Pursuant to the definition of the Law on Bankruptcy 2014, bankruptcy is the legal status of an insolvent entity that is declared bankrupt by the People’s Court. The Law on Bankruptcy is applied to the bankruptcy process of every enterprise and cooperative based in the territory of Vietnam.
Pursuant to the Law on Commerce 2005, the rights and obligations of foreign-invested enterprises shall be determined according to the provisions of Vietnamese law or treaties to which the Socialist Republic of Vietnam is a contracting party. Although the Law on Investment 2020 does not clearly stipulate the legal term “foreign-invested enterprise”, this type of enterprise is understood as an enterprise with foreign investors as members or shareholders, regardless of the foreign party’s share/capital contribution ratio. So, what impact does the Law on Bankruptcy have on foreign invested enterprises established under Vietnamese law?
Within the scope of this article, BLawyers Vietnam will summarize 04 notable points about the impact of the Law on Bankruptcy to foreign-invested enterprises established under the provisions of Vietnamese law.
1. Applying the Law on Bankruptcy to foreign-invested enterprises
Based on the above definition, the Law on Bankruptcy will be applied to cases of Vietnamese enterprises and foreign-invested enterprises determined according to the provisions of Vietnamese law, except in cases in international treaties in which the Socialist Republic of Vietnam is a member with different regulations, is insolvent, and is declared bankrupt by the People’s Court.
Accordingly, a foreign-invested enterprise is considered insolvent when it fails to fulfill its debt payment obligations within 03 months from the payment due date.
In addition, pursuant to Official Letter No. 199/TANDTC-PC of the Supreme People’s Court, insolvency does not mean that an enterprise or cooperative has no assets left to repay debt; even though the enterprise still has assets to repay debt but has not fulfilled its obligations to repay creditors on time, it is still considered an insolvent enterprise.
2. Bankruptcy resolution process
Normally for Vietnamese enterprises, the bankruptcy process will include 07 steps as follows:
(i) Step 1: The subject has the right/obligation to file a request to open bankruptcy proceedings
Submit a request to open bankruptcy proceedings directly at the Court or send it by post.
(ii) Step 2: The court receives the request
The executive judge of the People’s Court shall appoint a judge or group of judges handle the request within 03 working days from the date of receipt of the request.
(iii) Step 3: The court receives/dismisses the petition
Within 03 working days from the day of appointment, the appointed judge must consider and handle the request as follows:
- Notify the requester of the bankruptcy fee and bankruptcy advance except in cases in which the bankruptcy fee and bankruptcy advance are exempt;
- Request the requester to amend the petition If the written request for initiation of bankruptcy process does not include any content prescribed by law;
- Transfer the request to another competent People’s Court;
- Dismiss the written request for initiation of bankruptcy process.
If the request is valid, the People’s Court shall receive the written request for initiation of bankruptcy process on receiving the receipts of the bankruptcy fee and the bankruptcy advance; however, in cases where the bankruptcy fee is not required, the Court shall handle the case from the date the Court receives the valid petition.
(iv) Step 4: Court’s decisions on the initiation of bankruptcy process or the refusal to initiate the bankruptcy process
Within 30 days from the receipt of a written request for initiation of bankruptcy process, the Judge shall issue a Decision on the initiation of bankruptcy process or refusal to initiate bankruptcy process, except for simplified procedures.
The judge shall make the decision on the initiation of bankruptcy process when the enterprise or cooperative is insolvent.
(v) Step 5: The court will hold a Creditors’ meeting
The Judge shall convene a Creditors’ meeting within 20 days from one of the following two time periods:
- End date of asset inventory in case the asset inventory ends after making a list of creditors;
- End date of making the list of creditors in case the inventory of assets ends before making the list of creditors.
(vi) Step 6: The judge shall make the decision to declare entity bankruptcy
Within 15 days from the receipt of the Resolution of a creditors’ meeting requesting the declaration of bankruptcy, the People’s Court shall consider the Decision to declare entity bankrupt.
If the Creditors’ Conference is unsuccessful, within 15 days from the date of receiving the report on the results of the Creditors’ Conference, the People’s Court will issue a decision declaring the enterprise bankrupt.
Decision to declare entities bankrupt shall become effective from the issuance of such Decision.
(vii) Step 7: Implementing the declaration of bankruptcy
However, unlike Vietnamese enterprises, for enterprises with foreign investment capital, when accepting bankruptcy procedures, the Court must consider applying the judicial delegation of Vietnam People’s Court to foreign competent authorities and the procedures for recognition and authorization to implement decisions on the bankruptcy settlement of foreign Courts.
3. Judicial delegation for foreign-invested enterprises
According to the provisions of the current Bankruptcy Law and as well as in judicial practice, when opening bankruptcy procedures for foreign-invested enterprises, the Court must perform judicial entrustment to foreign competent authorities. to handle issues regarding assets of investors located abroad or the rights of foreign creditors, or specific measures to prevent the escape and dispersal of assets of debtor enterprises.
According to the current civil procedure legal system, the enforcement of judicial entrusted matters involving foreign elements is carried out in two following ways:
(i) On the legal grounds of agreements (bilateral or multilateral) to which Vietnam is a contracting party; and
(ii) On the principle of reciprocity: applicable in cases where there is no bilateral or multilateral treaty, usually applied the case law.
On the ground of the agreements, when applying judicial delegation, Vietnamese Courts will need to rely on the provisions of the Law on Legal assistance and relevant legal documents. Accordingly, the process is carried out through the following main steps:
(i) Step 1: The competent court will send an official letter to the Ministry of Justice regarding judicial delegation.
(ii) Step 2: The Ministry of Justice will send the dossier to Vietnam’s Ministry of Foreign Affairs for review and approval
(iii) Step 3: The Ministry of Foreign Affairs will send documents as well as a request for legal delegation to diplomatic missions abroad.
Frequently, it takes 25 days to receive the results of a judicial delegation according to the provisions of law. However, judicial delegation by the Court currently faces many difficulties because the Law on Bankruptcy and related documents still do not have specific instructions for cases where there is no mutual legal assistance agreement between countries and case law instructions for the implementation of the principle of reciprocity, so the Court has nearly no other measure to request competent authorities in foreign countries to resolve the issue.
4. Procedures for recognition and authorization to implement Decisions on bankruptcy settlement of foreign courts
Pursuant to the current provisions of the Law on Bankruptcy, the recognition and enforcement of bankruptcy resolution decisions of foreign courts is carried out in accordance with the provisions of the mutual legal assistance agreement in which the Socialist Republic of Vietnam is a contracting party.
Similar to the legal delegation procedure, the current Vietnamese Law still does not have any specific instructions if there is no agreement on mutual legal assistance between the parties, the recognition and enforcement of the foreign Court’s decisions will be almost impossible to implement.
The above is not official advice from BLawyers Vietnam. If you have any questions or suggestions about the above, please contact us at email@example.com. We would love to hear from you.
Date: 23 Jan 2024
Writers: Thuyet Tran and Minh Truong