by the Supreme People’s Court at the request of a participant in the insolvency proceedings or the Supreme People’s Procuracy.
During insolvency proceedings, the court may issue a decision to declare a transaction invalid. Within five business days of the date of receiving a decision declaring a transaction invalid, the insolvent company or the counterparty to the transaction may make a written request to the chief judge of the court that made the decision to reconsider the decision, and this decision will be final.
During insolvency proceedings, the court may issue a decision to apply interim relief. Any participant in the insolvency proceedings or the People’s Procuracy at the same level may appeal the decision to the chief judge of the court that made the decision, whose decision will be final.

There is no requirement to post security to proceed with an appeal.

TYPES OF LIQUIDATION AND REORGANIZATION PROCESSES

Voluntary liquidations

What are the requirements for a debtor commencing a voluntary liquidation case and what are the effects?

There are two procedures for the voluntary liquidation of a company:

voluntary liquidation in accordance with Law No. 59/2020/QH1 on enterprises (the Enterprise Law) and the charter (equivalent to the memorandum and articles of association) of the company; and
voluntary liquidation in accordance with the bankruptcy law by filing a petition.

Voluntary liquidation outside insolvency proceedings

A company established in Vietnam can be liquidated and dissolved in accordance with the decision of its owners, members or shareholders. The requirements for passing a liquidation or dissolution decision are subject to the company’s charter.

The winding-up of a company will generally be carried out as follows:

the owners, members or shareholders of the company will pass a decision on the liquidation and dissolution of the company;
the company will notify the business registration body of the decision on liquidation and dissolution within seven business days of the issuance of the decision;
the owners, members or the board of directors (as the case may be) of the company will be responsible for liquidating the company, or, if the company’s charter so provides, a liquidation board will be established to carry out the liquidation of the assets of the company;
after completion of liquidation and payment of all outstanding debts and liabilities, the company will prepare a report and submit the dissolution file to the business registration body; and
the business registration body will deregister the company from the company registry (ie, the national registration portal) within five business days of the receipt of the complete dissolution file or 180 days of the receipt of the decision on liquidation and dissolution unless otherwise objected by relevant parties.

Voluntary liquidation in insolvency proceedings

If a company becomes insolvent, it can be liquidated under Law No. 51/2014/QH13 on bankruptcy of the National Assembly of Vietnam, dated 19 June 2014, according to the following steps (the insolvency process).

Step one: filing a bankruptcy petition

Court-driven insolvency proceedings may be commenced by, among others, an unsecured creditor or partially secured creditor, the legal representative or the owner of the insolvent company, or a union representative or elected representative of employees.

Step two: the court’s acceptance of the bankruptcy petition

After the acceptance of the bankruptcy petition, within three business days of receipt, the court must notify the acceptance to the petitioner in writing or, if it is the insolvent company that files the bankruptcy petition, all creditors of the company as provided by the company. The insolvent company and the creditor filing the petition may request that the court postpones the acceptance in order for the parties to negotiate the withdrawal of the petition.

Step three: the court’s decision on commencement of an insolvency proceeding

It is possible that the court could decide to reject the petition if it believes that it would be inappropriate to continue with the bankruptcy proceeding. The insolvent company and the creditors may request that the court postpones the acceptance so the parties can negotiate the withdrawal of the petition. After the issuance of a decision to commence insolvency proceedings, the court must send the decision to, among others:

the person filing the petition; and
the insolvent company.

Step four: appointees and duties

An asset management officer or a firm is appointed to take charge of asset management and liquidation (the receiver), preparation of the asset inventory, the list of creditors and the list of debtors.

The receiver is appointed by the court. It is possible for the person filing the petition to propose a receiver to the court and the judge can appoint the person if they have sufficient qualifications and there is no conflict of interest. The identity of the receiver will be published together with the decision to call a creditors’ meeting. The receiver plays a role similar to that of a liquidator (in the case of liquidation) in bankruptcy proceedings.

The insolvent company must conduct a full inventory of assets within 30 days of the date of the decision to commence insolvency proceedings, which may be extended twice, each time for no more than 30 days.

Within 30 days of the date of the decision to commence insolvency proceedings, creditors must send their claims to the receiver, and the list of creditors will be established within 15 days thereafter. The list of creditors of the insolvent company must be publicly posted at the head office of the court, the registered head office of the insolvent company and the national registration portal, and must be sent to creditors who made claims within 10 business days of the date of posting. A creditor or the insolvent company may request the judge to adjust the list of creditors.

The list of debtors of the insolvent company must be prepared and publicly posted at the head office of the court and the registered office of the insolvent company within 45 days of the date of the decision to commence the insolvency proceedings, and must be sent to creditors who made claims within 10 business days of the date of posting.

Step five: holding creditors’ meetings

The creditors’ meeting provides a forum for the receiver to report to the creditors on the financial situation of the insolvent company, the results of asset inventories and debtor and creditor lists, for the insolvent company’s management to express their views on the reports of the receiver and propose a restructuring plan, as well as for the creditors and interested parties to express their views on specific matters to be resolved.

The creditors’ meeting has the authority to:

request the suspension of the insolvency proceedings if the debtor has not become insolvent;
request to proceed with business restoration;
request for bankruptcy;
approve a recovery plan; and
appoint the members of a representative board of creditors.

All creditors named on the list of creditors have the right to attend the meeting. A creditor may appoint a proxy to attend the meeting on its behalf.

To convene a creditors’ meeting, the judge must send a notice of the creditors’ meeting and other relevant documents to creditors no later than 15 days prior to the meeting. The notice and accompanying documents must be delivered by hand or sent by registered or non-registered mail, fax, telex or email or by other means, provided that the sending is recorded. The notice must specify the time, venue, agenda and contents of the creditors’ meeting.

A quorum of creditors representing at least 51 percent of the total value of unsecured debt must be present, and a resolution of the creditors’ meeting is carried when approved by a simple majority of those unsecured creditors in attendance representing at least 65 percent of the total unsecured debt amount.

Step six: rehabilitation of the business

If the creditors’ meeting passes a resolution to the effect that recovery measures should be applied, there is a 30-day window for the insolvent company to formulate a detailed plan for recovery (the recovery plan), which should include, among other things, raising capital, changing business lines, disposing of unnecessary assets, selling shares to creditors and restructuring management. The recovery plan must be first sent to the judge, the creditors and the receiver for comments, and then must be approved by the creditors’ meeting.

