In a volatile economic environment, a business facing the decision to cease operations is undesirable, but sometimes it is the most humane and safest solution. However, the line between withdrawing honorably and falling into a legal battle often lies in how a business handles the legal procedures. Understanding bankruptcy and dissolution services, as well as the liquidation of bankruptcy assets, not only helps protect remaining assets but also safeguards the reputation of the business's executives. This entire process is now strictly regulated by the 2014 Bankruptcy Law and its latest implementing guidelines.
Distinguishing between business dissolution and bankruptcy in 2015
To gain a proper understanding before choosing bankruptcy and dissolution services, business owners need to clearly distinguish between these two concepts based on the legal grounds in the 2020 Enterprise Law and the 2014 Bankruptcy Law.
- The concept and legal nature of the two forms of business termination: According to Article 207 of the 2020 Enterprise Law, dissolution is an administrative procedure applied when an enterprise voluntarily ceases operations or the term specified in its charter has expired. Conversely, bankruptcy, according to Clause 2, Article 4 of the 2014 Bankruptcy Law, is the state of an enterprise's inability to pay its debts and is declared bankrupt by a People's Court.
- Conditions for voluntary dissolution and compulsory bankruptcy: A business can only be dissolved when it ensures that all debts are paid. If, after liquidating assets, there are still insufficient funds to pay off debts, according to Article 208 of the Enterprise Law, the business is required to proceed with bankruptcy proceedings.
- Differences in asset control and the role of the court: In dissolution, the business owner or liquidation board has the right to make independent decisions regarding assets. In bankruptcy, this right is limited and partially transferred to the Receiver under the close supervision of the People's Court as stipulated in Chapter III of the 2014 Bankruptcy Law.
The importance of liquidating bankruptcy assets in litigation proceedings.
Liquidating assets in a bankruptcy case is the most crucial stage, determining the success or failure of a corporate bankruptcy filing. It's not simply about selling assets, but about balancing interests based on strict regulations.
- Protecting the legitimate rights of creditors and employees: Ensuring compliance with the principle of asset concentration for distribution, avoiding situations where certain creditors are given preferential treatment contrary to the law.
- Maximizing the remaining asset value of insolvent businesses: Through professional valuation and auction procedures in accordance with the Law on Asset Auctions, the highest possible asset value will be recovered.
- Ensuring transparency and fairness in asset distribution: The involvement of a receiver or asset management and liquidation company (licensed under Decree 22/2015/ND-CP) helps eliminate suspicions of asset misappropriation before business closure.
The entity with the right and obligation to request asset liquidation.
The Bankruptcy Law of 2014 specifies in Articles 5 to 10 the individuals and organizations that have the right and obligation to file a petition for bankruptcy proceedings, including the following groups.
- Unsecured or partially secured creditors have the right to file a lawsuit if the debt becomes due three months prior to payment and the business fails to fulfill its repayment obligations.
- Workers and union representatives have the right to file a complaint when a company owes wages and social insurance contributions for three months or more.
- The legal representative of a business has the obligation to file a claim when the business becomes insolvent. Failure to fulfill this obligation may result in legal liability.
- Shareholders or groups of shareholders owning a specified percentage of shares: Typically 20% or more of the total number of common shares for a continuous period of at least 6 months, or a lower percentage as stipulated in the company's charter.
Detailed procedures for liquidating bankruptcy assets according to bankruptcy law.
This process requires absolute precision in terms of timing and legal documentation, following the steps stipulated in Chapter VII of the 2014 Bankruptcy Law.
- Decision to initiate bankruptcy proceedings by the People's Court: After receiving a valid application, the Court will review and issue a decision within the prescribed time limit.
- The role of the bankruptcy administrator and the asset management and liquidation company: According to Article 16 of the Bankruptcy Law, the bankruptcy administrator has the right to verify, collect, and manage documents and evidence related to the business's operations and to prepare an inventory of assets.
- Inventory and valuation of the company's actual assets: The inventory must be carried out immediately after the decision to open bankruptcy proceedings is made to determine the assets subject to bankruptcy.
- Methods of selling bankruptcy assets: Assets are sold in accordance with the law on civil enforcement and asset auctions. A negotiated sale is only applicable if there is agreement from all relevant parties or a creditors' meeting.
