LAW
ON BANKRUPTCY – INADEQUACIES AND RECOMMENDATIONS FOR LEGISLATIVE IMPROVEMENT
Master. Trinh Tuong Khiem
Van Hien University
Email: khiemtt@vhu.edu.vn
Abstract: The Bankruptcy Law 2014 has
significantly contributed to establishing a robust legal framework for the
resolution of bankruptcy cases in Vietnam. However, after nearly ten years of
implementation, several issues and shortcomings have emerged that significantly
impact the effectiveness of bankruptcy case resolutions in practice. This article
aims to analyze and evaluate these limitations and inadequacies in the legal
provisions regarding bankruptcy, and to offer recommendations for improvement.
Keywords: Bankruptcy, enterprise,
cooperative, inadequate, complete law.
1.
Introduction
The Bankruptcy
Law 2014 was approved by
the 13th National Assembly of the Socialist Republic of Vietnam on 19/06/2014,
took effect from 01/01/2015, and replaced the 2004 Bankruptcy Law with 14
chapters and 133 articles, which is a judicial institution in the
market economy. This Law provides for the order and procedures for filing,
accepting, and initiating bankruptcy procedures; determination of property
obligations and measures to preserve assets in the process of bankruptcy
settlement; procedures for restoration of business activities; declaration of
bankruptcy and enforcement of bankruptcy declaration decisions applicable to the
bankruptcy of enterprises and cooperatives, unions of cooperatives, etc. The promulgation
of the 2014 Bankruptcy Law has made an important contribution to strengthening
socialist legislation, protecting the interests of the State, the legitimate
rights and interests of enterprises, cooperatives, and cooperative unions;
creating favorable conditions for enterprises,
cooperatives that are in a difficult state of production and business,
losing money have the opportunity to withdraw from the market in an orderly
manner; this is also a legal basis to create conditions for the People's Court
to settle the legal consequences of enterprises and cooperatives in bankruptcy.
However, in the face of the development of the actual situation and the
requirements of international integration, in recent years, the legal framework
on the bankruptcy of enterprises and cooperatives in our country has revealed
shortcomings, outdated, not synchronous, and comprehensive. The number of
documents is still large, and the content of many regulations has no longer
kept up with the development of practice, requiring continued timely solutions.
In particular, in the context of the post-COVID-19 epidemic situation that has
had a significant impact on the global economy, many Vietnamese businesses and
cooperatives have been facing difficulties and risks of insolvency [1].
Therefore, the improvement of the bankruptcy law is an important and
urgent requirement in the current context.
2.
Some inadequacies in the legal provisions of bankruptcy
As mentioned, the
introduction of the Bankruptcy Law in 2014 has created the necessary legal
corridor to effectively carry out activities related to the bankruptcy of
enterprises and cooperatives when they are insolvent. However, through the
implementation and application process, the Bankruptcy Law 2014 has also
revealed certain limitations and inadequacies, which are reflected in the
following aspects:
First, the subject has the
right to file a petition for opening bankruptcy procedures. According to the
provisions of Article 5 of the 2014 Bankruptcy Law, for the model of a
joint-stock company next to the Chairman of the Board of Directors of a
joint-stock company, shareholders or groups of shareholders owning 20% or more
of ordinary shares for at least 06 consecutive months have the right to file a
petition for initiation of bankruptcy procedures when the joint-stock company
insolvency; Shareholders or groups of shareholders owning less than 20% of
ordinary shares for at least 06 consecutive months are also entitled to file a
petition for initiation of bankruptcy procedures when the joint-stock company
becomes insolvent in the case specified by the company's charter [2].
Meanwhile, for a limited liability company with two or more members, the
members of the company do not have this right. This leads to the consequence
that in case the member who occupies the dominant capital of the company finds
that the enterprise is insolvent, he or she does not have the right to file an
application but only relies on the legal representative or the Chairman of the
Board of members to file the application as an obligor [3]. This is somewhat
detrimental to the member because if the situation lasts for a long time, it
can greatly affect the interests of that member [4].