After the recovery plan is approved by the creditors’ meeting, the implementation of the recovery plan will be under the supervision of the receiver and creditors. A representative board of creditors may, acting on behalf of the creditors, be appointed to supervise the implementation of the resolutions of the creditors’ meeting and request the receiver to implement the resolutions of the meeting of creditors. During the process of implementation of the recovery plan, once every six months, the insolvent company must report on the status of the implementation plan to the receiver, who will be responsible for reporting to the judge and notifying creditors.

The time limit for implementation of the recovery plan will be decided by the creditors’ meeting. If the creditors’ meeting fails to specify a time limit, the time limit for implementation of such plan will not exceed three years from the date the plan is approved by the creditors’ meeting.

Step seven: declaration of bankruptcy

The judge will declare the company bankrupt and insolvency proceedings would move into the liquidation phase if:

the creditors’ meeting could not be convened;
the creditors’ meeting could not pass any resolution;
the creditors’ meeting did not approve or could not pass the resolution on the recovery plan;
the creditors’ meeting requested for declaring the company bankrupt; or
the insolvent company could not formulate the recovery plan within the time limit or failed to implement the recovery plan.

Within 10 business days of issuing the bankruptcy decision, the court must send the decision to, among others, the person filing the petition, the insolvent company and creditors, and must post the decision on the national registration portal (ie, the companies registry) and publish it in two consecutive editions of a local newspaper.

Step eight: liquidation of assets

Assets of the bankrupt company can be sold by auction or private sale. After the liquidation and distribution of the assets is completed, the judgment enforcement agency will decide to terminate the bankruptcy decision.

Voluntary reorganizations

What are the requirements for a debtor commencing a voluntary reorganization and what are the effects?

Similar to voluntary liquidation, there are two procedures for the voluntary reorganization of a company:

voluntary reorganization outside the insolvency proceeding; and
voluntary reorganization in accordance with the bankruptcy law.

Voluntary reorganization outside insolvency proceedings

There are no regulations governing a financial reorganization commenced by a debtor outside insolvency proceedings. reorganization is a matter of agreement between the debtor and its creditors. Depending on the nature of the arrangement, the reorganization may be subject to provisions of:

the Enterprise Law and its implementing regulations, which apply to corporate governance and operation of companies in Vietnam;
Law No. 61/2020/QH14 on investment and its implementing regulations, which apply to investment by investors in projects in Vietnam; and
banking regulations, which apply to financing activities in Vietnam.

In the absence of specific laws and regulations governing the reorganization of a company (either voluntary or involuntary) and because reorganization is generally a matter of agreement between the debtor and its creditors, unless the contrary is stated, all references to reorganization will be to reorganization as a part of insolvency proceedings.

Voluntary reorganization in insolvency proceedings

If a company becomes insolvent, the company can submit a petition and initiate the insolvency process, which involves the reorganization of the company.

Successful reorganizations

How are creditors classified for purposes of a reorganization plan and how is the plan approved? Can a reorganization plan release non-debtor parties from liability and, if so, in what circumstances?

The insolvent company may be required to formulate the recovery plan. The recovery plan must be approved by the creditors’ meeting. Once the recovery plan is completed, the judge will decide to terminate the ‘operation recovery’ process and the company is no longer deemed insolvent.

Release of non-debtor parties from liability

The court may temporarily suspend and then terminate the implementation of a contract that could have an adverse effect on the debtor. Accordingly, a non-debtor party may be released from liability under such contracts.

Involuntary liquidations

What are the requirements for creditors placing a debtor into involuntary liquidation and what are the effects? Once the proceeding is opened, are there material differences to proceedings opened voluntarily?

Creditors can only place a debtor into involuntary liquidation through insolvency proceedings. There are no material differences to proceedings opened voluntarily.

Involuntary reorganizations

What are the requirements for creditors commencing an involuntary reorganization and what are the effects? Once the proceeding is opened, are there any material differences to proceedings opened voluntarily?

As is the case for voluntary reorganizations, there are no regulations governing a financial reorganization commenced by a creditor outside of insolvency proceedings. There are no material differences to proceedings opened voluntarily.

Expedited reorganizations

Do procedures exist for expedited reorganizations (eg, ‘prepackaged’ reorganizations)?

Although there are expedited procedures for the court to issue a bankruptcy decision, there are no such procedures for expedited reorganizations. The implementation time will depend on the complexity of the reorganization and the approval of the creditors.

Unsuccessful reorganizations

How is a proposed reorganization defeated and what is the effect of a reorganization plan not being approved? What if the debtor fails to perform a plan?

In the case of a reorganization in insolvency proceedings, a creditors’ meeting must take place to decide if the insolvent company should propose a recovery plan. If the creditors’ meeting decides to propose that the court declares the bankruptcy, within 15 days of receipt of a report on results of the creditors’ meeting, the judge will issue a decision declaring that the company is bankrupt.

If the creditors’ meeting decides that the insolvent company should propose a recovery plan, this must be done in accordance with procedures in step six of the insolvency process. However, if the insolvent company fails to propose a recovery plan within the time limit or the creditors’ meeting does not approve the proposed recovery plan, the judge will issue a decision declaring the company bankrupt.

If the creditors’ meeting approves a recovery plan, but the insolvent company fails to implement the recovery plan, the judge will issue a decision declaring the company bankrupt.

Corporate procedures

Are there corporate procedures for the dissolution of a corporation? How do such processes contrast with bankruptcy proceedings?

The winding-up of a company will generally be carried out as follows:

the owners, members or shareholders of the company will pass a decision on liquidation and dissolution of the company;
the company will notify the business registration body of the decision on liquidation and dissolution within seven business days of the issuance of the decision;
the owners, members or the board of directors (as the case may be) of the company will be responsible for liquidating the company, or, if the company’s charter so provides, a liquidation board will be established to carry out the liquidation of the assets of the company;
after completion of liquidation and payment of all outstanding debts and liabilities, the company will prepare a report and submit the dissolution file to the business registration body; and
the business registration body will deregister the company from the company registry (ie, the national registration portal) within five business days of the receipt of the complete dissolution file or 180 days of the receipt of the decision on liquidation and dissolution unless otherwise objected by relevant parties.

Conclusion of case

How are liquidation and reorganization cases formally concluded?

In a voluntary liquidation outside of insolvency proceedings, the liquidation of a company is completed once the business registration body deregisters the company from the company registry (ie, the national registration portal).

