Proposal for the order of asset distribution when an enterprise in Vietnam is declared bankrupt

Order of asset distribution according to the the draft proposal for the Bankruptcy Law (Image from Internet)

Order of asset distribution according to the the draft the Bankruptcy Law in Vietnam

Clause 1, Article 43, of the Draft Bankruptcy Law stipulates that when a judge issues a decision declaring bankruptcy, the assets of the enterprise are to be distributed in the following order, with two options as follows:

(1) Bankruptcy expenses;

Option 1:

(2) Wage debts;

(3) Social insurance and health insurance debts;

(4) Unemployment insurance debts, severance pay, and other employee benefits as per the collective labor agreement, labor contract.

Option 2:

(2) Social insurance and health insurance debts;

(3) Wage debts;

(4) Unemployment insurance debts, severance pay, and other employee benefits as per the collective labor agreement, labor contract.

(5) Debts incurred to restore the business activities of the enterprise or cooperative;

(6) Financial obligations to the State; unsecured debts to be paid to creditors on the creditor list; secured debts not fully paid due to insufficient collateral value.

Soliciting opinions on the asset distribution order in Vietnam

In the draft proposal for the Bankruptcy Law submitted by the Supreme People's Court to the National Assembly, Clause 2, Section VII, seeks opinions on the regulation of asset distribution order relating to employee debts when an enterprise is declared bankrupt, explained as follows:

Under the current Bankruptcy Law, debts related to employee benefits are grouped together and prioritized for payment after bankruptcy expenses. During the drafting process of the Law, all opinions agreed on adding unemployment insurance debts, severance pay, and other employee benefits under collective labor agreements and labor contracts to be prioritized as a separate group. However, opinions differ regarding the order of payment of debts within the group of employee benefits as follows:

The first opinion suggests amending the payment order to separate wage debts and social insurance, health insurance debts into two groups. Within this, wage debts of employees should be prioritized over social insurance and health insurance debts, followed by unemployment insurance debts, severance pay, and other employee benefits per collective labor agreements, labor contracts. This is justified by:

- Wages are financial means to meet the minimum living needs of employees and their families, while social insurance and health insurance are paid to the state and the insurance benefits accrue to the employees. So, paying wage debts first also maximizes employee benefits.

- Wages are a direct, primary debt from employer to all employees. Insurance debts and other policies may be needed by some employees but not all require immediate fulfillment.

- Business insurance laws stipulate that employee insurance policies will be closed and benefits accrued based on the amount paid; upon wage payment to all employees, insurance debts and policies will also be settled.

The second opinion contends revising the priority order to prioritize payment of social insurance and health insurance debts first, followed by wage debts, then unemployment insurance debts, severance pay, and other employee benefits per collective labor agreements, labor contracts. This is justified because:

- Social and health insurance debts are paid to the state but the benefits from social insurance, health insurance (including maternity, retirement, survivorship, workers' accidents issues...) accrue to individuals.

- Insurance policies usually address urgent, life-and-health-related needs, so careful consideration for priority payment is necessary.

The Supreme People's Court represents Clause 1, Article 43 of the draft Law with two options according to the aforementioned opinions to seek comments from agencies, organizations, and individuals.

Asset distribution order when an enterprise is declared bankrupt according to the Bankruptcy Law 2014 in Vietnam

According to Article 54 of the Bankruptcy Law 2014, the order of asset distribution when a judge declares bankruptcy for an enterprise is as follows:

(1) Bankruptcy expenses;

(2) Wage debts, severance pay, social insurance, and health insurance debts owed to employees, and other benefits per signed labor contracts and collective labor agreements;

(3) Debts incurred post-bankruptcy proceedings to revitalize business activities of the enterprise or cooperative;

(4) Financial obligations to the State; unsecured debts owed to creditors on the list; secured debts not fully paid due to insufficient collateral value.

Le Quang Nhat Minh

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