Distinguish between bankruptcy and dissolution in Vietnam? Which agency has the competence to settle bankruptcy and dissolution?
Distinguish between bankruptcy and dissolution in Vietnam
Criteria | Bankruptcy | Dissolution |
Definition | Bankruptcy is a legal status of an insolvent entity that is declared bankrupt by the People’s Court. (Pursuant to Clause 2 Article 4 of the 2014 Law on Bankruptcy of Vietnam) | Dissolution is the termination of business activities because the enterprise has achieved the set objective (subjective will) or is dissolved in accordance with the law. |
Cause | An enterprise is recognized as bankrupt when simultaneously satisfying two conditions: + Having a narrow scope, the enterprise has been unable to pay due debts within 03 months from the date of payment due date. + The enterprise is declared bankrupt by the People's Court. (Pursuant to Clause 2 Article 4 of the 2014 Law on Bankruptcy of Vietnam) | An enterprise shall be dissolved in the following cases: + The operating period specified in the company's charter expires without an extension decision; + The enterprise is dissolved under a resolution or decision of the owner (for sole proprietorships), the Board of Partners (for partnerships), the Board of Members and the owner (for limited liability companies) or the GMS (for joint stock companies); + The enterprise fails to maintain the adequate number of members prescribed in this Law for 06 consecutive months without converting into another type of business; + The Certificate of Enterprise Registration is revoked, unless otherwise prescribed by the Law on Tax administration. + The enterprise has suffered a lot of losses but has not yet fallen into bankruptcy; due to the influence of current legal policy (Pursuant to Article 207 of the 2020 Law on Enterprises of Vietnam) |
Persons eligible to submit requests | Persons entitled to file a petition to open bankruptcy proceedings include: - Owner of a private business. - Chairman of the Board of Directors of the joint-stock company. - Chairman of the Members' Council of a limited liability company with two or more members. - Owner of a one-member limited liability company. - General partners of a partnership company. - Unsecured creditors, partially secured creditors. - Employees, grassroots trade unions, and direct superior trade unions in places where grassroots trade unions have not been established. - Legal representative of the enterprise - Shareholder or group of shareholders owning 20% or more of ordinary shares for at least 06 consecutive months. (Article 5 of the 2014 Law on Bankruptcy of Vietnam) | Persons entitled to file a petition for dissolution of an enterprise include: - Business owners for private enterprises. - General meeting of shareholders for joint-stock companies. - Board of members, company owner for limited liability companies. - All general partners for a partnership company. - Business registration agency. |
Subject who resolves issues | The court is the only body that has the power to decide to declare bankruptcy and is involved in the entire settlement process. (Article 8 of the 2014 Law on Bankruptcy of Vietnam)
| The business owner decides and settles in the whole process, only having to notify the business registration agency (Department of Planning and Investment) when it is over. (Article 208 of the 2020 Law on Enterprises of Vietnam) |
The way to pay for property | Through an intermediary who is an asset management officer or an asset management and liquidation enterprise decided by the Court. (Article 16 of the 2014 Law on Bankruptcy of Vietnam và Article 45 of the 2014 Law on Bankruptcy of Vietnam.) | By the business owner or the State management agency in charge of enterprises (mandatory dissolution) directly pay assets and settle debts. |
Principles of debt repayment | The payment of debts is made only when bankruptcy proceedings have been opened and payments are made in accordance with the statutory order, not required to pay off all debts if the assets of the enterprise or cooperative are no longer sufficient for payment. | All debts and financial obligations must be paid before proceeding with dissolution procedures. (Clause 2 Article 207 of the 2020 Law on Enterprises of Vietnam) |
Legal consequences for business managers and operators | Ban from holding managerial positions for a period of 3 years from the date the People's Court issues a decision declaring bankruptcy (except in case of bankruptcy due to force majeure).(Article 130 of the 2014 Law on Bankruptcy of Vietnam) | Business owners can immediately start a new business; may continue to work as a manager at the new enterprise. |
Distinguish between bankruptcy and dissolution in Vietnam? Which agency has the competence to settle bankruptcy and dissolution?
Which agency has the competence to settle written requests for initiation of bankruptcy process in Vietnam?
Pursuant to Article 8 of the 2014 Law on Bankruptcy of Vietnam, the competence to settle written requests for initiation of bankruptcy process in Vietnam is specified as follows:
The People’s Court of central-affiliated cities and provinces (hereinafter referred to as provincial People’s Court) has the competence in bankruptcy settlement for enterprises and cooperatives registered in the province and for one of the following cases:
+ There are overseas assets or involving entities.
+ The insolvent entity has branches and/or representative offices located in district and/or cities of various provinces;
+ The insolvent entity has real estate in district and/or cities of various provinces;
+ The provincial People’s Court takes the bankruptcy cases under the management of the People’s Court of a district/city of the province due to their complicacy.
The district People’s Court has the competence in bankruptcy settlement for enterprises and cooperatives of which the headquarters are located in the district and for the cases not mentioned in Clause 1 Article 8 of the 2014 Law on Bankruptcy of Vietnam.
Which agency has the competence to settle dissolution procedures?
Pursuant to Article 209 of the 2020 Law on Enterprises of Vietnam stipulating as follows:
Dissolution upon revocation of the Certificate of Enterprise Registration or under court decision
Procedures for dissolution of an enterprise upon revocation of the Certificate of Enterprise Registration or under court decision:
1. The business registration authority shall post on the National Enterprise Registration Portal a notification that an enterprise is undergoing dissolution on the same day on which the decision to revoke the Certificate of Enterprise Registration is issued or right after the court decision on the enterprise’s dissolution is received. The notification shall be enclosed with the effective revocation decision or the court decision.
2. Within 10 days from the receipt of the effective decision, the enterprise shall convene a meeting to dissolve the enterprise. The dissolution resolution or decision and copies of the effective decision shall be sent to the business registration authority, tax authority and the enterprise’s employees and displayed at the enterprise’s headquarters, branches and representative offices. The dissolution resolution or decision, if required by law, shall be published in at least 03 issues of 01 printed newspaper or electronic newspaper.
In case the enterprise still has unpaid debts, the resolution or decision and the debt payment plan shall be sent to the creditors and persons with related rights, obligations and interest. The debt payment plan shall contain the creditors’ names, debts, repayment time, location and method; method and time limit for settling creditors’ complaints;
3. The enterprise’s debts shall be paid in accordance with Clause 5 Article 208 of this Law;
4. The enterprise’s legal representative shall submit the application for dissolution to the business registration authority within 05 working days from the day on which the enterprise’s debts are fully paid;
5. After 180 days from the notification date mentioned in Clause 1 of this Article without further comments from the enterprise or written objections from relevant parties, or within 05 working days from the receipt of the application for dissolution, the business registration authority shall update the enterprise’s status on the national enterprise registration database;
6. Relevant executives of company shall be personal responsible for any damage caused by their failure to comply with this Article.
According to the above regulations, the business registration authority shall post on the National Enterprise Registration Portal a notification that an enterprise is undergoing dissolution on the same day on which the decision to revoke the Certificate of Enterprise Registration is issued or right after the court decision on the enterprise’s dissolution is received.
Thus, the Court is the competent agency to request the dissolution of the enterprise.
In addition, as mentioned above, the business owner or members or shareholders of the enterprise have the right to carry out the dissolution procedures when required.
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