In the case of liquidation in insolvency proceedings, the liquidation of a company is completed after completion of the distribution of assets or after the judge declares the company bankrupt, if the company has no assets to be liquidated and distributed.

INSOLVENCY TESTS AND FILING REQUIREMENTS

Conditions for insolvency

What is the test to determine if a debtor is insolvent?

Under Law No. 51/2014/QH13 on bankruptcy of the National Assembly of Vietnam, dated 19 June 2014 (the Bankruptcy Law 2014), a company is considered to be insolvent if it fails to repay a debt within three months of the due date.

Mandatory filing

Must companies commence insolvency proceedings in particular circumstances?

Under the Bankruptcy Law 2014, the following are obliged to make a bankruptcy filing if that person becomes aware that the company has become insolvent:

the legal representative of the company, being the person identified in the enterprise registration certificate or the equivalent document as such (being either the chair, chief executive officer or another person); and
the owner of a single-member limited liability company, the chair of the members’ council of a limited liability company of two or more members or the chair of the board of directors of a joint-stock company.

DIRECTORS AND OFFICERS

Directors’ liability – failure to commence proceedings and trading while insolvent

If proceedings are not commenced, what liability can result for directors and officers? What are the consequences for directors and officers if a company carries on business while insolvent?

If a person obliged to make a bankruptcy filing fails to do so upon becoming aware that the company has become insolvent, they would be subject to a monetary fine ranging from 1 million to 3 million Vietnamese dong. Furthermore, Law No. 51/2014/QH13 on bankruptcy of the National Assembly of Vietnam, dated 19 June 2014, seems to suggest that the relevant directors would also be liable for any damage that is caused by their failure to make a bankruptcy filing.

However, it does not specify what type of damage the directors would be held liable for. We are not aware of any instance where these requirements have been enforced in practice. In addition, a person with a ‘managerial role’ in a company who intentionally breached the same requirement may be prohibited from managing other companies within three years of the date of the bankruptcy declaration by the court.

In part, because of the size of the potential fine and the lack of clarity under law, most directors decide not to make the filing, notwithstanding the fact that a large number of companies in Vietnam are actually insolvent.

Directors’ liability – other sources of liability

Apart from failure to file for proceedings, are corporate officers and directors personally liable for their corporation’s obligations? Are they liable for corporate pre-insolvency or pre-reorganization actions? Can they be subject to sanctions for other reasons?

Officers and directors are not generally personally liable for obligations of the company. However, officers can be held personally liable in the following circumstances:

under the Civil Code, a corporate officer and director of a company would be personally responsible for a transaction entered into by them without or beyond the scope of authorization from the company unless the company consents to such transaction or is aware but has not objected to the transaction, or the other counterparty is aware of the lack of authorization but agrees to proceed with the transaction;
officers and directors of a company are generally responsible for executing their tasks honestly and in a manner that they believe to be in the best interests of the company and with a degree of prudence; they are also required to avoid conflicts of interest. Officers and directors may be found liable in the event of breach of such duties; and
the legal representative of a company may be held liable for directing the company to violate the law. Under the current criminal law, criminal sanctions can be applied to individuals and corporate bodies.

Directors’ liability – defenses

What defenses are available to directors and officers in the context of an insolvency or reorganization?

There are no special liabilities of directors and officers in the context of insolvency or reorganization other than the filing obligation. However, officers and directors can be held personally liable in certain circumstances. To mitigate the risks of liability under such circumstances:

they should understand what they are authorized to do as a matter of law and constitutional documents of the company and, after the insolvency proceeding is commenced, understand the restrictions and limitations applicable to them and the company;
they should pay attention to general fiduciary duties and maintain records supporting their business decisions. When confronted with a situation in which the board is voting on a resolution that violates the law or the charter, they should vote against the resolution and ensure that their vote is recorded in the board meeting minutes; and
to mitigate the risk of criminal liability, they should combine strict compliance with the law and the procedural requirements and substantive obligations of board membership with an understanding of the appropriate methods and strategies for engaging with companies, industries and sectors in Vietnam in which the state’s interests are implicated or interested state parties are participants.

Shift in directors’ duties

Do the duties that directors owe to the corporation shift to the creditors when an insolvency or reorganization proceeding is likely? When?

Vietnamese law does not have the concept of a ‘zone of insolvency’. As such, no higher degree of care is owed by executive officers and directors to the company and its creditors in the months prior to an entity actually becoming insolvent.

Directors’ powers after proceedings commence

What powers can directors and officers exercise after liquidation or reorganization proceedings are commenced by, or against, their corporation?

After the commencement of insolvency proceedings, directors and officers still have the authority to manage business operations but are subject to the restrictions and the supervision of the judge and the receiver as mentioned earlier. However, at the request of the creditors’ meeting or the receiver, the judge may change the legal representative of the insolvent company.

MATTERS ARISING IN A LIQUIDATION OR REORGANIZATION

Stays of proceedings and moratoria

What prohibitions against the continuation of legal proceedings or the enforcement of claims by creditors apply in liquidations and reorganizations? In what circumstances may creditors obtain relief from such prohibitions?

Under article 41 of Law No. 51/2014/QH13 on bankruptcy of the National Assembly of Vietnam, dated 19 June 2014 (the Bankruptcy Law 2014), within five business days of the date of the court’s acceptance of the bankruptcy petition, the following proceedings and actions are temporarily suspended:

enforcement of a court or arbitral judgment, award or decision against assets of the company, except for the enforcement of any judgment, award or decision obliging the insolvent company to compensate for life, health or honor, or to pay wages to employees;
civil, business, commercial or labor legal proceedings (but not criminal or administrative proceedings) to which the insolvent company is a party; and
enforcement of security over assets of the insolvent company by secured creditors, except for assets that are exposed to a risk of being destroyed or a considerable decrease in value.

If the court decides to not issue a decision for commencement of insolvency proceedings, the stay discussed above will be lifted.

However, if the court decides to issue a decision for commencement of insolvency proceedings, the enforcement of a court judgment or arbitral award will be suspended. The suspension will be lifted if the court decides to terminate the insolvency proceeding because the company is no longer insolvent or the recovery plan is terminated.

Regarding the enforcement of security over assets, at the request of the receiver, the court will take one of the following decisions:

if the collateral is needed for business recovery, the enforcement will be subject to the decision of the creditors’ meeting;
if there is no recovery plan, or if the secured asset is not subject to the recovery plan, the enforcement will be conducted in the manner set out in the security agreement; and
if there is a risk that the secured assets will lose material value, the enforcement will be done promptly, and it may resume if the receiver recommends resuming the enforcement of the secured assets and when the bankrupt company is liquidated.

