When a business experiences financial difficulties, such as sustained losses or insolvency, one legal option for managing its debts is to petition the Court to initiate bankruptcy proceedings. This process can help the enterprise resolve its financial obligations within a structured legal framework. But What are the Conditions to Request the Debtor to Declare Bankruptcy, and what are the steps and procedures involved? This article, “Conditions to Request a Debtor to Declare Bankruptcy,” will outline and analyze the criteria required to initiate bankruptcy proceedings in Vietnam, as well as the detailed steps involved in the process and other relevant information about bankruptcy procedures.
What is Bankruptcy?
Enterprise bankruptcy is a form of terminating the business activities of an enterprise (deleting the name of the enterprise in the business registration system) by liquidating assets to fulfill the debt repayment obligations of the enterprise. Simply understanding, when noticing that the enterprise is insolvent, the enterprise is obliged to file a bankruptcy application to the competent Court under the Bankruptcy Law. At this time, the Court will review the dossier and carry out other administrative proceedings to make a decision on whether or not agree to allow the enterprise to go bankrupt or close the dossier, terminate the settlement of the case (not agree to the bankruptcy of the enterprise).
In case the Court issues a decision to declare the enterprise bankrupt, such enterprise shall incur property obligations after the issuance of the decision. Note that the decision to declare the enterprise bankruptcy does not exempt the owners of the enterprise from the property obligations, general partners of a partnership for creditors who have not yet paid their debts. This can be understood that Vietnamese law currently does not have a mechanism for individuals to declare bankruptcy, bankruptcy only applies to organizations that are legal entities according to the provisions of the Law on Enterprises, Bankruptcy Law.
What are the Conditions to Request a Debtor to Declare Bankruptcy?
As mentioned in the definition of Bankruptcy and the legal provisions on the rights and obligations to request the opening of bankruptcy procedures, it can be understood that the request for opening of bankruptcy procedures is made by two main subjects (i) which are enterprises with obligations and (ii) persons who have rights under the provisions of the Bankruptcy Law. For the case (i), when the legal representatives of enterprises and cooperatives; owners of private enterprises, chairman of the Board of Management of joint-stock companies; Chairman of the Members’ Council of a limited liability company with two or more members; owners of single-member limited liability companies; a general partner of a partnership who finds the enterprise insolvent is obliged to file a request for initiation of bankruptcy procedures. For case (ii), individuals who are creditors; employees; grassroots trade unions when the payment deadline is past 03 months but have not yet been paid; shareholders or groups of shareholders owning at least 20% ordinary shares or more for a continuous period of at least 06 months when the joint-stock company becomes insolvent, it has the right to file a Request a Debtor to Declare Bankruptcy.
In order to clarify the Conditions for Requesting a Debtor to Declare Bankruptcy, it is first necessary to analyze what is a debtor, what are the signs to identify a debtor and insolvent debt? First of all, in terms of signs of identifying enterprises with debts, these debts are debts that do not have collateral or have partial collateral (but the value of the collateral is less than the debt); debts that have been clearly identified by the parties (based on debt reconciliation records, debt certificates of enterprises, etc.). When these debts are due, even though the creditor has requested payment (expressed through written requests for payment obligations) and has not been paid more than three (03) months from the due date, the creditor has the right to request the debtor to file a Request a Debtor to Declare Bankruptcy.
Regarding the petition for initiation of bankruptcy procedures, depending on the subject of the request, the petition for initiation of bankruptcy procedures must contain the following principal contents: Date, month and year; name of the competent court to settle bankruptcy; name and address of the applicant; name and address of the enterprise, the cooperative is required to open bankruptcy procedures; debts due (salaries due) or grounds for request for initiation of bankruptcy proceedings. The application must be accompanied by documents to prove the debt due. In case there is a proposal to appoint an asset management officer or asset management and liquidation enterprise, the application shall clearly state the names and addresses of these subjects.
Order and procedures for Request a Debtor to Declare Bankruptcy
A Request for a Debtor to Declare Bankruptcy consists of four (04) main stages, including: (i) initiation of bankruptcy proceedings, (ii) conduct of bankruptcy proceedings, (iii) declaration of bankruptcy and (iv) enforcement of the decision to declare bankruptcy.
