On 4 February 2025, the latest Draft of the Amended Law on Bankruptcy (“Draft”) was published by the People’s Supreme Court (“SPC”) for public comments. The Draft is prepared to supersede the current Law on Law on Bankruptcy No. 51/2014/QH13 dated 19 June 2014 (“Bankruptcy Law 2014”) and introduces several significant changes that may impact the bankruptcy procedures based on the implementation of the Bankruptcy Law 2014 from its effective date until now. The initial public comments period is set to last until 25 February 2025 and the expected date for submission of the finalized draft is COB May 2025 while the expected effective date for the amended law on bankruptcy is 2026.
The key highlights of the Draft are as follows:
- Fundamental principles for the law on bankruptcy
Fundamental of the law on bankruptcy was added to the Draft. The principles are (i) transparency in rehabilitation procedures and declaration of bankruptcy; (ii) fairness in dividing bankruptcy assets; and (iii) maximization of the value of bankruptcy assets.
- Conditions for Insolvency:
Two scenarios are set out in the Draft with regarding to insolvent entities. Accordingly, an insolvent entities, under the Draft, can be either
Scenario 1 (newly proposed scenario): Entities being unable to pay due debt for six (06) months from the due date, except for cases of force majeure or objective obstacles.
Scenario 2 (same as the Bankruptcy Law 2014): Entities being unable to pay due debt for three (03) months from the due date.
According to the report attached to the Draft (“Report”), the period of 3 months of the Bankruptcy Law 2014 is considered to be too short for a life cycle of an enterprise and the period of 6 months should be more suitable. Thus, a new period of 6 months is proposed by the SPC for further comments by the public.
- Specialized Bankruptcy Courts
According to the Draft and the Report, to comply with the new Law on Organization of People’s Court dated 2024, specialized courts are regulated to handle all bankruptcy cases, and judges will focus on guiding parties in evidence collection. This is a significant change from the current Bankruptcy Law 2014, which designates district or provincial-level courts to manage bankruptcy cases. According to the Draft, the specialized courts will be tasked with handling cases while (i) people’s high court will review the request against the decisions on (i1) commencement of bankruptcy procedures and (i2) declaration of bankruptcy of the specialized courts; and (ii) SPC will review the request against the decisions of the people’s high courts. Further, according to the Draft, relevant tasks regarding bankruptcy procedures such as serving documents, submitting applications, paying fees, meetings and creditors’ meeting are regulated to be handled via online platform. Such platform is expected to be developed by the SPC in the near future.
- Asset Preservation Measures
Three (03) new measures for assets preservation measures are provided in the Draft as follows:
(i) temporary suspension of debt payments inconsistent with the rehabilitation plan;
(ii) temporary cessation of payments to pension and death funds; and
(iii) temporary suspension of foreign travel for legal representatives.
- Mediation Procedures
Mediation procedure is introduced in the Draft as a new procedure for the rehabilitation/bankruptcy procedures. Accordingly, the liquidator is responsible for mediating on the rehabilitation plan, disputes, and complaints related to the assets of enterprises and cooperatives, and reporting the mediation results to the judge.
- New Rehabilitation Procedures
Under the current Bankruptcy Law 2014, rehabilitation is integrated into the bankruptcy proceedings and is applicable to insolvent entities.
However, the Draft introduces separate procedures for rehabilitation, making them available to entities at risk of being insolvent – businesses that, if it undertakes the payment of due debts within the next 06 months or debts that have already become due but not more than 06 months from the date of filing a request to initiate rehabilitation procedures, will severely affect its business operations.
The procedures for rehabilitation are set out, generally, as below:
1st Procedure. Authorized representative to submit an application to the specialized court.
2nd Procedure. Within 03 working days from the date of receipt of the request to open rehabilitation procedures, the Chief Justice of the specialized court shall assign a Judge or a Panel of Judges consisting of 03 Judges to resolve the request to open rehabilitation procedures.
3rd Procedure. Within 03 working days from the assignment date, the assigned Judge shall review the application to determine whether the next procedure can be carried out or other actions from relevant parties (i.e. amendment of the application, transfer of application to another specialized court, return of application) must be taken.
4th Procedure. Negotiation between the entities at risk of being insolvent and its creditors. The result of the negotiation will directly affect the handling of rehabilitation of the specialized court (i.e. to continue handling or to suspend the case).
5th Procedure. Specialized Court to accept the application and to commence the rehabilitation procedure.
6th Procedure. Within 2 or 3 months from the commencement date, a plan for rehabilitation must be developed by all relevant parties and such a plan must be approved in the creditors’ meeting and carried out according to the following scenario:
Scenario 1: Within five (5) years from the approval date of the creditors’ meeting
Scenario 2: Within the timeline as set out in the creditors’ meeting. In case the creditors’ meeting could not agree on a timeline, the plan for rehabilitation will be carried out within three (3) years from approval date of the creditors’ meeting.
- Application for bankruptcy procedures
According to the Draft, secured creditors can now file bankruptcy requests if secured assets no longer exist.
- Foreign Bankruptcy
Under the Draft, Vietnamese courts can assist with foreign bankruptcy proceedings, e.g., verify, inventory, value, liquidate and recover the assets of enterprises relevant to foreign bankruptcy proceedings. Further, detailed provisions for recognizing and enforcing foreign courts’ judgments on bankruptcy are introduced in the Draft. The Draft introduces notable provisions such as authority of courts in Vietnam and certain cases where bankruptcy decisions of foreign courts are not recognized in Vietnam.
- Transitional provisions
According to Article 181 of the draft Bankruptcy Law, which serves as a transitional provision for handling ongoing bankruptcy cases, any bankruptcy case initiated under the Bankruptcy Law 2014 but not yet reaching the stage of issuance of a bankruptcy decision by a competent court will be subject to the new law on bankruptcy.
***
Please do not hesitate to contact Dr. Oliver Massmann at [email protected] if you have any questions. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.