Doing business

When can the debtor carry on business during a liquidation or reorganization? Is any special treatment given to creditors who supply goods or services after the filing? What are the roles of the creditors and the court in supervising the debtor’s business activities?

In general, after the court issues the decision for commencement of insolvency proceedings, the company will continue to operate the business but will be subject to the supervision of the judge and the receiver. In particular:

following the issuance of the decision to commence insolvency proceedings, and before the issuance of the decision to recognize the resolutions of the creditors’ meeting approving the recovery plan, the company is prohibited from:
concealing, disposing of or donating any assets;
paying any unsecured debts except for the unsecured debts arising subsequent to the commencement of the bankruptcy procedure and paying wages to employees of the company;
abandoning any right to claim a debt; and
converting unsecured debts into debts secured or partly secured by the assets of the company; and
the company must report to, and obtain the consent of, the receiver prior to carrying out the following activities:
borrow or pledge, mortgage, guarantee, purchase, sale, assignment or leasing out of the assets;
sale or conversion of the shares;
transfer of the ownership rights in any asset;
termination of performance of an effective contract;
making payment for debts arising subsequent to the commencement of the insolvency proceedings; and
paying wages to employees; and
following the issuance of the decision to recognize the resolution of the creditors’ meeting approving the recovery plan (step 6 of the insolvency process):
business operations, including the use or sale of assets, of the company should be carried out in accordance with the approved recovery plan and under the supervision of the receiver and creditors; and
every six months, the company must report on the status of implementation of the recovery plan to the receiver who will then be responsible for reporting to the judge and creditors.

Post-filing credit

May a debtor in a liquidation or reorganization obtain secured or unsecured loans or credit? What priority is or can be given to such loans or credit?

After the commencement of insolvency proceedings, the company continues its business operations subject to the supervision of the judge and the receiver. Furthermore, after the court issues the decision for recognition of the resolution of the creditors’ meeting approving the recovery plan, business operations of the company must be carried out in accordance with the approved recovery plan and under the supervision of the receiver and creditors. Accordingly, the debtor may incur secured or unsecured debts after the filing of the bankruptcy petition.

Debts arising subsequent to the commencement of the insolvency proceedings that are used for business recovery of the company will take priority over other unsecured debts.

Sale of assets

In reorganizations and liquidations, what provisions apply to the sale of specific assets out of the ordinary course of business and to the sale of the entire business of the debtor? Does the purchaser acquire the assets ‘free and clear’ of claims or do some liabilities pass with the assets?

The sale of assets after the issuance of a decision on commencement of an insolvency proceeding is subject to the consent of the receiver, who is responsible for reporting to the judge.

After the court issues the decision for recognition of the resolution of the creditors’ meeting approving the recovery plan, the sale of assets of the company must be carried out in accordance with the approved recovery plan and under the supervision of the receiver and creditors.

Concerning secured assets, under article 53 of the Bankruptcy Law 2014, their enforcement (including their sale) will be subject to the decision of the judge upon recommendation of the receiver according to the following principles:

if the secured assets are needed for the business recovery, the use of the secured assets will be subject to the resolutions of the creditors’ meeting provided that there is consent from the secured creditor;
if the secured assets are not needed for business recovery, then the enforcement will be subject to the provisions of the security agreement; and
if the secured assets are subject to the risk of destruction or a considerable decrease in value, the receiver may recommend the judge permit the immediate enforcement of the assets.

When liquidating the assets, the assets of the bankrupt company can be sold at auction or by private sale provided that the movable assets have a value of equal to or greater than 10 million Vietnamese dong, and real property must be sold by auction through licensed auction organizations in accordance with auction laws.

The ownership of a purchaser acquiring assets from an insolvent company in a manner not in accordance with the above requirements is open to question. Indeed, given that Vietnamese law is so general and ambiguous, there is no guarantee that a purchaser’s ownership is ‘free and clear’ of claims even where a purchaser acquires assets in accordance with the above requirements.

Negotiating sale of assets

Does your system allow for ‘stalking horse’ bids in sale procedures and does your system permit credit bidding in sales?

The regulations on auction sales do not contemplate the use of stalking horse bids or credit bidding.

Rejection and disclaimer of contracts

Can a debtor undergoing a liquidation or reorganization reject or disclaim an unfavorable contract? Are there contracts that may not be rejected? What procedure is followed to reject a contract and what is the effect of rejection on the other party? What happens if a debtor breaches the contract after the insolvency case is opened?

Article 61 of the Bankruptcy Law 2014 allows a creditor or the debtor to request that the court suspends the implementation of a contract that could have an adverse effect on the debtor. The law suggests that such request must be made within five business days of the date of acceptance of the bankruptcy petition.

Also, within five business days of the date when the People’s Court issues the decision to commence the insolvency proceeding, the court must review the suspended contracts and decide whether to:

continue the performance of the contract if the performance will not cause any disadvantage to the company; or
terminate the contract, in which case the counterparty may be awarded damages and it will have the same rights as an unsecured creditor in respect of such damages.

Intellectual property assets

May an IP licensor or owner terminate the debtor’s right to use the IP when a liquidation or reorganization is opened? To what extent may IP rights granted under an agreement with the debtor continue to be used?

There is no automatic right of a licensor or owner of intellectual property (IP) to terminate the debtor’s right to use IP assets. Such matters will be governed by the terms of the license (eg, in the event of default and termination provisions). The court may decide to suspend or terminate a debtor’s contract.

Personal data

Where personal information or customer data collected by a company in liquidation or reorganization is valuable, are there any restrictions in your country on the use of that information or its transfer to a purchaser?

The Bankruptcy Law 2014 does not provide for specific requirements for the use of personal information or customer data collected by an insolvent company during the insolvency proceedings. This is subject to the agreement between the insolvent company and the persons providing information and data and regulations on the collection, storage and use of personal information or customer data including the Civil Code, the Law on Cyber Security and the Law on Cyberinformation Security, and their implementing regulation, namely, Decree 13/2023/ND-CP of the government dated 17 April 2023 on data privacy protection.

Arbitration processes

How frequently is arbitration used in liquidation or reorganization proceedings? Are there certain types of disputes that may not be arbitrated? Can disputes that arise after the liquidation or reorganization case is opened be arbitrated with the consent of the parties?