Opening bankruptcy proceedings
After accepting the petition for initiation of bankruptcy procedures, the Judge will issue a decision to open bankruptcy procedures if it deems that the enterprise or cooperative is insolvent. In case of necessity, before issuing a decision to open/not to open bankruptcy procedures, the Judge may convene a meeting with the applicant, the business owner or legal representative of the enterprise or cooperative requested to open bankruptcy procedures, and other relevant individuals and organizations to check the grounds showing that the enterprise or cooperative is insolvent.
Conduct bankruptcy procedures
Once bankruptcy procedures are initiated, the case progresses through several key stages, including: the appointment of asset management officers and administrators; asset liquidation; auditing of the insolvent enterprise; monitoring of business activities; changes in the legal representative of the enterprise; determining asset obligations (including the value of debts, interest, handling of secured debts, and asset distribution order); implementing asset security measures (such as temporary emergency actions); organizing creditors’ meetings; and facilitating the restoration of business operations.
A key component of the bankruptcy process is organizing the Creditors’ Conference. Once the court has issued a decision to initiate bankruptcy proceedings, appointed an asset management officer, engaged the asset liquidation management enterprise, and prepared a list of creditors, inventoried assets, and other necessary documents, a creditors’ meeting must be convened. This meeting is essential for developing a resolution plan for the bankruptcy case. Guided by principles of respecting agreements, ensuring equal rights and responsibilities for participants, and maintaining transparency, the Creditors’ Conference serves as a platform to discuss the enterprise’s financial difficulties, asset status, and outstanding obligations. Here, creditors work collaboratively to identify solutions to help the enterprise overcome insolvency.
Declaration of bankruptcy
Following the Creditors’ Conference, a resolution is issued that includes one of the following conclusions: (i) a request to suspend the bankruptcy proceedings, (ii) a request to apply measures to restore business activities, or (iii) a request to declare the enterprise or cooperative bankrupt. Based on the resolution, the court will issue a bankruptcy declaration for the enterprise within 15 days if the creditors’ meeting requests it. Should the meeting fail to reach an agreement, the People’s Court will proceed with a bankruptcy declaration within 15 days from receiving the report on the meeting’s results.
Enforcement of Bankruptcy Declaration Decisions
For the execution of the bankruptcy declaration decision, after being assigned to organize the execution of the bankruptcy declaration decision, the enforcer shall perform the following tasks: Open an account at the bank in the name of the civil judgment enforcement agency competent to execute the bankruptcy declaration decision to deposit the recovered money of the enterprise; bankrupt cooperatives; Supervise asset management officers and asset management and liquidation enterprises to liquidate assets; Carry out coercion to recover assets, assign assets to buyers of assets in bankruptcy cases in accordance with the law on civil judgment enforcement.
Contents to note for enterprises to make a Request for a Debtor to Declare Bankruptcy
Bankruptcy serves as a collective debt recovery mechanism and a lawful means of debt cancellation (releasing an enterprise from debt obligations) following asset liquidation—except for private enterprises and partnerships, which may not fully benefit from this process. Although bankruptcy declarations and debt recovery aim to address creditors’ claims, they differ in their approach. A bankruptcy declaration enables creditors to recover debts by distributing any remaining assets at the time of the court’s decision rather than seeking repayment of principal and interest, as in traditional debt recovery cases. However, bankruptcy cases can have substantial negative effects on the national economy. The larger the bankrupt enterprise and the greater its integration within an industry, the higher the risk of a “domino effect,” where the failure of one business leads to the collapse of its partners and affiliates. This ripple effect can increase unemployment, place additional pressures on job markets, and trigger further societal issues. For these reasons, bankruptcy should be carefully limited and regarded as a last resort measure for struggling enterprises.
The above is an overview of What are the Conditions to Request a Debtor to Declare Bankruptcy. If you have difficulties in finding a Law Firm to advise and support in the relevant legal field, please contact us. Phuoc & Partners is a professional consulting firm established in Vietnam and currently has nearly 100 members working in three offices in Ho Chi Minh City, Hanoi and Danang. Phuoc & Partners is also rated as one of the leading consulting firms in Vietnam with highly specialised teams in top legal fields such as Labour and Employment, Taxation, Merger and acquisition, Litigation. We are confident in providing customers with optimal and effective service.