Second, regarding the appointment of asset management officers,
asset management, and liquidation enterprises. According to current
regulations, only the applicant who files for the opening of bankruptcy
procedures has the right to propose the appointment of an asset management
officer or asset management and liquidation enterprise. The basis for the Judge
to issue a decision to appoint an asset management officer or asset management
and liquidation enterprise must be based on the proposal for appointment of the
applicant requesting the opening of bankruptcy procedures. However, the problem
here is that the applicant for the opening of bankruptcy proceedings is
entitled to appoint as many asset management officers, how many companies to
manage and liquidate assets, as well as to have the right to appoint both asset
management officers and the company to perform management. Liquidation of
assets or not. Currently, the Bankruptcy Law 2014 does not clearly stipulate
whether to restrict or prohibit the applicant from appointing a number of Asset
Management Officers or companies to manage and liquidate assets of enterprises
and cooperatives in the process of settling bankruptcy cases, which has led to
many different interpretations. Causing trouble and complexity in terms of
responsibilities, rights, and obligations of the parties to manage and
liquidate the assets of enterprises and cooperatives. In addition, in case the
asset management officer or asset management and liquidation enterprise is
changed due to falling into the cases specified in Clause 1, Article 46 of the
Bankruptcy Law, who has the right to appoint a new asset management officer if
the applicant does not propose the appointment because currently according to
the current Bankruptcy Law, only the applicant can request to open the new
bankruptcy procedures have the right to propose the appointment of asset
management officers, asset management and liquidation enterprises. This is also
an existing inadequacy problem, causing many difficulties in understanding and
implementing in practice.
Third, regarding the submission of
financial statements, the current Bankruptcy
Law only stipulates the obligation to submit financial statements in the last
03 years for cases where enterprises or cooperatives file a petition for
initiation of bankruptcy procedures, and in the remaining cases filed by
others, the bankrupt enterprise is not obliged to submit financial statements.
This leads to a difficult situation for the process of determining the
financial status and assets of insolvent enterprises and cooperatives but do
not file a petition for opening bankruptcy procedures because, in fact, there
will be enterprises and cooperatives that do not have accountants. No auditing,
and accounting records are no longer available.
Fourth, concerning the inventory of
enterprise assets, cooperatives are insolvent. According to the provisions of Article
65 of the 2014 Bankruptcy Law,
within 30 days from the date of receipt of the decision to open bankruptcy
procedures, the insolvent enterprise or cooperative must conduct an inventory
of assets and determine the value of such assets; in case of necessity, a
written request for extension must be made by the judge. but not more than twice, each time not
exceeding 30 days, the determination of the value of assets of enterprises and
cooperatives must be carried out in accordance with the provisions of law [5].
In case the lawful representative of the enterprise or cooperative is absent,
the person appointed by the asset management officer or the asset management
and liquidation enterprise shall act as the representative of the enterprise or
cooperative to carry out the inventory and determine the value of assets of the
enterprise or cooperative [6]. Thus, according to the above provisions, it can
be understood that the inventory of assets and the determination
of the value of assets belong to the responsibility of the insolvent enterprise
or cooperative with the total implementation time, if extended, is not more
than 90 days from the date of receipt of the decision to open bankruptcy
procedures. However, in practice, the implementation of this regulation is not
always feasible and faces many difficulties [7]. Because in fact, in case the
legal representative of the insolvent enterprise or cooperative is not present
in Vietnam at the time of requesting the asset inventory, the asset inventory
in this case will face a lot of difficulties because at this time the personnel
and employees have quit their jobs.
while the volume of assets of insolvent enterprises and cooperatives is
stored in many places, but the information on asset accounting records does not
know who keeps and manages them. Moreover, in this case, if the Court or Asset
Management Officer appoints another person to be the representative of the
bankrupt enterprise or cooperative to carry out the inventory and determine the
value of assets, it is not feasible because in fact they do not know anything
about the company’s situation. Therefore, the asset management officer
faces difficulties and obstacles when making a list of assets according to the
provisions of Point b, Clause Article 16; Clause 1, Article 75 of the
Bankruptcy Law. At the same time, another problem is that in case when an
enterprise or cooperative becomes insolvent and there is no longer a person
responsible for conducting asset inventory, providing and handing over
information on asset accounting records, how to solve it so that assets can be
inventoried if the plan to appoint a replacement is also not promoting
efficiency, currently the bankruptcy law is also leaving this issue open.
Fifth, regarding
the cost of appraisal of property prices; According
to the provisions of Clause 4, Article 65 of the 2014 Bankruptcy Law, in case
it is considered that the inventory and determination of the value of assets of
the enterprise or cooperative specified in Clause 1 of this Article are
inaccurate, the People's Court shall request the asset management officer or
the enterprise to manage and liquidation
of assets, organization of inventory, redetermination of the value of part or
all of the assets of enterprises and cooperatives; the value of assets is
determined and valued according to the market price at the time of inventory.
However, the problem here is the cost of organizing the inventory,
redetermining the value of assets from which source if the advance on
bankruptcy expenses is not enough to pay, who must bear this cost for the case
of inventory and valuation of collateral if the enterprise, Cooperatives that are insolvent have no other
assets, which is also an issue that is currently being left open.