Following the court’s acceptance of the bankruptcy petition, the legal proceedings, including arbitration proceedings, must be temporarily or permanently suspended. The Bankruptcy Law 2014 is silent on arbitration proceedings arising post-filing, and it is not clear how the court will handle such arbitration proceedings.

CREDITOR REMEDIES

Creditors’ enforcement

Are there processes by which some or all of the assets of a business may be seized outside of court proceedings? How are these processes carried out?

A secured creditor can potentially enforce its security outside of court proceedings (however, the enforcement of security may be stayed after the date of the court’s acceptance of the bankruptcy petition). Possessing the secured asset is one enforcement measure if it is agreed by the parties.

Before enforcing the security, the person foreclosing on the secured asset (realiser) must either deliver an enforcement notice to other secured parties or register the enforcement notice with the security registrar.

Secured assets may be foreclosed within a time limit agreed by the parties; or, if there is no such agreement, the realiser will have the right to decide on the time of realization, which must not be earlier than 10 days in the case of movables and 15 days in the case of immovables, calculated from the date of the enforcement notice.

While the law technically permits secured creditors to foreclose on secured assets without the need for judicial proceedings or the permission of a court or any other party in Vietnam upon the occurrence of an event of default, in practice the ease of enforcement depends on several factors, including:

the type of collateral;
the cooperation of the securing party; and
the assistance of the authorities.

In many instances, secured creditors are unable to enforce security without a court judgment and the subsequent assistance of the judgment enforcement team, which assists the secured party in the enforcement of the judgment.

Unsecured credit

What remedies are available to unsecured creditors? Are the processes difficult or time-consuming? Are pre-judgment attachments available?

Right of unsecured creditors

Law No. 51/2014/QH13 on bankruptcy of the National Assembly of Vietnam, dated 19 June 2014, makes a fundamental distinction between fully secured creditors and unsecured creditors and partially secured creditors. A fully secured creditor is not entitled to file a bankruptcy petition nor vote in the creditors’ meeting, while unsecured and partially secured creditors are entitled to do so.

Pre-judgment attachments

At the request of persons who have the right or obligation to make a bankruptcy filing (including unsecured creditors) or the receiver, the court may issue a decision to apply interim relief during insolvency proceedings, for example:

permission for the sale of certain assets such as perishable goods;
attachment and sealing up of the company’s assets;
freezing of the company’s bank accounts;
freezing assets; and
prohibiting the transfer of property.

CREDITOR INVOLVEMENT AND PROVING CLAIMS

Creditor participation

During the liquidation or reorganization, what notices are given to creditors? What meetings are held and how are they called? What information regarding the administration of the estate, its assets and the claims against it is available to creditors or creditors’ committees? What are the liquidator’s reporting obligations?

The creditors’ meeting provides a forum for the receiver to report to the creditors on the financial situation of the insolvent company, the results of asset inventories and debtor and creditor lists, for the insolvent company’s management to express their views on the reports of the receiver and to propose a restructuring plan, as well as for the creditors and interested parties to express their views on specific matters to be resolved.

The creditors’ meeting has the authority to:

request the suspension of the insolvency proceedings if the debtor has not become insolvent;
request to proceed with business restoration;
request for bankruptcy;
approve a recovery plan; and
appoint the members of a representative board of creditors.

All creditors named on the list of creditors have the right to attend the meeting. A creditor may appoint a proxy to attend the meeting on its behalf.

To convene a creditors’ meeting, the judge must send a notice of the creditors’ meeting and other relevant documents to creditors no later than 15 days prior to the meeting. The notice and accompanying documents must be delivered by hand or sent by registered or non-registered mail, fax, telex or email or by other means provided that the sending is recorded. The notice must specify the time, venue, agenda and contents of the creditors’ meeting.

A quorum of creditors’ representing at least 51 percent of the total value of unsecured debt must be present, and a resolution of the creditors’ meeting is carried when approved by a simple majority of those unsecured creditors in attendance representing at least 65 percent of the total unsecured debt amount.

Creditor representation

What committees can be formed (or representative counsel appointed) and what powers or responsibilities do they have? How are they selected and appointed? May they retain advisers and how are their expenses funded?

The creditors’ meeting may appoint a representative board of creditors composed of between three and five members. The representative board of creditors will, acting on behalf of the creditors, supervise the implementation of the resolutions of the creditors’ meeting and request that the receiver implements the resolutions of the meeting of creditors.

If the receiver fails to carry out such request, the representative board of creditors may report the failure in writing to the judge. Law No. 51/2014/QH13 on bankruptcy of the National Assembly of Vietnam, dated 19 June 2014 (the Bankruptcy Law 2014), gives no guidance as to how to appoint members to a representative board of creditors.

The Vietnamese bankruptcy law is silent on whether the representative board of creditors may retain advisers and, if so, how their expenses would be funded.

Enforcement of estate’s rights

If the liquidator has no assets to pursue a claim, may the creditors pursue the estate’s remedies? If so, to whom do the fruits of the remedies belong? Can they be assigned to a third party?

While the insolvent company may incur additional debts after the banking filing, the bankruptcy law does not provide for circumstances where the creditors may pursue a claim by themselves. Any fruits of the remedies will belong to the insolvency estate and be distributed in the following order:

costs and expenses related to the bankruptcy proceeding;
unpaid wages, severance allowances, social insurance and health insurance and other employee benefits;
deposits and amounts payable by deposit insurance institutions to depositors;
financial obligations to the state, unsecured debts payable to the creditors named in the list of creditors and secured debts that remain unpaid because of the value of the secured assets being insufficient to repay them; and
the remaining assets will be distributed to the owner or owners of the bankrupt company.

Claims

How is a creditor’s claim submitted and what are the time limits? How are claims disallowed and how does a creditor appeal? Can claims for contingent or unliquidated amounts be recognized? Are there provisions on the transfer of claims and must transfers be disclosed? How are the amounts of such claims determined?

Submission of a creditor’s claims

Except in the event of force majeure, within 30 days of the date of the decision to commence an insolvency proceeding, creditors must send the claim for debts to the receiver.

The claim must be accompanied by supporting documents and signed by the creditor or their legal representative.

List of creditors and appeal

The list of creditors will be prepared by the receiver within 15 days of the deadline for submission of claims. It must be publicly posted at the head office of the court, the registered head office of the insolvent company and the national registration portal and sent to creditors who made claims within 10 business days of the date of posting.

