Corporate Bankruptcy Proceedings in Vietnam: Current Status and Practical Challenges
A Vietnamese attorney explains, in accessible terms and based on the latest legal framework, case precedent, and actual practice, the overall picture of corporate bankruptcy proceedings in Vietnam and the practical challenges involved. This article organizes the points to watch for at each step, from filing the bankruptcy petition through the disposal of assets and dealing with creditors, and sets out the responses Japanese-affiliated companies should take. NEXORA LAWFIRM has a strong track record advising on and supporting judicial reorganization, bankruptcy filings, and restructuring-type options in Vietnam, and its strengths include debt collection and analysis of officer liability, all aimed at maximizing the client's interests through a strategic response.
For companies operating in Vietnam, bankruptcy proceedings are generally regarded as a last resort, yet in many cases the legal procedure and the practical challenges involved are not well understood. Although the Bankruptcy Law was enacted in 2004 and amended in 2013, the number of bankruptcy petitions accepted by the courts remains limited, and problems such as fraudulent conduct and asset concealment by companies filing for bankruptcy have also been noted. This article provides a detailed explanation of the basic framework of Vietnam's bankruptcy procedure, the legal framework, the latest statistical data, and the practical challenges companies face.
01 - Who May and Who Must File for Commencement of Bankruptcy Proceedings?
When a company falls into a state of insolvency, the following persons have the right or the obligation to file for commencement of bankruptcy proceedings.
Definition of insolvency:
Insolvency refers to a state in which a company or cooperative is unable to perform its payment obligations within three months of the due date.
Persons with the right/obligation to file:
Unsecured creditors and partially secured creditors
Where the company fails to perform its debt obligations even after three months have passed since the due date.
Employees, the grassroots trade union, and the superior trade union
Where the company fails to pay wages or other obligations owed to employees even after three months have passed.
The company's legal representative
The representative bearing legal responsibility.
The company's principal managers
A sole proprietor, the chairman of the board of directors of a joint-stock company, or the representative(s) (whether a single member or multiple members) of a limited liability company.
Shareholders or a group of shareholders
Those holding 20% or more of ordinary shares continuously for six months or more.
Shareholders or a group of shareholders holding less than 20% of ordinary shares also have the right to file in the event of insolvency, subject to conditions set out in the company's charter.
Practical note:
Bankruptcy proceedings are a formal means of resolving a company's financial distress. Ensuring that the proper legal process is understood and that persons entitled to file exercise their rights appropriately safeguards the transparency and fairness of the proceedings.
02 - The Flow of Bankruptcy Proceedings
Points to note when filing for bankruptcy
Where a company itself applies for commencement of bankruptcy proceedings, the following documents and materials must be attached to prove that it is in a state of insolvency:
Required documents and materials:
Financial statements for the past three years
Where the company or cooperative has been in operation for less than three years since its establishment, financial statements covering its entire period of operation must be submitted instead.
A statement explaining the cause(s) of insolvency
A detailed explanation of the circumstances that led to the state of insolvency.
A report on the results of remedial measures taken to resolve the insolvency (including a record of cases where remediation was unsuccessful).
A detailed list of assets and their locations
A list setting out full details of all assets held by the company or cooperative, together with their locations.
A list of creditors and debtors
A list clearly stating the names, addresses, amounts owed, and security status (unsecured, partially secured, etc.) of creditors and debtors.
Documents and materials relating to the company's establishment
All relevant documents concerning the establishment and registration of the company or cooperative.
Asset valuation or appraisal results (where applicable)
Where valuation or appraisal documents for the remaining assets exist, these should be attached.
03 - The Current State of Corporate Bankruptcy Proceedings in Vietnam
Acceptance of bankruptcy petitions
Vietnam's Bankruptcy Law was enacted in 2004 and amended in 2013, but the number of bankruptcy petitions since then remains limited. Specifically, 336 cases were accepted between 2004 and the 2013 amendment, and 1,510 cases were accepted between 2014 and September 30, 2023.
Processing of bankruptcy cases
Of the 1,510 bankruptcy cases handled by Vietnam's People's Courts (TAND) between January 1, 2015 and September 30, 2023, the breakdown is as follows.
Decisions to commence bankruptcy proceedings: 554 cases
Petitions returned: 66 cases (of which 1 was due to withdrawal by the petitioner)
Decisions not to commence bankruptcy proceedings: 234 cases
Bankruptcy declarations: 150 cases (of which 44 were under summary procedure)
Decisions to suspend bankruptcy proceedings: 49 cases
Reconsideration or objections: 12 objections to decisions to commence/not commence proceedings; 14 objections to bankruptcy declaration decisions
Application of business restructuring procedures: 6 cases
Status of debt enforcement
According to statistics from Vietnam's Ministry of Justice, the total amount of debt enforced in bankruptcy cases, and the enforcement rate, increased year on year between 2015 and 2023. For example:
2015:
Cases handled: 42
Total debt: VND 30.5 billion
Enforceable cases: 13 (VND 15.5 billion)
Enforcement rate: 84.62% (56.51% on a value basis)
2023:
Cases handled: 324
Total debt: VND 219.88 billion
Enforceable cases: 202 (VND 171.05 billion)
Enforcement rate: 31.68% (87.90% on a value basis)
Practical problems
Fraudulent conduct:
There are cases in which a debtor transfers its principal assets to a third party before filing for bankruptcy, thereby depleting its assets. This increases the burden on creditors of having to deal with fraudulent conveyances and makes debt collection more difficult.
Debtor-initiated bankruptcy filings:
Particularly where the debtor itself files for bankruptcy, there are cases in which improper negotiation tactics or measures aimed at securing a discharge are employed.
General trends
In many cases where bankruptcy proceedings have commenced, the company has already lost its ability to pay, and it is common for there to be no assets from which creditors can recover to their satisfaction.