Sixth,
regarding the right to request a revaluation of assets; According to the
provisions of Clause 1, Article 123 of the 2014 Bankruptcy Law: “The
revaluation of assets shall be carried out when there is a serious violation
specified in Article 122 of this Law, leading to a deviation in the asset
valuation results”; accordingly, in Clause 2, Article 17 of the
Government's Decree No. 22/2015/ND-CP dated February 16, 2015, it is stipulated
that if an asset management officer is detected, asset management and liquidation enterprises
that violate the provisions of the law on bankruptcy and the law on asset
valuation, leading to deviations in asset valuation results, the enforcer
requests the asset management officer and the asset management and liquidation
enterprise to re-value the assets,
except for the case where the asset management officer or the asset
management and liquidation enterprise is changed according to the provisions of
Clause 1 and Clause 2, Article 18 of this Decree. Thus, the Bankruptcy Law 2014
has narrowed the cases of revaluation compared to the Law on Enforcement of
Civil Judgments, which means that creditors, i.e. judgment creditors, do not
have the right to request the revaluation as prescribed in Article 99 of the
Law on Enforcement of Civil Judgments. This
is likely to affect the lawful rights and interests of the judgment creditor.
Seventh,
regarding the order and
procedures when the enforcer performs the liquidation of assets. In Clause 4,
Article 121 of the 2014 Bankruptcy Law, it is stipulated: “For assets that
the asset management officer or the asset management or liquidation enterprise
fails to liquidate after 02 years from the date of receipt of the written
request of the enforcer as prescribed in Clause 2 of this Article, the asset
management officer the asset management
and liquidation enterprise must terminate the liquidation of assets and hand
over all papers and assets of the bankrupt enterprise or cooperative to the
civil judgment enforcement agency for handling and liquidation of assets in
accordance with law.” According to the above provisions, after 02 years
from the date of receipt of the executor's written request to the asset
management officer or the asset management and liquidation enterprise to
liquidate the assets but the assets have not yet been liquidated, the
liquidation of the assets shall be handed back to the enforcers. However, the
2014 Bankruptcy Law only stipulates that the civil judgment enforcement agency
handles and liquidates assets in accordance with the provisions of law [8].
Such general regulations lead to difficulties for civil judgment enforcement
agencies in organizing enforcement. Specifically, in this case, the enforcer
shall apply the provisions of the Law on Bankruptcy or the Law on Judgment
Enforcement to continue organizing the liquidation of assets. Specifically, in
case the enforcer, when liquidating the assets of the bankrupt enterprise or
cooperative, must issue a distraint decision in accordance with the provisions
of the Law on Enforcement of Civil Judgments or only conduct the revaluation of
assets according to the provisions of Clause 2, Article 123 of the Bankruptcy
Law.
Eighth, regarding to property auction, Clause 2, Article 17 of
the Government's Decree No. 22/2015/ND-CP dated February 16, 2015 stipulates: “Within 03 working days
from the date of receipt of the report of the asset management officer and the
asset management and liquidation enterprise as prescribed at Point d, Clause 1
of this Article, the enforcer shall decide on the liquidation of assets”.
However, the 2014 Bankruptcy Law and its guiding documents do not indicate when
making a decision on asset liquidation through an unsuccessful property
auction, what procedures the enforcer carries out next, leading to difficulties
in determining whether to continue the property auction or not.
3. Some
recommendations for legislative improvement
To
overcome the limitations and inadequacies as pointed out as well as contribute
to improving the quality of the legal system on bankruptcy based on meeting
practical requirements, it is necessary to continue to improve the law on
bankruptcy in the following directions:
Firstly,
in order to ensure the legitimate interests of members of a two-member
liability company, especially those with a large percentage of charter capital
ownership in the company, the bankruptcy law needs to be re-regulated in the
direction of adding the right to file a petition for initiation of bankruptcy
proceedings of a member whose charter capital accounts for 65% of the total
charter capital of a limited liability company with two or more members.
Accordingly, members of a limited liability company with two or more members
owning charter capital accounting for 65% of the company's total charter
capital will be entitled to file a petition for initiation of bankruptcy
proceedings when this company becomes insolvent. This regulation helps ensure
the legitimate interests of these members, avoiding the case that a prolonged
situation can greatly affect the interests of that member when the company
falls into insolvency.
Secondly, in order to create
consistency in the appointment of asset management officers, asset management
and liquidation enterprises to participate in the conduct of bankruptcy
procedures, the bankruptcy law needs to continue to clearly stipulate and
demonstrate the number of asset management officers, the company to
manage, liquidation of assets for which
the applicant requesting the initiation of bankruptcy proceedings is entitled
to propose designation. In addition, the Bankruptcy Law also needs to clearly
stipulate that if the Asset Management Officer or the asset management and
liquidation enterprise is changed due to falling into the cases specified in
Clause 1, Article 46 of the Bankruptcy Law, but the applicant for initiation of
bankruptcy procedures does not propose to re-appoint the Asset Management
Officer, If the company manages and
liquidates assets, at this time, the court with jurisdiction to accept the
settlement will issue a decision to select an asset management officer, the
company to manage and liquidate assets to participate in the process of
settling the bankruptcy case in this case. The regulation in a clear and
specific direction as proposed is very necessary and appropriate because this
will create unity in the interpretation and application of the law in practice,
as well as limit the trouble and complexity arising related to
responsibility. rights and obligations
of the parties to manage and liquidate the assets of the enterprise.
