Every day we read a series of articles about the economic downturn and crisis caused by the Covid-19 epidemic. Everyone understands that this is no longer in the predictions that they are coming true.
In the document dated March 22nd, 2020, of Ho Chi Minh City Party Committee Secretary Nguyen Thien Nhan sent to Prime Minister Nguyen Xuan Phuc proposing the solution “… to enterprises, which must be closed because of Corona global epidemic still maintained with the necessary labour force of the enterprise, not bankruptcy within 3 months, less bankruptcy within 6 months”. Thus, the bankruptcy problem of enterprises is unavoidable.
If the economy declines along the chain, enterprises will gradually lose their solvency and become bankrupt. When insolvency occurs, the enterprise owner or the legal representative will face intangible to tangible pressure from the creditor. Bankruptcy law gives enterprise owners a good choice, opening a way for businesses to survive or at least enterprise owners can decide for themselves a “death” clear and orderly.
According to the provisions of the Bankruptcy Law, an insolvent enterprise is an enterprise having failed to pay its debt within 03 months from the payment due date. When an enterprise is insolvent, the legal representative of the enterprise, the owner of the private enterprise, the Chairman of the board of Directors of the joint-stock company, the Chairman of the members’ council of multi-member limited liability company, the owners of one-member limited liability companies or general partners of partnerships is obliged to file a written request for the opening of bankruptcy procedures. Besides, any Shareholder or any group of shareholders owning at least 20% of ordinary shares for at least 06 consecutive months is entitled to file a written request to open bankruptcy procedures when the joint-stock company is insolvent. Any shareholder or any group of shareholders owning less than 20% of ordinary shares for at least 06 consecutive months is entitled to file a written request to open bankruptcy procedures when the joint-stock company is insolvent if it mentioned in the company’s Charter.
The reasons for the individuals or groups of individuals as mentioned above, filing for the opening of bankruptcy procedures are:
1. The plan to resume the business operation can help enterprise revive
In the process of bankruptcy resolution, in Chapter VII of the Bankruptcy Law 2014, an enterprise is entitled to propose plans to resume business operations and persuade creditors through this resume plans. Therefore, it will help debtor find the last chance of “survival”.
The plan to resume the business operation of an insolvent enterprise or cooperative must specify measures to resume the business operation; requirements, deadline, and plan to pay the debts. The measures to resume business operation include: Mobilizing capital; Debt reduction, debt exemption, postponement; Changing products and goods; Innovating technology; Reorganization of management, merger or separation of production divisions; Selling share to creditors and others; Saling or leasing the assets; Other measures under the regulations of the law.
If the debtor “dies”, the creditor will likely lose the debt. Therefore, instead of forcing the debtor to reach an impasse and losing everything, the creditor will consider a business plan so that their debtor has a chance to survive. This is also a way to wait for your debt to be paid in the future. Therefore, if the enterprise is insolvent and the enterprise owner cannot negotiate with each creditor, the opening of bankruptcy procedures, bringing the case to the Court and presenting the plan to resume business operations in the creditors’ meeting at the Court is a feasible measure and has a higher success rate.
2. Liberating enterprise owners and legal representatives from the arrests and encirclement of creditors
When the debtor is insolvent, the creditor will be in a situation to find all possible ways to recover his debt. In practice, many creditors use legal instruments to ban exit for legal representatives, request to block bank accounts, assets of enterprises for execution. Besides, other measures not prescribed by law such as insults, threats can be applied to individuals who run enterprises, enterprise owners. The bankruptcy process under the bankruptcy law will bring together all the separately lawsuits to resolve in a bankruptcy case. Also, this can help keep the peace, reduce tensions and conflicts between the parties, making everything happen under the law.
3. Take personal responsibility for failure to file a written request to open bankruptcy procedures
The legal representative of the enterprise, the owner of the private enterprise, the Chairman of the board of Directors of the joint-stock company, the Chairman of the members’ council of multi-member limited liability company, the owners of one-member limited liability companies or general partners of partnerships is obliged to file a written request for the opening of bankruptcy procedures when their enterprises are insolvent. If the above-mentioned individual intentionally fails to apply for opening of bankruptcy procedures:
– There is a responsibility to pay compensation in case of damage arising after the time an enterprise or cooperative is insolvent due to failure to file a written request to open bankruptcy procedures;
– The Judge shall consider and decide on not being entitled to establish an enterprise, or working as the manager of any enterprise within 03 years from the date on which People’s Court issues the Decision to declare bankruptcy.
The analysis as mentioned above, with the current challenging economic situation, enterprise owners can study bankruptcy law to find a suitable solution for their enterprise situation. Besides, they can apply bankruptcy law such as a negotiation tool with creditors.
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.