What is settlement of salaries for employees when an enterprise goes bankrupt in Vietnam?

Who has authority to request an initiation of bankruptcy process in Vietnam?

Pursuant to Article 5 of the Bankruptcy Law 2014, it is stipulated that eligibility and liability to submit written requests for initiation of bankruptcy process:

Eligibility and liability to submit written requests for initiation of bankruptcy process

1. Any creditor of unsecured debts or partly-secured debts is entitled to send a written request for initiation of bankruptcy process after 03 months from the payment due date for the debts which the enterprise or cooperative does not pay..

2. Any employee, internal Trade Union (or the superior Trade Union if the internal Trade Union is not established) is entitled to send a written request for initiation of bankruptcy process after 03 months from the day on which the entity have to pay salaries and other debts to the employees.

3. The legal representative of each enterprise or cooperative is liable to send a written request for initiation of bankruptcy process when the entity is insolvent.

4. The owner of any private enterprise, the President of the Board of Directors of any joint-stock company, President of the Member assembly of any multi-member limited liability company, the owner of any single limited liability company or any general partner of any partnership is liability to submit a written request for initiation of bankruptcy process when the entity is insolvent.

5. Any shareholder or any group of shareholders owning at least 20% of ordinary shares for at least 06 consecutive months is entitled to file a written request for initiation of bankruptcy process when the joint-stock company is insolvent. Any shareholder or any group of shareholders owning less than 20% of ordinary shares for at least 06 consecutive months is entitled to file a written request for initiation of bankruptcy process when the joint-stock company is insolvent if it is mentioned in the company’s charter.

6. Any member of any cooperative or any legal representative of any cooperative which is a member of the cooperative union is entitled to file a written request for initiation of bankruptcy process when the entity is insolvent.

According to this Article, the person competent to request the initiation of bankruptcy process includes:

- Creditors of unsecured debts or partly-secured debts;

- Employee, internal Trade Union;

- Legal representative of each enterprise or cooperative;

- Owner of any private enterprise, the President of the Board of Directors of any joint-stock company, President of the Member assembly of any multi-member limited liability company, the owner of any single limited liability company or any general partner of any partnership;

- Shareholder or any group of shareholders owning at least 20% of ordinary shares for at least 06 consecutive months;

- Any member of any cooperative or any legal representative of any cooperative which is a member of the cooperative union;

What is settlement of salaries for employees when an enterprise goes bankrupt in Vietnam? (Image from the Internet)

What is settlement of salaries for employees when an enterprise goes bankrupt in Vietnam?

One of the mandatory contents of the decision to declare bankruptcy is the termination of operations of the enterprise (stipulated in Point dd, Clause 1, Article 108 of the Bankruptcy Law 2014).

Clause 7, Article 34 of the 2019 Labor Code stipulates the following cases of termination of an employment contract:

Cases of termination of an employment contract

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7. The employer that is a natural person dies; is declared by the court as a legally incapacitated person, missing or dead. The employer that is not a natural person ceases to operate, or a business registration authority affiliated to the People’s Committee of the province (hereinafter referred to as “provincial business registration authority”) issues a notice that the employer does not have a legal representative or a person authorized to exercise the legal representative’s rights and obligations.

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Therefore, when an enterprise goes bankrupt, the employment contract between the enterprise and the employee will terminate in Vietnam.

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

Responsibilities of the parties upon termination of an employment contract

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.

In addition, Clause 1, Article 54 of the Bankruptcy Law 2014 stipulates sequence of redistribution of assets:

Sequence of redistribution of assets

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.

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Thus, when an enterprise goes bankrupt, its assets are divided according to the order of asset division in Vietnam.

After paying bankruptcy costs, bankrupt enterprises must prioritize paying salaries, social insurance, health insurance, unemployment insurance, severance pay and other benefits of employees according to the collective labor agreement, employment contract.

Therefore, when a business goes bankrupt, employees can still be paid salaries during their working time.

After an enterprise goes bankrupt, can employees receive severance allowance in Vietnam?

In Article 46 of the 2019 Labor Code, there are regulations on severance allowance as follows:

Severance allowance

1. In case an employment contract is terminated as prescribed in Clauses 1, 2, 3, 4, 6, 7, 9 and 10, Article 34 of this Code, the employer is responsible for paying severance allowance to the employee who has worked on a regular basis for a period of at least 12 months. Each year of work will be worth half a month’s salary, except for the cases in which the employee is entitled to receive retirement pension as prescribed by social insurance laws, and the cases specified in Point e Clause 1 Article 36 of this Labor Code.

2. The qualified period of work as the basis for calculation of severance allowance shall be the total period during which the employee actually worked for the employer minus the period over which the employee participated in the unemployment insurance in accordance with unemployment insurance laws and the period for which severance allowance or redundancy allowance has been paid by the employer.

3. The salary as the basis for calculation of severance allowance shall be the average salary of the last 06 months under the employment contract before the termination.

4. The Government shall elaborate this Article.

In addition, Clause 7, Article 34 of the 2019 Labor Code stipulates:

Cases of termination of an employment contract

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7. The employer that is a natural person dies; is declared by the court as a legally incapacitated person, missing or dead. The employer that is not a natural person ceases to operate, or a business registration authority affiliated to the People’s Committee of the province (hereinafter referred to as “provincial business registration authority”) issues a notice that the employer does not have a legal representative or a person authorized to exercise the legal representative’s rights and obligations.

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According to this Article, in case an enterprise goes bankrupt in Vietnam (the employer is not an individual terminating operations), the employer is responsible for paying severance allowance to employees who have worked regularly for I'm 12 months or older.

Best regards!