A creditor or the insolvent company may request that the judge adjust the list of creditors within five business days of the ending date of the posting. However, the bankruptcy law is silent on how long the list of creditors will be posted for and what the ending date of the posting will be.

Transfer of claims

Vietnamese bankruptcy law does not contemplate the purchase, sale or transfer of claims. Because the Bankruptcy Law 2014 does not provide procedures for changing the list of creditors once it has been prepared, it is not clear if the court would accept the transferee of a claim to be a new creditor and entitled to rights as a creditor of the insolvent company in the insolvency proceedings.

Amounts of claims and interests

The amount of claims against the insolvent company created before the date of commencement of insolvency proceedings will be determined at the time of issuing the decision to commence the insolvency proceeding.

The amount of claims against the insolvent company created after the court’s decision to commence the bankruptcy procedure will be determined at the time of issuing the decision to declare bankruptcy.

After the decision to commence the insolvency proceeding, interest is still accrued on outstanding loans, but the payment of the interest will be suspended. After the decision to declare bankruptcy, no interest will be accrued on loans. As for new debts obtained after the commencement of the insolvency proceedings, the interest on these debts will be determined as agreed between the lender and the debtor.

Set-off and netting

To what extent may creditors exercise rights of set-off or netting in a liquidation or in a reorganization? Can creditors be deprived of the right of set-off either temporarily or permanently?

Article 63 of the Bankruptcy Law 2014 specifically allows a creditor of an insolvent company to agree with the company to offset obligations arising out of contracts entered into between the parties prior to the date of the court’s decision commencing the insolvency proceeding, provided that the set-off is approved by the receiver, who is then responsible to report to the judge on the set-off.

There are, however, specific provisions relating to insolvency that could limit the operation of a set-off in certain circumstances. For instance, a set-off in the event of insolvency could be regarded as ‘making payment or setting off the obligations in favor of the creditor under a contract under which the obligations are not due or in an amount greater than the obligations of the insolvent company’, under article 59 of the Bankruptcy Law 2014, and could accordingly be held invalid by the court.

Another problem is that the Bankruptcy Law 2014 provides that after receiving the court’s decision on the bankruptcy declaration, a bank holding an insolvent company’s accounts cannot settle debts owed by that company without the approval of the judge.

Modifying creditors’ rights

May the court change the rank (priority) of a creditor’s claim? If so, what are the grounds for doing so and how frequently does this occur?

The court does not have general jurisdiction to change the priority of creditors’ claims, which are determined by statute.

Priority claims

Apart from employee-related claims, what are the major privileged and priority claims in liquidations and reorganizations? Which have priority over secured creditors?

The liquidated assets of the bankrupt company (excluding those assets being subject to valid security interests) are distributed in the following order:

costs and expenses related to the bankruptcy proceeding;
unpaid wages, severance allowances, social insurance and health insurance and other employee benefits;
debts arising subsequent to the commencement of the insolvency procedure that are used for the purpose of business recovery of the company;
financial obligations to the state, unsecured debts payable to the creditors named in the list of creditors and secured debts that remain unpaid because of the value of the secured assets being insufficient to repay them; and
the remaining assets will be distributed to the owner or owners of the bankrupt company.

Distribution of liquidated assets of bankrupt credit institutions

The assets of a bankrupt credit institution are distributed differently to those of other companies. The insolvent credit institution receiving special loans from the State Bank of Vietnam (SBV) or other credit institutions is required to return the special loans to the SBV or other credit institutions prior to the distribution of assets to other creditors.

After the payment of special loans, the liquidated assets of the bankrupt credit institution are distributed in the following order:

costs and expenses related to the bankruptcy proceeding;
unpaid wages, severance allowances, social insurance and health insurance and other employee benefits;
deposits and amounts payable by deposit insurance institutions to depositors;
financial obligations to the state, and unsecured debts payable to the creditors named in the list of creditors and secured debts that remain unpaid because of the value of the secured assets being insufficient to repay them; and
the remaining assets will be distributed to the owner or owners of the bankrupt credit institution.

Employment-related liabilities

What employee claims arise where employees’ contracts are terminated during a restructuring or liquidation? What are the procedures for termination? (Are employee claims as a whole increased where large numbers of employees’ contracts are terminated or where the business ceases operations?)

Employment contracts can be unilaterally terminated by the company in the case of restructuring or liquidation of the company, as a part of the insolvency proceedings or otherwise.

Termination because of restructuring

Under articles 36 and 42 of Law No. 45/2019/QH1, effective as of 1 January 2021 (the Labor Code), an employer may unilaterally terminate the employment with its employee because of:

natural disasters, fires, dangerous diseases and wars (article 36.1(c)); or
‘organizational restructuring’, ‘technological change’ or ‘economic reasons’ (including economic crisis or depression) (article 42).

If the employment is terminated pursuant to article 42 of the Labor Code, the termination must be carried out in accordance with the following procedures:

first, the employer must prepare a restructuring plan (the employment restructuring plan), which includes, among other things, information on the concerned employees whose labor contracts will be terminated;
second, if the employment restructuring plan results in termination of employment with multiple employees, the trade union of the company must be consulted on the plan, and thereafter notified to the labor authority. The law only requires the company to consult with the trade union and to notify the plan to the labor authority, but it does not require any consent of the trade union or the labor authority; and
third, the employment can only be terminated after the date falling 30 days after the date of notification to the labor authority.

By law, if the termination of employment is because of restructuring under article 42 of the Labor Code, employees are entitled to a redundancy allowance equal to the aggregate amount of one month’s salary and benefits for every year of service, subject to a minimum payment of two months’ salary and benefits. The severance allowance in the case of termination under article 36.1(c) is equal to the aggregate amount of half a month’s salary and benefits for every year of service.

However, if the employer has paid unemployment insurance for the terminated employees for the period after 1 January 2009, the redundancy allowance will only be paid in respect of the working period prior to 1 January 2009. For the working period after 1 January 2009, the employees are entitled to an unemployment allowance to be paid by the state. In addition to the redundancy allowance, upon the termination of an employment contract, the employer would also be required to make other payments, including:

payment of salary in lieu of any accrued annual leave that has not been taken by the employee prior to the termination; and
any other amounts payable under existing labor contracts and collective labor agreement (if any).

Termination because of liquidation

Under the Labor Code, once a company is liquidated, the employment contracts between the company and its employees are terminated.

