Key takeaways
- The Draft Bankruptcy Law contains 12 chapters and 183 Articles and is structured as follows:
Chapter I (Articles 1-63): General provisions
Chapter II (Articles 64-67): Mediation procedures
Chapter III (Articles 68-104): Rehabilitation procedures
Chapter IV (Articles 105-134): Bankruptcy procedures
Chapter V (Articles 135-143): Expedited rehabilitation, bankruptcy
Chapter VI (Articles 144-151): Bankruptcy procedures for credit institutions
Chapter VII (Articles 152-153): Requests for foreign country on assistance with bankruptcy
Chapter VIII (Articles 154-157): Assistance with foreign bankruptcy
Chapter IX (Articles 158-163): Recognition and enforcement of foreign courts' judgment/decision on bankruptcy
Chapter X (Articles 164-175): Enforcement of bankruptcy decision
Chapter XI (Articles 176-180): Responsibilities of related parties, prohibited acts and sanctions for violations
Chapter XII (Articles 181-183): Enforcement provisions
- Highlighted changes as compared to the current Bankruptcy Law 2014:
- The "insolvent" condition
Under the current Bankruptcy Law 2014, an entity is considered insolvent if it fails to pay due debt for three months. SPC is proposing to revise this condition so that an entity will be considered insolvent if it fails to pay due debt for "six months from the repayment deadline, unless due to force majeure or objective impediment."
- Specialized Bankruptcy courts and the duty and power of judges in bankruptcy cases
Under the recently adopted Law on Organization of the People's Court, Specialized Bankruptcy courts will be established. The Draft Bankruptcy Law provides that Specialized Bankruptcy courts will assume jurisdiction over all bankruptcy cases (unlike the Bankruptcy Law 2014, which provides that bankruptcy cases are handled by district-or provincial-level courts).
In addition, per Article 12 of the Draft Bankruptcy Law, judges will mainly guide the parties in collecting evidence (rather than the judges actively collecting evidence) and may support parties in collecting evidence if they cannot do so.
- Additional measures to preserve assets
The Draft Bankruptcy Law provides for three new measures to preserve assets, namely: (i) temporary suspension of debt payment inconsistent with the rehabilitation plan, unless decided otherwise by the court; (ii) temporary cease of payment to pension and death funds; and (iii) temporary suspension of exit to foreign countries for legal representatives of companies subject to rehabilitation/bankruptcy procedures.
- New mediation procedures
The Draft Bankruptcy Law supplements new procedures under which the liquidator will mediate on the rehabilitation plan and disputes on assets. The liquidator may mediate between the relevant insolvent entity and its debtors/creditors. Successful mediation can be recognized by the court's decision.
- New rehabilitation procedures
Under the Bankruptcy Law 2014, rehabilitation is part of the bankruptcy proceedings that is applicable to insolvent entities. However, under the Draft Bankruptcy Law, rehabilitation will become separate procedures available to entities at "risk of being insolvent," i.e., entities whose payment of debts due in the next six months or debts due not more than six months ago may severely impact their business operation.
For rehabilitation procedures, creditors' meetings will be validly convened and a resolution may be adopted by creditors representing at least "65% total debt" of the company. Creditors' meetings may also decide to establish a Creditors' Representative Board consisting of no more than five members representing large creditors to periodically supervise the implementation of the rehabilitation plan.
- Amended bankruptcy procedures
Under the Bankruptcy Law 2014, only unsecured or partially secured creditors can file a bankruptcy request against their debtor. However, the Draft Bankruptcy Law also allows secured creditors whose secured assets no longer exist to file a bankruptcy request against their debtor. The Draft Bankruptcy Law also clearly stipulates that creditors may lose their right to join the bankruptcy proceeding if they fail to promptly serve their debt claims to the court without a valid reason.
The Draft Bankruptcy Law increases the quorum for valid convention of creditors' meeting to "65% unsecured debt" (instead of "51% of unsecured debt" under the current Bankruptcy Law 2014).
- Expedited rehabilitation, bankruptcy procedures
The SPC is proposing the following options for expedited rehabilitation and bankruptcy procedures:
- Option 1: Applicable to small companies and microenterprises with less than 20 unsecured creditors or whose total debt is less than VND 10 billion
- Option 2: Applicable to (i) companies with less than 10 unsecured creditors and less than 200 employees or (ii) small companies and microenterprises.
Expedited procedures will have a timeline that is 50% shorter than standard procedures.
- Assistance to foreign bankruptcy
Chapter VIII of the Draft Bankruptcy Law provides for entirely new provisions that will allow Vietnamese courts, upon the request of foreign courts/authorities or representatives in foreign bankruptcy prceedings, to verify, inventory, value, liquidate and recover the assets of enterprises relevant to foreign bankruptcy prceedings.
- Recognition and enforcement of foreign courts' judgment/decision on bankruptcy
Currently, the recognition and enforcement of foreign courts' judgment/decision on bankruptcy follows the general provisions under the Civil Procedure Code. The Draft Bankruptcy Law supplements more detailed provisions in this aspect. Notably, Article 163 of the Draft Bankruptcy Law provides for a list of grounds according to which Vietnamese courts may refuse to recognize and enforce foreign courts' judgment/decision on bankruptcy, as briefly summarized below:
- The foreign courts' judgment/decision debtor is improperly notified of the bankruptcy proceedings according to the laws of the jurisdiction where the judgment/decision is issued.
- The foreign courts' judgment/decision is fraudulently issued.
- The foreign courts' judgment/decision contradicts a Vietnamese court's judgment/decision.
- The foreign courts' judgment/decision contradicts the judgment/decision of the court of a third country which is eligible to be recognized and enforced in Vietnam.
- The foreign courts' judgment/decision seriously infringes the rights of creditors, debtors and related parties.
- The recognition and enforcement of the foreign courts' judgment/decision is contrary to the fundamental principles of Vietnamese laws; is prejudicial to the territory, national security or public interests of Vietnam; and affects the legitimate rights of creditors in Vietnam.
- The foreign courts' judgment/decision is pending review at the issuance state, or the time limit for review of such foreign courts' judgment/decision has not lapsed according to the laws of the issuance state.
In conclusion
This development in Vietnamese bankruptcy law seeks to improve how increasingly complicated cases of financial distress, including cross-border cases are handled. Upon your request, we are happy to evaluate the impacts of the Draft Bankruptcy Law on your business operations in Vietnam and/or assist in submitting an advocacy letter to the drafting team.
