How can an employee request a bankruptcy case over his company?

Written by: Truc Nguyen

An employee can request a bankruptcy case over his company

This matter is hard to believe but Vietnamese law allows employees to do so. Normally, a company employs an employee must pay such employee fully and timely wage/ salary and other benefits as agreed in the signed labor contract. If it fails that obligation, among others the employee has an option of requesting a bankruptcy case over the company.

Right of requesting a bankruptcy case by the employee

Pursuant to Article 5.2 of Law on Bankruptcy 2014, the employee can submit a written request for a bankruptcy process when the company fails to pay wage/ salary and other benefits over 03 months from the date on which the company was obliged to do so. As such, the company is considered as “being insolvency”, the employee is as “creditor of the company” while the unpaid amounts is the debt of company from the date of submitting the bankruptcy request. Further to the written request, the employee must clearly state the unpaid amounts and show the court documents proving the company did not pay him fully and timely.

Of note, the above-mentioned regulation does not require the minimum obligation amount being the condition for requesting a bankruptcy case.

Procedure for initiation of bankruptcy case by the employee

Within 20 working days from when the employee submitted a valid request for bankruptcy case to the competent court, such court will hold a negotiation between employee and company. Unless both parties reach an agreement on withdrawal of the submitted request or negotiate the matter within a given time, the court will accept the request of the employee and notify it to relevant State agencies.

Within 15 next days, the company must provide following documents for the court’s consideration about its financial ability to pay debts:

  1. Financial statements of the company of the latest 03 years. If the company operates less than 03 years, all financial statements over the operation period are required;
  2. An explanation for the insolvency status and a report on results of the company’s attempts but failing to remedy the insolvency, if any;
  3. A detailed list of assets of the company;
  4. A list of creditors and debtors with their name, address, loan and debt amounts;
  5. Documents related to the establishment of the company; and
  6. Result of the valuation for the remaining assets (if any).

The court will decide to initiate proceedings for bankruptcy if the court finds out that the company is under the insolvency status. Thus, the court could issue a decision on bankruptcy initiation within 30 days from the date the court officially received the bankruptcy request as above-mentioned.

Which risks to companies?

This regulation gives employees a serious right. Imaging that the debt was just a small amount and the company did not intentionally delay such amount, the employee can “abuse” such right since another reason.

This regulation leads risks to companies. Because when the court officially applied a bankruptcy proceeding to the company, all current creditors can join the bankruptcy case and have the right over the company. Accordingly, as a creditor, the requesting employee also could control and manage normal operation and business activities of the company.

In which, the company’s activities will be controlled as follows:

(i) The prohibited activities of company after initiating bankruptcy proceedings:

  • Dispersing and hiding assets;
  • Paying the unsecured debts, except the unsecured debts incurred after the initiation of bankruptcy proceedings and the employees’ salaries;
  • Making waiver on the right of debt claim; and/ or
  • Changing an unsecured debt into a secured or partly – secured debt by the company’s assets.

(ii) The company must notice in writing to the asset management officer and/ or asset management organization before:

  • Doing the activities related to loan, pledge, mortgage, sale, transfer or lease of assets; sale or exchange of shares; transfer of asset ownership;
  • Terminating a valid contract; and/ or
  • Paying the debts incurred after the initiation of bankruptcy process; paying employees’ salaries.

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