Unlike the termination because of restructuring mentioned earlier, if the employment is terminated because of liquidation of the employer, the employees are entitled to a severance allowance, which is equal to the aggregate amount of half of one month’s salary for each year of employment but, like the redundancy allowance, the company is not required to pay severance allowance for the period that it has paid unemployment insurance, which may have been effected since 1 January 2009. In addition to the severance allowance, upon the termination of a labor contract, the employer would be required to make other payments, including:

payment of salary in lieu of any accrued annual leave that has not been taken by the employee prior to the termination; and
any other amounts payable under the existing labor contracts and collective labor agreement (if any).

Pension claims

What remedies exist for pension-related claims against employers in insolvency or reorganization proceedings and what priorities attach to such claims?

In the case of liquidation of a bankrupt company, claims of employees will rank behind claims for costs and expenses related to the bankruptcy proceedings (and claims of secured creditors in respect of the secured assets).

Environmental problems and liabilities

Where there are environmental problems, who is responsible for controlling the environmental problem and for remediating the damage caused? Are any of these liabilities imposed on the insolvency administrator personally, secured or unsecured creditors, the debtor’s officers and directors, or on third parties?

Environmental damage could give rise to civil liabilities, administrative liabilities and criminal liabilities.

In general, the legal representative of the company causing environmental problems is responsible for the consequences, including criminal liability if such violation amounts to criminal liability, and the company causing environmental problems is responsible for damages, if any. The insolvency administrator, secured or unsecured creditors are generally not responsible for environmental problems caused by the debtor.

Liabilities that survive insolvency or reorganization proceedings

Do any liabilities of a debtor survive an insolvency or a reorganization?

If the debtor is liquidated after being declared bankrupt, there are no surviving liabilities.

Distributions

How and when are distributions made to creditors in liquidations and reorganizations?

The liquidated assets of the bankrupt company (excluding assets subject to valid security interests) are distributed in the following order:

costs and expenses related to the bankruptcy proceeding;
unpaid wages, severance allowances, social insurance and health insurance and other employee benefits;
debts arising subsequent to the commencement of the insolvency procedure that are used for the purpose of business recovery of the company;
financial obligations to the state, unsecured debts payable to the creditors named in the list of creditors and secured debts that remain unpaid because of the value of the secured assets being insufficient to repay them; and
the remaining assets will be distributed to the owner or owners of the bankrupt company.

SECURITY

Secured lending and credit (immovables)

What principal types of security are taken on immovable (real) property?

Security over immovable (real) property should be created through a mortgage. A mortgage is an arrangement whereby the mortgagor uses its assets, without handing over possession of the assets to the mortgagee, as security for the performance of an obligation.

Secured lending and credit (movables)

What principal types of security are taken on movable (personal) property?

Security over movable (personal) property can be created through either a mortgage or pledge. A pledge is an arrangement whereby the pledgor hands over possession of an asset to the pledgee as security for the performance of an obligation.

CLAWBACK AND RELATED-PARTY TRANSACTIONS

Transactions that may be annulled

What transactions can be annulled or set aside in liquidations and reorganizations and what are the grounds? Who can attack such transactions?

Under article 59 of Law No. 51/2014/QH13 on bankruptcy of the National Assembly of Vietnam, dated 19 June 2014 (the Bankruptcy Law 2014), the following transactions may be held invalid by the court if conducted up to six months before the date of commencement of an insolvency proceeding:

transfer of property that is not at market price;
conversion of an unsecured debt into a secured debt or partly secured debt on the assets of the company;
making payments, or setting off an obligation in favor of a creditor, where the debt is not yet due or in relation to a sum that is larger than the debt becoming due.
donation of assets;
conducting transactions outside the purpose of the business operations of the insolvent company; and
other transactions for the purpose of ‘dispersing’ assets.

The six-month voidable period referred to above is extended to 18 months where the transaction is between the insolvent company and a ‘related person’. The ‘related persons’ of an insolvent company are defined to include:

the parent company of the insolvent company, a manager of the parent company or any person who has the power to appoint such managers;
any subsidiary company of the insolvent company;
persons or a group of persons capable of controlling the decision making and operations of the insolvent company via its management bodies;
a manager of the insolvent company;
the spouse, parent or foster parent, child, adopted child or sibling of a manager of the insolvent company, or of a member or shareholder who holds the controlling capital contribution or shares in the insolvent company;
any individual authorized to represent (1), (2), (3), (4) and (5) above;
any group of persons who agree to act in concert to take over an interest in the insolvent company or to control the insolvent company; and
any company in which the persons identified in (1), (2), (3), (4), (5), (6) and (7) above hold interests to the extent that they control the decision-making process of the management bodies of the company.

Any participants in insolvency proceedings (including creditors, debtors, employees, the insolvent company and its shareholders and other relevant persons) or the receiver may request the court to declare the relevant contract or transaction invalid. The court itself can declare a contract or transaction invalid if it is aware that the contract or transaction falls into the circumstances provided for under article 59 of the Bankruptcy Law 2014.

If a transaction is declared to be invalid, any recovered assets must be included in the total assets of the insolvent company.

Equitable subordination

Are there any restrictions on claims by related parties or non-arm’s length creditors (including shareholders) against corporations in insolvency or reorganization proceedings?

Shareholders are last in the order of distribution in respect of their share capital, after the claims of unsecured creditors have been satisfied in full. Non-arm’s length creditors will rank equally with the remainder of the unsecured creditors unless they have security (in which case they will rank in accordance with the security ranking) or their claims are related to debts arising subsequent to the commencement of the insolvency procedure that serves the purpose of business recovery of the company.

The suspect period for voidable transactions is extended from six months to 18 months in the case of transactions with related persons.

Lender liability

Are there any circumstances where lenders could be held liable for the insolvency of a debtor?

Lenders are generally not held liable for the insolvency of a debtor.

GROUPS OF COMPANIES

Groups of companies

In which circumstances can a parent or affiliated corporation be responsible for the liabilities of subsidiaries or affiliates?

