Vietnam continues to modernize its legal framework to support a more transparent and efficient investment environment. The latest example is Decree No. 187/2026/ND-CP, issued on 27 May 2026, which provides detailed guidance for the implementation of the Law on Recovery and Bankruptcy concerning the replacement of legal representatives and the continued operation of enterprises during bankruptcy proceedings.
While the Decree primarily applies to state-invested enterprises and cooperatives, its practical significance extends well beyond the public sector. International investors, commercial banks, project lenders, bondholders, private equity funds, strategic buyers and restructuring professionals frequently transact with companies that have state ownership or participation. Understanding how these entities will now be managed during financial distress has therefore become increasingly important.
Perhaps most importantly, the Decree demonstrates Vietnam’s continuing effort to move away from uncertainty during insolvency and toward a system that prioritizes continuity of operations, preservation of enterprise value and protection of creditors.
Why This Matters
Historically, one of the greatest practical challenges in insolvency proceedings has been the sudden inability of an enterprise’s legal representative to continue managing the company.
Without a functioning legal representative:
- contracts cannot be executed;
- banks may refuse transactions;
- employees remain without direction;
- suppliers become uncertain;
- restructuring negotiations stall;
- enterprise value rapidly deteriorates.
Decree 187 directly addresses this problem by establishing clear mechanisms ensuring that management continuity is maintained throughout recovery and bankruptcy proceedings.
For investors, this represents an important step toward greater legal certainty.
A Clear Definition of When a Legal Representative Becomes Incapable
One of the most significant innovations is the introduction of objective criteria defining when a legal representative is legally incapable of performing his or her duties.
Examples include where the representative:
- is absent from Vietnam for more than 30 consecutive days without valid authorization;
- is detained or imprisoned;
- has absconded;
- has died;
- or otherwise becomes legally incapable of exercising management authority.
For wholly or partially state-invested enterprises, the relevant State owner’s representative agency has express authority to determine when these circumstances exist.
This removes uncertainty that previously delayed important management decisions.
Preventing Leadership Vacuums
Rather than allowing businesses to become paralysed, the Decree introduces rapid replacement procedures.
100% State-Owned Enterprises
Where the enterprise is wholly state-owned, the competent State owner’s representative agency may promptly nominate a replacement legal representative.
The appointment may come from:
- an existing authorized state representative; or
- another qualified individual meeting statutory requirements.
The proposal is then submitted directly to the supervising Judge handling the bankruptcy proceedings.
Partially State-Owned Enterprises
Where the legal representative manages only the State’s capital contribution, the competent State authority must nominate a replacement representative responsible for protecting State interests throughout the insolvency process.
This ensures continued supervision of public assets while allowing the enterprise to continue operating.
Protecting Enterprise Value Instead of Liquidating Too Early
Perhaps the most commercially significant aspect of Decree 187 concerns asset transfers during bankruptcy proceedings.
Rather than assuming liquidation is inevitable, the Decree allows:
- transfer of the enterprise’s entire assets;
- transfer of individual business divisions;
- transfer of viable operating units;
- continuation of commercially valuable business activities.
This represents an increasingly modern insolvency philosophy.
Instead of destroying enterprise value through immediate liquidation, viable operations may continue while restructuring or transferring valuable business lines to capable investors.
For international investors seeking distressed acquisition opportunities, this may substantially improve transaction certainty.
Increased Protection for Creditors
The Decree also strengthens creditor confidence.
By ensuring:
- continuity of management;
- judicial supervision;
- clearer governance;
- preservation of operating businesses;
the likelihood of preserving recoverable value improves considerably.
Creditors generally benefit where businesses continue operating rather than ceasing operations entirely.
Increased Responsibilities for Directors
The new framework also carries important implications for directors and legal representatives.
Extended absence from Vietnam without proper authorization may now have significant legal consequences.
Foreign managers serving as legal representatives should therefore ensure:
- proper delegation arrangements;
- valid powers of attorney;
- continuous management capability;
- documented internal governance procedures.
International companies with expatriate management should review their corporate governance structures accordingly.
A Broader Reform of Vietnam’s Insolvency Framework
Decree 187 should not be viewed in isolation.
It complements Decree No. 109/2026/ND-CP, which introduced administrative sanctions for violations of bankruptcy obligations.
Together, the two Decrees signal a broader policy direction:
Corporate insolvency should no longer be ignored or delayed.
Directors who fail to initiate bankruptcy proceedings when statutory insolvency thresholds have been met may now face personal administrative liability.
Combined with the governance provisions under Decree 187, Vietnam is steadily moving toward international standards of corporate responsibility and insolvency management.
Opportunities for Foreign Investors
For foreign investors, these reforms create several practical advantages.
Greater certainty during insolvency proceedings can facilitate:
- acquisition of distressed assets;
- restructuring of state-invested enterprises;
- project refinancing;
- debt restructuring;
- special situations investing;
- non-performing loan transactions;
- strategic acquisitions of viable business divisions.
The clearer governance framework also reduces transaction risk arising from uncertainty regarding who has authority to act on behalf of distressed enterprises.
Practical Action Plan for Foreign Investors, Banks and Creditors
Foreign businesses should not wait until a counterparty enters financial distress. Instead, they should proactively review their investment and contractual arrangements.
- Review Counterparty Exposure
Identify whether any suppliers, borrowers, joint venture partners or acquisition targets include state ownership or state capital participation.
- Verify Legal Representative Structures
Ensure contracts identify:
- authorized representatives;
- alternate signing authorities;
- succession mechanisms;
- power-of-attorney arrangements.
- Strengthen Due Diligence
For acquisitions involving distressed enterprises, examine:
- pending bankruptcy proceedings;
- judicial supervision;
- replacement of legal representatives;
- validity of corporate approvals.
- Review Financing Documentation
Banks and lenders should ensure financing documents adequately address:
- insolvency triggers;
- management replacement;
- information rights;
- enforcement mechanisms.
- Prepare Distressed M&A Strategies
The new framework may create attractive opportunities for acquiring:
- viable business divisions;
- productive assets;
- ongoing projects;
- operating subsidiaries.
Early preparation often provides a competitive advantage.
- Monitor Director Compliance
Foreign-appointed legal representatives should regularly assess compliance with Vietnamese insolvency obligations, particularly where financial distress may require timely bankruptcy filings.
- Integrate Insolvency Risk into Compliance Programs
Corporate governance policies should include procedures addressing:
- management continuity;
- emergency delegation;
- cross-border absence;
- restructuring protocols;
- insolvency response planning.
Looking Ahead
Vietnam’s insolvency regime continues to evolve toward a more sophisticated and commercially pragmatic system.
Decree 187 reflects an important policy objective: preserving enterprise value while protecting creditors, maintaining governance and ensuring orderly restructuring rather than unnecessary liquidation.
For international investors, the message is clear. Vietnam is building a legal environment that increasingly supports business continuity during financial distress, strengthens governance of state-invested enterprises and creates greater predictability for investment decisions.
Those who understand these reforms early will be better positioned to identify restructuring opportunities, protect existing investments and navigate distressed situations with greater confidence.
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For more information on the above, please do not hesitate to contact the author Dr. Oliver Massmann under [email protected]. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.