Is it necessary to pay salaries to employees when business goes bankrupt in Vietnam?

1. Is it necessary to pay salaries to employees when business goes bankrupt in Vietnam?

Pursuant to Article 48 of the Labor Code 2019 stipulates responsibilities of the parties upon termination of an employment contract, according to which:

1. Within 14 working days following the termination of an employment contract, both parties shall settle all payments in respect of the rights and interests of each party. In the following cases, such period may be extended, but shall not exceed 30 days:

a) Shutdown of business operation of the employer that is not a natural person;

b) Changes in the organizational structure, technology or changes due to economic reasons;

c) Full division, partial division, consolidation, merger of the enterprise; sale, lease, conversion of the enterprise; transfer of the right to ownership or right to enjoyment of assets of the enterprise or cooperative;

d) Natural disasters, fire, hostility or major epidemics.

2. Priority shall be given to payment of the employees’ salaries, social insurance, health insurance, unemployment insurance, severance allowance and other benefits under the collective bargaining agreement and employment contracts in case of shutdown, dissolution or bankruptcy of an enterprise or cooperative.

3. The employer has the responsibility to:

a) Complete the procedures for verification of duration of participation in social insurance and unemployment insurance, return them and original copies of the employee’s other documents (if any);

b) Provide copies of the documents relevant to the employee’s work if requested by the employee. The employer shall pay the cost of copying and sending the documents.

Article 54 of the Law on Bankruptcy 2014 prescribes sequence of redistribution of assets, specifically as follows: 

1. When the judge gives the Decision on the declaration of bankruptcy, the assets of the insolvent entity shall be redistributed in the following sequence:

a) Cost of bankruptcy

b) The unpaid salaries, severance pay, social insurance and medical insurance to employees, other benefits according to the labor contracts and collective bargaining agreements;

c) Debts incurred after the initiation of bankruptcy which are used for resuming the business operation.

d) Financial obligations to the Government; unsecured debts payable to the creditors on the list of creditors; secured debts which are not paid because the value of collateral is not enough to cover such debts.

2. The remaining amount of the asset value after every payment prescribed in Clause 1 this Article has been made shall belong to:

a) Members of the cooperative ;

b) Owners of the private enterprises;

c) Owners of the single member limited companies;

d) Members of multi-member limited liability companies , shareholders of the joint-stock companies;

dd) members of the partnerships;

3. If the value of the assets of the insolvent entity is not enough to make the payment as prescribed in Clause 1 this Article, the entities given the same priority shall be paid in proportion to the debt.

Thus, the assets of your business will be listed and distributed in the order specified above. In case the enterprise still has assets to pay for employees, the employees will receive their salaries and other expenses in Vietnam.

2. What is business operation of insolvent entities on initiation of bankruptcy process in Vietnam? 

Article 47 of the Law on Bankruptcy 2014 stipulates business operation of insolvent entities on initiation of bankruptcy process, according to which:

1. After the Decision on the initiation of bankruptcy process is made, the insolvent entity shall keep running the business operation but under the supervision of the judge and asset management officers and/or asset management enterprises.

2. On the perception that the insolvent entity is incapable of running the business operation or denoted to violate the regulations prescribed in Clause 1 Article 48 of this Law, the judge shall decide to replace the legal representative of the insolvent entity upon the request of creditors’ meeting or the asset management officers and/or asset management enterprises.

According to this Article, business activities of enterprises and cooperatives after having a decision to open bankruptcy procedures will operate but must be under the supervision of judges and asset administrators, and asset management and liquidation enterprises in Vietnam.

Best Regards!