In principle, each corporate entity has its own existence and the corporate veil will only rarely be pierced, so the circumstances where a parent or affiliated company could be liable for its subsidiaries or its affiliates are limited. However, Law No. 59/2020/QH1 on enterprises, effective as of 1 January 2021 (the Enterprise Law), contains specific exceptions to the limited liability principle, for example:

if an owner or shareholder of a company fails to contribute the charter capital as committed, the owner or shareholder must be responsible for the company’s liabilities to the extent of its committed capital;
the owner or shareholder of a company is only permitted to withdraw capital from the company in the form of selling its interest in the company. In the case of withdrawal of all or part of its contributed charter capital from the company in another form, the owner or shareholder and the concerned person must be jointly liable for debts and other liabilities of the company;
the owners or ordinary shareholders of a company are not permitted to distribute profits if the company is unable to repay due debts. If they breach this provision, the owners or shareholders must return the distributed profit; and
transactions or contracts between a company (as one party) and its owners or shareholders and their related persons (as the other party) are considered to be related party transactions and must be approved by the relevant corporate bodies of the company.

Combining parent and subsidiary proceedings

In proceedings involving a corporate group, are the proceedings by the parent and its subsidiaries combined for administrative purposes? May the assets and liabilities of the companies be pooled for distribution purposes?

Under Vietnamese law, each member of a corporate group is a separate legal entity except for in very specific circumstances. Accordingly, the assets and liabilities of companies are not combined into one pool for distribution in an insolvency process.

INTERNATIONAL CASES

Recognition of foreign judgments

Are foreign judgments or orders recognized, and in what circumstances? Is your country a signatory to a treaty on international insolvency or on the recognition of foreign judgments?

Unless there is a treaty on legal assistance between Vietnam and the foreign country, the recognition and assistance of foreign insolvency proceedings in Vietnam is generally regulated by the Civil Procedure Code (National Assembly, 25 November 2015) and the Legal Assistance Law (National Assembly, 21 November 2007).

Vietnam has only signed bilateral treaties on legal assistance with a few countries and territories, namely: Bulgaria, China, Cuba, the Czech Republic, France, Hungary, Laos, North Korea, Poland, Russia and Taiwan. Vietnam is not a signatory to any multilateral international conventions on reciprocal enforcement of judgments; therefore, the orders, decisions and judgments of most of the courts of developed jurisdictions are not recognized in Vietnam.

Under the Legal Assistance Law, the relevant foreign body seeking judicial assistance in Vietnam must send a civil legal mandate dossier to the Ministry of Justice of Vietnam requesting assistance. After examining the validity of the dossier, the Ministry of Justice of Vietnam will transfer it to the competent Vietnamese authority for implementation.

UNCITRAL Model Laws

Have any of the UNCITRAL Model Laws on Cross-Border Insolvency been adopted or is adoption under consideration in your country?

Vietnam has neither adopted the UNCITRAL Model Law on Cross-Border Insolvency nor the UNCITRAL Model Law on Enterprise Group to Enactment or the UNCITRAL Model Law on Recognition and Enforcement of Insolvency-Related Judgments.

Foreign creditors

How are foreign creditors dealt with in liquidations and reorganizations?

Foreign creditors will be able to provide evidence of their claims in Vietnamese liquidation proceedings in the normal way.

Cross-border transfers of assets under administration

May assets be transferred from an administration in your country to an administration of the same company or another group company in another country?

Judgments of foreign courts are generally unenforceable against assets in Vietnam. There is no legal basis for the transfer of assets subject to administration under insolvency in Vietnam to an administration in another country.

COMI

What test is used in your jurisdiction to determine the COMI (centre of main interests) of a debtor company or group of companies? Is there a test for, or any experience with, determining the COMI of a corporate group of companies in your jurisdiction?

Vietnamese insolvency law does not provide for the concept of the center of main interests (COMI) of a debtor company or group of companies. Most foreign businesses establish a separate legal entity in Vietnam, and the insolvency proceedings of other members of the group are separate from those applied to the company in Vietnam.

Cross-border cooperation

Does your country’s system provide for recognition of foreign insolvency proceedings and for cooperation between domestic and foreign courts and domestic and foreign insolvency administrators in cross-border insolvencies and restructurings? Have courts in your country refused to recognize foreign proceedings or to cooperate with foreign courts and, if so, on what grounds?

There are no such provisions for recognition and cooperation regarding foreign insolvency and restructuring proceedings.

Cross-border insolvency protocols and joint court hearings

In cross-border cases, have the courts in your country entered into cross-border insolvency protocols or other arrangements to coordinate proceedings with courts in other countries? Have courts in your country communicated or held joint hearings with courts in other countries in cross-border cases? If so, with which other countries?

No cross-border insolvency protocols or coordinating arrangements have been entered into.

Winding-up of foreign companies

What is the extent of your courts’ powers to order the winding-up of foreign companies doing business in your jurisdiction?

Vietnamese courts only have jurisdiction over companies or entities incorporated in Vietnam, and they do not have powers to order the winding-up of foreign companies.

UPDATE AND TRENDS IN RESTRUCTURING AND INSOLVENCY IN VIETNAM

Trends and reforms

Are there any emerging trends or hot topics in the law of insolvency and restructuring? Is there any new or pending legislation affecting domestic bankruptcy procedures, international bankruptcy cooperation or recognition of foreign judgments and orders?

Instead of letting insolvent banks go bankrupt, the government of Vietnam currently encourages other banks to acquire insolvent banks in exchange for incentives granted to the acquiring banks. The National Assembly is scheduled for amending the Law on Credit Institutions later in 2023. It is expected that the amendment law will allow the State Bank of Vietnam to apply early-start measures regarding a credit institution in certain circumstances before imposing ‘special control’ on the credit institution and before insolvency proceedings can be initiated.

Law No. 51/2014/QH13 on bankruptcy of the National Assembly of Vietnam, dated 19 June 2014 (the Bankruptcy Law 2014), is largely untested and its effect cannot be predicted because the law is too general (and insufficiently used). Therefore, most companies and creditors decide to reorganize or liquidate in accordance with Law No. 59/2020/QH1 on enterprises and its constitutional documents rather than filing a bankruptcy petition under the Bankruptcy Law 2014.

There is no new or pending legislation affecting domestic bankruptcy procedures, international bankruptcy cooperation or recognition of foreign judgments and orders.

The new merger control regime in Vietnam is marked by the issuance of Law No. 23/2018/QH14 on competition (the Competition Law 2018) and its implementing regulations, including Decree No. 35/2020/ND-CP providing detailed guidance on some provisions of the Competition Law 2018. Any economic combination, regardless of whether it is a part of reorganization or insolvency proceedings, would be subject to notification requirements if certain thresholds are met.

* The information in this chapter was accurate as at June 2023.

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