Case Study No. 7 | A Business Partner's Bankruptcy Proceedings in Vietnam and the Decision Whether to Waive a Claim

NEXORA LAWFIRM has extensive experience in debt collection, bankruptcy/liquidation matters, and legal risk assessment in Vietnam, and also supports Japanese-affiliated companies in deciding how to respond when a business partner goes bankrupt and whether to waive a claim. In this case study, based on an actual case that occurred in Vietnam, we set out the key considerations from both a legal and an accounting perspective. For readers interested in topics such as "criteria for deciding whether to waive a claim in Vietnam," "risk assessment when a business partner goes bankrupt," "accounting treatment for uncollectible receivables," "the difference between statutory and voluntary insolvency proceedings," and "how foreign companies should handle Vietnam's Bankruptcy Law," this article uses a real example to explain, in an accessible way, the practical considerations and points to note from the creditor's perspective.

01 - Overview of the Case

Company XXX held a certain amount of accounts receivable from Company YYY (the "Bankrupt Entity"), located in Vietnam. In January 2024, Company XXX received notice that the Bankrupt Entity had filed a petition for bankruptcy with the Hanoi People's Court.

As a creditor, Company XXX sought advice on whether to participate in the forthcoming bankruptcy proceedings and attempt to recover its claim, or to effectively waive the claim, from both an economic-rationality and a legal standpoint.

02 - Legal Advice from a Vietnamese Attorney

▶ Legal Issue ①: Overview of Bankruptcy Proceedings in Vietnam and the Prospects for Debt Recovery

In Vietnam, bankruptcy proceedings under the Bankruptcy Law (as amended in 2014) generally follow the sequence: court decision to commence bankruptcy proceedings → creditors' meeting → liquidation and distribution of assets.
In practice, however, the operation of this system remains underdeveloped, and it typically takes more than two years to complete the proceedings.
In this case, given that the Bankrupt Entity itself filed the petition, that the proceedings are moving unusually quickly, and that there are suspicions of asset concealment and asset transfers, the prospects for debt recovery are assessed to be extremely low.

● Factors impeding debt recovery (practical risks):

Possible transfer of assets to a third party before the commencement decision
Concerns over the competence and neutrality of the asset administrator
A lack of creditor-protection awareness on the part of the competent court
The presence of numerous secured creditors (such as banks) with priority claims

▶ Legal Issue ②: Order of Distribution and Company XXX's Position

Under the Bankruptcy Law, the order of priority for repayment is as follows.

Priority

Recipient of Payment

Secured creditors (holders of mortgages/pledges)

Costs of the bankruptcy proceedings

Employee wages, social insurance contributions, etc.

Minimum costs necessary to maintain business operations

Payment of taxes owed to the State

Unsecured creditors (Company XXX falls into this category)

In this case, given that multiple secured creditors already exist and the total number of creditors exceeds 100, it is assessed that the likelihood of Company XXX, as an unsecured creditor, receiving any distribution is extremely low.

▶ Legal Issue ③: Timeframe for Debt Recovery and the Practical Burden

Where the assets to be liquidated consist of receivables, the recovery process is expected to take up to two years.
Even if Company XXX were to participate in the bankruptcy proceedings, whether it would actually receive payment is uncertain, and the human, time, and financial cost of participating in the proceedings is a significant concern.

▶ Legal Issue ④: The Option of Waiving the Claim

Under Vietnam's Bankruptcy Law, failure to respond to the court's request to submit proof-of-claim documents is treated as an effective waiver of the claim, after which the creditor may no longer participate in the proceedings. Conversely, a creditor that does participate retains certain rights of oversight and objection.

Option

Documents Required

Rights Retained

Burden

Participating in the claims procedure

Proof-of-claim documents

Attending creditors' meetings, requesting distribution, etc.

High

Waiving the claim

None required

None (waived)

Extremely light

Accordingly

From the standpoint of economic rationality, pursuing the option of waiving the claim is considered the most reasonable course.
That said, coordination with internal company procedures will be needed regarding the accounting impact (such as recognizing a bad-debt loss) and managing the relationship with other creditors.

◆Conclusion and Recommended Course of Action◆

While it remains legally possible for Company XXX to pursue debt recovery in these bankruptcy proceedings, we assess that doing so would be significantly unreasonable from a practical and economic standpoint.

✅Recommended course of action

Take the position of not participating in the proceedings — i.e., waiving the claim — by not submitting proof-of-claim documents in response to any future notice from the court.
Internally, consider the appropriate accounting treatment (write-off, etc.) and review contractual measures to prevent recurrence (strengthening payment guarantee/security clauses).
Document the case internally for reference in future credit assessments and for sharing lessons learned from similar cases.