A lack of money despite business statements revealing a profit result is a common problem of a company, which results from the issue of the “liabilities”. In fact, the profit and even the investing capital may be held by the debtors of the company. Currently, the term “appropriation of capital” has been commonly known and, for some people, it is proudly considered as a smart act to appropriate capital of other companies. However, such people must distinguish the differences between the “lawful holding of capital” and “illegal appropriation of capital”. Practically, it is legal to make a consensus with a supplier on the late payment within 45 days from the day the goods are delivered, which is considered that, from the economic perspective, the buyer is using lawfully the capital of the supplier for free in 45 days. Nevertheless, if the payment obligation is not fulfilled after the due date and the money is kept in upcoming months, then the buyer is said to breach the contract and a corresponding penalty (if any) shall be imposed. This act is the appropriation of capital.
In case a company breaches a contract to appropriate capital, its creditors have numerous approaches to collect the debt such as negotiation, mediation or making a claim to a court, arbitration … Additionally, since the day the Bankruptcy Law 2014 came into force, creditors have had one more option for debt collection.
Pursuant to the bankruptcy law, unsecured and partly secured creditors have the right to file a request for the commencement of the bankruptcy procedure against their debtors in case no payment is made although the debt has been overdue for over 03 months since the due date come.[1] A company under a Court’s decision on commencing the bankruptcy procedure means that it is unable to pay its debts; in other words, a company unable to pay its debts is the one who does not make any repayment within 03 months since the due date fell[2]. Accordingly, any liabilities, regardless of the scale and value, are overdue for 03 months since the due date fell but the debtor of such liabilities is unable to pay, then the competent Court will decide to commencement the bankruptcy procedure whenever there is a request from the creditors.
Within 03 working days since the competent Court receives an appropriate request for the commencement of bankruptcy procedure, the debtor and the creditor may, by writing, ask the Court for a negotiation to withdraw the request for the bankruptcy procedure. For the purpose of negotiation, the competent Court states a period for the debtor and the creditor, but it shall be limited within 20 days from the date the request for the bankruptcy procedure is received. So, before officially accepting the request, the Court allows the debtor and his creditors to try to reach a consensus on the payment. For a debtor who is, in fact, able to fulfill its liabilities, being imposed bankruptcy procedure may make pressure on it because if the procedure is being implemented, the debtor may undergo the loss of the right to make any decision itself[3]. In particular, after the bankruptcy procedure is decided to be implemented, the debtor can keep its business run, but the operation shall be put under the supervision of the Judge, an Asset Management Officer and a management and liquidation company[4]. Moreover, the debtor is prohibited to pay its unsecured liabilities[5], is supervised all the activities related to entering into any loan agreements, to making pledge, mortgage, guarantee, purchase, sale, transfer and lease of assets, selling, converting shares or transfer of ownership of property[6], or imposed one or some of the provisional emergency measures to preserve the assets of the debtor.[7]
In addition to all aforementioned issues, once the decision on implementing the bankruptcy procedure is officially issued, all the creditors will find the debtor to demand their own benefits. This would be the greatest pressure on the debtor because instead of paying the liabilities for only one creditor, it would have to pay all the creditors within a short period, not to mention its employee’s wages and tax duties… Therefore, if a creditor is able to implement flexibly the regulations of the Law on Bankruptcy, he will make his debtor fall into two choices, paying debts to one and only creditor at a time or having to be confronted with all the creditors at a time, and all the business activities of the debtor will be put under a strict supervision and restriction.
In conclusion, under the circumstance that a debtor is able to pay its debt but intentionally “appropriate capital illegally”, the implementation of the law on bankruptcy will be a useful approach for a creditor to negotiate with his debtor, especially for the creditors who have a precise set of evidence to prove the amount of liabilities and the due date. In practice, a written confirmation on liabilities, a written commitment to pay liabilities or any similar documents is recognized by the Court as the most valuable proof. On the other hand, if the debtor is truly unable to have its liabilities paid, the law on bankruptcy will help a creditor to preserve the assets of the debtor so that the creditor may have a part of his loan returned and to prevent the debtor conduct any acts to disperse all its assets.
If you have any questions or require any additional information, please contact Apolat Legal – An International Law Firm in Viet Nam.
This article is for general information only and is not a substitute for legal advice.
[1] Law on Bankruptcy 2014, Article 5, Clause 1.
[2] Law on Bankruptcy 2014, Article 4, Clause 1.
[3] Law on Bankruptcy 2014, Article 37, Clause 1.
[4] Law on Bankruptcy 2014, Article 47, Clause 1.
[5] Law on Bankruptcy 2014, Article 48, Clause 1, Point b.
[6] Law on Bankruptcy 2014, Article 49, Clause 1, Point a.
[7] Law on Bankruptcy 2014, Article 70, Clause 1.
