06 Transactions Considered Invalid When Bankruptcy Procedures Are Initiated for Enterprises

Article 59 of the 2014 Bankruptcy Law stipulates invalid transactions as follows:

- Transactions by insolvent enterprises or cooperatives carried out within 06 months before the date the people's court issues a decision to open bankruptcy proceedings are deemed invalid if they fall into one of the following cases:

+ Transactions related to the transfer of assets not at market value;

+ Converting unsecured debt into secured debt or partially secured by the enterprise's or cooperative's assets;

+ Payment or offset favorable to a creditor for debts not yet due or with an amount larger than the due debt;

+ Gifting of assets;

+ Transactions outside the business activities of the enterprise or cooperative;

+ Other transactions with the purpose of dissipating the assets of the enterprise or cooperative.

- Transactions of insolvent enterprises or cooperatives as mentioned above carried out with related persons within 18 months before the date the people's court issues a decision to open bankruptcy proceedings are deemed invalid. Among these, related persons as defined include:

+ Parent company, managers of the parent company, and persons authorized to appoint managers for the subsidiary;

+ Subsidiary with respect to the parent company; enterprises established by the cooperative with respect to the cooperative;

+ Persons or groups capable of controlling the decision-making of management agencies over the operations of the enterprise or cooperative;

+ Managers of the enterprise or cooperative with respect to the enterprise or cooperative;

+ Spouse, biological father, adoptive father, biological mother, adoptive mother, biological children, adopted children, siblings of the managers of the enterprise or cooperative, or of the members or shareholders owning the controlling stake;

+ Individuals authorized to represent those as mentioned above;

+ Groups agreeing to cooperate in acquiring stakes, shares, or interests in the company or to control decision-making in the company.

+ Enterprises in which the aforementioned individuals own to the extent of controlling decision-making of the management agency in that enterprise.

Moreover, the asset managers and liquidators are responsible for reviewing transactions of insolvent enterprises or cooperatives, and if they find transactions falling into the above two cases, they shall propose that the people's court consider declaring the transactions invalid.

The above is an explanation regarding transactions deemed invalid upon the initiation of bankruptcy proceedings.

Sincerely!