The Supreme People’s Court of Vietnam answered several problems when resolving corporate bankruptcy

1. “Insolvent” does not mean that there are no assets left to repay debt

Pursuant to Clause 1 Article 4 of the Law on Bankruptcy of Vietnam, an insolvent enterprise or insolvent cooperative is an enterprise or a cooperative having failed to meet the debt liability for 03 months from the deadline for repayment. An insolvent enterprise or insolvent cooperative must meet all the following conditions:

- There is a specific and clear debt that is recognized, agreed upon by the parties or determined through a legally effective judgment or decision of the Court, judgment of commercial arbitration, or is determined in the decision of the competent authority and the parties have no dispute about this debt.

- Debt that is due for payment: A debt with a clearly defined payment term, by which the enterprise or cooperative must be obligated to pay the debt. This payment term is recognized, agreed upon by the parties or determined through a legally effective judgment or decision of the Court, judgment of commercial arbitration, or is determined in the decision of the competent authority.

- Enterprises and cooperatives fail to fulfill their debt payment obligations within 03 months from the payment due date, including 02 cases:

+ Enterprises and cooperatives have no assets to pay debts;

+ Enterprises and cooperatives have assets but do not pay debts.

Thus, "insolvent" does not mean that the enterprise or cooperative has no assets to repay the debt; even though an enterprise or cooperative has assets to repay its debt but fails to fulfill its debt repayment obligation on time to its creditor, it is still considered an "insolvent" enterprise or cooperative.

2. Dismissing written requests for initiation of bankruptcy process if bankruptcy advance is not paid

According to Article 22 and 23 of the Law on Bankruptcy of Vietnam, the requesters are responsible for the bankruptcy fee payment (except for cases of exemption). Concurrently, according to Article 39 of the Law on Bankruptcy of Vietnam, the People’s Court shall receive the written request for initiation of bankruptcy process on receiving the receipts of the bankruptcy fee and the bankruptcy advance.

According to this provision, the payment of bankruptcy fee, bankruptcy advance and receipt of payment of bankruptcy fee, receipt of payment of advance payment of bankruptcy costs to the Court is a mandatory condition for the Court to accept bankruptcy.

Thus, if the requester is required to pay the bankruptcy fee and advance, but he/she only pays the bankruptcy fee without paying the bankruptcy advance, or without submitting a receipt (other evidence) for the payment of the above two amounts, the Court shall dismiss written requests for initiation of bankruptcy process (Ponin dd Clause 1 Article 35 of the Law on Bankruptcy of Vietnam).

3. Refund of advance payment of bankruptcy costs if the decision to open bankruptcy proceedings is canceled

Pursuant to Clause 5 Article 42 of the Law on Bankruptcy of Vietnam, the People’s Court shall make the Decision on the refusal to initiate bankruptcy process if the enterprise or cooperative is deemed not to be an insolvent enterprise or cooperative. In this case, the person submitting the written request for initiation of the bankruptcy process shall be reimbursed for the bankruptcy advance.

It can be seen that the decision on the refusal to initiate bankruptcy process was canceled by the superior court, which means that the Court has decided not to open bankruptcy proceedings. Therefore, in case the decision to open bankruptcy proceedings is canceled by the superior court, the applicant requesting the initiation of bankruptcy proceedings shall be refunded the bankruptcy advance payment.

Note: When the Judiciary Group dealing with the request for reconsideration or protest against the decision to open or not to commence the bankruptcy procedure issues a decision to cancel the decision to commence the bankruptcy procedure, it must also consider and settle the decision to refund the bankruptcy advance payment to the applicant requesting the initiation of bankruptcy proceedings.

4. Creditor and debtor are allowed to employ a legal guardian to protect their lawful rights and interests

According to Clause 8 Article 18 of the Law on Bankruptcy of Vietnam, involved entities in the bankruptcy process have the right to protect or employ a legal guardian to protect their lawful rights and interests.

Thus, when an enterprise or cooperative is required to open bankruptcy proceedings or a creditor or debtor requests the Court to have a lawyer participate in protecting their legitimate rights and interests, the Court must carry out procedures to register defenders of their legitimate rights and interests.

5. How long does it take to re-apply a petition for opening bankruptcy proceedings?

It can be seen that, the Law on Bankruptcy of Vietnam does not specifically stipulate the time limit for the person with the right and obligation to re-apply the petition to open the  bankruptcy proceedings in case the superior court has decided to uphold the decision not to initiate bankruptcy proceedings.

Therefore, during any period of time, if it is determined that such enterprise or cooperative is insolvent, the person with the right and obligation to file a petition for initiation of bankruptcy proceedings may re-file a petition for opening of bankruptcy proceedings for the same enterprise or cooperative.

Depending on each case, the Court will consider the petition and other conditions as prescribed by the Law on Bankruptcy of Vietnam to process the application, accept the application and decide whether or not to open the bankruptcy procedure. For this case, the Court needs to refer to documents and evidence on the operation of the enterprise or cooperative since the decision of the superior court to uphold the decision not to initiate bankruptcy proceedings as tax report, financial statements etc.

6. Cassation procedures are not carried out for decisions on declaring civil transactions invalid when resolving bankruptcy

According to Clause 3 and 4 Article 60 of the Law on Bankruptcy of Vietnam, declaring transactions invalid is stipulated as follows:

- Within 05 working days from the receipt of the Decision on declaring the transaction invalid, the insolvent entity and its contracting party may send a written request to the executive judge of the People’s Court in order to reconsider such Decision.

- Within 07 working days from the receipt of the request for reconsidering the Decision on declaring the transaction invalid, the executive judge of the People’s Court given the Decision shall make one of the following decisions:

+ Reject the request for reconsidering the Decision on declaring the transaction invalid;

+ Cancel the Decision on declaring the transaction invalid. Any dispute shall be settled according to the Law on Bankruptcy.

Thus, the decision declaring the transaction invalid can be reviewed according to the above provisions without applying the provisions of the Code of Civil Procedure of Vietnam to protest according to cassation procedures.

7. Profitable businesses can still be issued a decision on opening bankruptcy proceedings

The fact that an enterprise or cooperative does good business and is profitable does not mean that such enterprise or cooperative is not insolvent. The definition of insolvency has been analyzed as in Section 1 of this article, specifically, an insolvent enterprise or insolvent cooperative is an enterprise or a cooperative having failed to meet the debt liability for 03 months from the deadline for repayment.

Thus, in the case during the settlement of bankruptcy procedures, although the judge finds that the enterprise or cooperative is doing good business and making profits, it has debts that are due within 3 months and have not been repaid (insolvent), the judge still issues a decision to open bankruptcy proceedings as prescribed.

Le Vy

>> CLICK HERE TO READ THIS ARTICLE IN VIETNAMESE