- By monitoring data from the General Department of Civil Judgment Enforcement on typical cases, referencing precedents and statistics at mof.gov.vn helps businesses anticipate progress and common legal obstacles.
Order of priority for payment when liquidating assets in bankruptcy.
After all assets have been converted into cash, the distribution must strictly comply with Article 54 of the 2014 Bankruptcy Law. The table below describes the priority order of payment that all creditors and businesses need to be aware of.
| Order | Payment recipient | Legal basis (Bankruptcy Law 2014) |
|---|---|---|
| 1 | Bankruptcy costs | Court fees, newspaper advertising fees, receiver's fees |
| 2 | Workers' rights | Wage arrears, severance pay, and social insurance contributions as per Article 54. |
| 3 | State financial obligations | Tax debts incurred before and after the commencement of proceedings. |
| 4 | Unsecured creditors | The debts on the creditor list have been finalized. |
| 5 | Business owner | The remaining asset value after all the above payments have been made. |
Note that, for debts secured by assets, according to Article 53 of the Bankruptcy Law, those assets will be used to prioritize repayment to the secured creditor. If the value of the assets is insufficient, the remaining debt will be placed in the fourth priority category.
Legal risks and considerations when liquidating assets.
Improper liquidation of bankruptcy assets may result in the invalidation of transactions as stipulated in Article 59 of the 2014 Bankruptcy Law.
- Transactions deemed invalid before bankruptcy proceedings begin: The court has the right to declare invalid transactions involving the gifting of property, payment of debts not yet due, or sale of property at a low price within 6 months prior to the date of filing the bankruptcy petition.
- Joint liability of business leaders in cases of asset misappropriation: The executive board may be banned from holding management positions for 1 to 3 years if serious violations occur that lead to asset loss and bankruptcy.
- Handling disputed or mortgaged assets at banks: Coordination between the courts, enforcement agencies, and credit institutions is necessary to ensure that assets are released from collateral in accordance with the law.
Criteria for choosing a reputable bankruptcy and dissolution service.
For a smooth business closure process, choosing a consulting firm with expertise in Corporate Law and Bankruptcy Law is a prerequisite.
- The team of lawyers and insolvency administrators must be licensed and have practical experience: The unit must have insolvency administrators who are licensed by the Ministry of Justice.
- Ability to accurately appraise assets at market value to protect your interests: We have a network of connections with professional appraisal firms.
- Transparency in service fees and application processing timelines: Commitment to application deadlines, posting dates, and notifications in accordance with court regulations.
- Customer reviews and successful cases: Clients should assess the firm's capabilities through completed large-scale corporate bankruptcy cases.
Frequently Asked Questions about Liquidation and Bankruptcy
During the process of advising on bankruptcy and dissolution services, we often receive the following legal enforcement inquiries.
- The average time to complete an asset liquidation case is lengthy: Although the law stipulates specific timelines, the actual process can be prolonged due to asset verification and auction organization.
- Can a business sell its assets after a bankruptcy decision has been made? Absolutely not. According to Article 48 of the Bankruptcy Law, any unauthorized transfer of assets after bankruptcy proceedings have commenced is considered invalid.
- What should employees do to protect their rights when the company liquidates assets? Employees have the right to appoint representatives to participate in the Asset Management and Liquidation Team to directly supervise the inventory and sale of assets.
- The role of banks in handling collateral assets of bankrupt businesses: Banks cooperate with the Receiver to handle collateral assets; if the assets depreciate significantly in value, they can request an immediate auction without waiting for a creditors' meeting.
Conclude
Concluding a business venture on a solid legal foundation is a way for entrepreneurs to protect themselves and those involved. Utilizing professional bankruptcy and dissolution services, strictly adhering to the 2014 Bankruptcy Law and regulations on asset liquidation, not only helps resolve outstanding debts but also provides a guarantee of credibility for future business ventures.
Contact information for MAN – Master Accountant Network
- Address: 19A, 43rd Street, Tan Thuan Ward, Ho Chi Minh City
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- Email: man@man.net.vn
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Content production is overseen by: Mr. Le Hoang Tuyen – Founder & CEO of MAN – Master Accountant Network, CPA Vietnam with over 30 years of experience in accounting, auditing, and financial consulting.
