Business bankruptcy
Overview of corporate bankruptcy
Definition of corporate bankruptcy
According to Clause 2, Article 4 of the Bankruptcy Law 2014, Bankruptcy is specifically defined as follows:
“"Bankruptcy is the state of a business or cooperative that is unable to pay its debts and is declared bankrupt by a People's Court."”
To fully understand this definition, two key factors need to be considered:
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Insolvency status: This is a necessary condition. According to Clause 1, Article 4, a business is considered insolvent when it fails to fulfill its debt payment obligations within the specified timeframe. 3 months from the payment due date.
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Judicial intervention: This is a sufficient condition. A business, even one heavily indebted, is not considered legally "bankrupt" until this condition is met. Decision to declare bankruptcy from the competent People's Court.
Conditions for initiating bankruptcy proceedings
For the court to accept the application and issue a decision to open bankruptcy proceedings, the following conditions must be met:
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Insolvency: The business failed to fulfill its debt payment obligations within the specified timeframe. 3 months from the due date.
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There is a request: A petition must be filed with the court by the parties with rights/obligations (creditors, employees, or the business itself).
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Applicable to: It is an enterprise or cooperative/cooperative union established under Vietnamese law.
Comparing bankruptcy with dissolution
Bankruptcy Law | Dissolution Law |
|---|---|
Concept: | The decision to terminate the business's operations is in accordance with the law. |
Reason: | The business owner voluntarily, or by decision of a state agency, has their operating license expired, or they no longer have a need to continue doing business. |
| Implementing agency: | The business registration authority (Department of Planning and Investment) will carry out the dissolution procedures. |
Purpose: | Cease business operations and pay off debts if any assets remain. |
Legal consequences: | When a business ceases to exist, it can pay off its debts to the best of its ability. |
| Time of execution: | When a business decides to cease operations or its business registration expires. |
Frequently Asked Questions When Initiating Bankruptcy Proceedings
1. Who has the right to request the filing of bankruptcy proceedings?
The right to file an application rests with the following parties: unsecured or partially secured creditors, employees or union representatives, legal representatives of the enterprise, business owners, or shareholders/groups of shareholders owning 20% or more common shares for at least 06 consecutive months.
2. How much does it cost to go bankrupt?
Bankruptcy costs include court filing fees, advance payments for bankruptcy proceedings (to pay the receiver or asset management company), fees for publishing the decision to initiate proceedings, and other incidental fees such as valuation or auction of assets during the liquidation process.
3. Is it possible to resume operations after filing for bankruptcy?
Yes, a business can absolutely recover if the creditors' meeting passes a resolution to implement business recovery measures; the business will then develop a recovery plan under the supervision of the court, and if successful, the bankruptcy proceedings will be suspended, allowing the business to continue operating.
4. How long does bankruptcy proceedings take?
The time required for bankruptcy proceedings is not fixed but typically ranges from several months to several years, depending on the court's processing time, the timing of the creditors' meeting, and the actual rate of asset liquidation by the company after the bankruptcy declaration.
