Vietnam: Distinguish between business dissolution and bankruptcy

1. Similarities between bankruptcy and dissolution

- All lead to the termination of the enterprise's existence.

- All seals and business registration certificates were revoked.

- Must fulfill all property obligations.

2. The difference between bankruptcy and the dissolution

2.1. The concept:

According to the Enterprise Law 2020:

- Bankruptcy is a situation in which an enterprise or cooperative loses its ability to pay and is declared bankrupt by a decision by the People's Court.

- Dissolution of an enterprise is the termination of its existence according to the will of the enterprise or a competent authority.

2.2. The cause

- An enterprise is recognized as bankrupt when it simultaneously satisfies two conditions:

+ The enterprise is unable to pay its debts, that is, the enterprise does not fulfill its debt payment obligation within 03 months from the payment due date.

+ The enterprise is declared bankrupt by the People's Court.

- Enterprises are dissolved in the following cases:

+ End of the operating term stated in the company charter without a decision to extend.

+ According to the decision of those who have the right to file a request to dissolve the enterprise.

+ The company no longer has the minimum number of members as prescribed for a period of 06 consecutive months without carrying out procedures for converting the business type.

+ Business registration certificate revoked.

2.3. The right to file a request

- Persons with the right to file a request to open bankruptcy proceedings include:

+ Private business owner;

+ Chairman of the Board of Directors of a joint stock company;

+ Chairman of the Board of members of a limited liability company with two or more members;

+ Owner of a one-member limited liability company

+ General partner of a partnership;

+ Unsecured creditors, partially secured creditors;

+ Employees, grassroots trade unions, and direct superior grassroots trade unions in places where grassroots trade unions have not yet been established;

+ Legal representative of the enterprise;

+ Shareholder or group of shareholders owning 20% or more of common shares for at least 6 consecutive months.

- Persons with the right to file a request for enterprise dissolution include:

+ Business owner for private enterprises;

+ General Meeting of Shareholders for joint stock companies;

+ Board of members and company owners for limited liability companies;

+ All general partners for a partnership company.

2.4. The procedures

- Bankruptcy is a type of judicial procedure decided by a competent Court after receiving a valid request.

- Dissolution is a type of administrative procedure carried out by a competent person in the enterprise working with the Business Registration Authority.

2.5. The order of payment of assets when the company goes bankrupt or dissolves

- Payment order when the company goes bankrupt:

+ Bankruptcy costs.

+ Salary arrears, severance pay, social insurance, health insurance for employees, and other benefits according to the labor contract and signed collective labor agreement.

+ Debts arising after opening bankruptcy procedures for the purpose of restoring the business activities of enterprises and cooperatives.

+ Financial obligations to the State; unsecured debt must be paid to creditors in the creditor list; the secured debt has not been paid because the value of the secured assets is not enough to pay the debt.

+ After paying all the above amounts, if there are still assets left, the remaining portion belongs to: the private business owner; owner of a single-member limited liability company; member of a limited liability company with two or more members; shareholder of a joint stock company; member of a partnership company.

+ If the asset value is not enough to pay, each subject in the same order of priority will be paid according to the percentage corresponding to the debt amount.

- Payment order when the company dissolves:

+ Salary debts, severance pay, social insurance according to the provisions of the law, and other benefits for employees according to the collective labor agreement and signed labor contract.

+ Tax debt.

+ Other debts.

+ After paying all debts and expenses, the remaining assets will be divided among the private enterprise owner, members, shareholders, or company owners according to the ratio of ownership of capital contributions and shares.

2.6. The legal consequences

- A bankrupt business can still continue to operate if someone buys the entire business (the business's name is not always erased, and its existence ceases).

- The enterprise's name is deleted from the business register, and its existence ceases.

Best regards!

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Key word: bankruptcy | dissolution | in Vietnam | Vietnam | business |

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