Thirdly, in order to overcome
the difficulties in determining the financial status and assets of insolvent
enterprises and cooperatives but do not file a petition for initiation of
bankruptcy procedures because they are not subject to the obligation to submit
financial statements in the last 03 years, the bankruptcy law is required to
consider the stipulates to add to Article 20 in the direction that insolvent
enterprises and cooperatives must be obliged to submit financial statements in
the last 03 years, not only limited to the case where enterprises and
cooperatives file a petition for opening bankruptcy procedures as at present.
Fourthly, in order to overcome
the difficulties in inventorying the assets of enterprises and
cooperatives that are insolvent, it is required that the bankruptcy law should
continue to be amended and supplemented in the direction of clearly stipulating
how to handle in case the inventory of assets of enterprises, The insolvent cooperative faces difficulties
because there is no person responsible for implementation and the person
appointed to perform the inventory on behalf of the cooperative is also unable
to carry out the inventory. In this case, it is recommended to consider
assigning the asset management officer, the asset liquidation management
enterprise will directly carry out the inventory of the assets of the insolvent enterprise or cooperative on the basis of coordinating with
creditors and related entities to ensure the rapid inventory of assets. accurate.
Fifthly,
in order to overcome the problem of remaining loopholes
in determining the cost of asset price appraisal in case the People's Court
requests the asset management officer and the asset management and liquidation
enterprise to organize an inventory and re-determine the value of part or all
of the enterprise's assets. if the
cooperative is insolvent but the bankruptcy expense advance is insufficient to
pay while the insolvent enterprise or cooperative has no other assets, the
bankruptcy law needs to be amended and supplemented in the direction of clearly
stipulating that the creditor is the subject who must pay the asset price
appraisal expense advance in this case. The regulation in this direction is
reasonable because according to the current bankruptcy law, creditors can
divide the money if the enterprise has assets, which shows the creditor's
contribution in ensuring their interests; at the same time, this provision also
helps to remedy the case if the Court mobilizes creditors to pay an advance on
property price appraisal expenses in this case, but because the law does not
have specific binding regulations, it leads to creditors making payments, there are no creditors, leading to the
inability to create unity.
Sixth, in order to protect the
legitimate rights and interests of creditors (judgment creditors) in case it is
detected that the asset management officer or the asset management and
liquidation enterprise has violated the provisions of the law on bankruptcy and
the law on asset valuation, leading to deviations in the results of asset
valuation, the bankruptcy law is required to stipulate in the direction of
expanding the right of subjects to request asset management officers and asset
management and liquidation enterprises to revalue assets in this case.
Accordingly, in addition to the enforcer who is entitled to request the asset
management officer and the asset management and liquidation enterprise to
perform the asset revaluation, the creditor as the judgment creditor is also
entitled to request the asset management officer and the asset management and
liquidation enterprise to perform the asset revaluation in this case. By
allowing creditors to also have the right to request asset management officers
and asset management and liquidation enterprises to perform asset re-valuation
when detecting asset management officers and asset management and liquidation
enterprises committing violations leading to deviations in asset valuation
results, it will help ensure the legitimate rights and interests of creditors
with private the way of being a judgment creditor.
Seventh,
in order to overcome the general situation of ambiguity for civil judgment
enforcement agencies in handling the liquidation of assets when the asset management officer or asset
management and liquidation enterprise fails to carry out the liquidation after
02 years from the date of receipt of the written request of the enforcer as
prescribed, the Bankruptcy Law is required in the direction that in this case,
the civil judgment enforcement agency will apply the provisions of the Law
on bankruptcy to continue organizing the liquidation of assets. Accordingly,
the enforcer, when liquidating the assets of the bankrupt enterprise or
cooperative, in this case, does not need to issue a distraint decision in
accordance with the provisions of the Law on Enforcement of Civil Judgments,
but only needs to conduct a revaluation of the assets according to the
provisions of Clause 2, Article 123 of the Bankruptcy Law. Such clear guidance
will create consistency and clarity in the application of the law, thereby helping
civil judgment enforcement agencies to more easily handle the liquidation of
assets when asset management
officers and asset management and liquidation enterprises fail to liquidate.
Eighth, the bankruptcy law needs
to provide clear guidance on the order and procedures for enforcers to carry
out the liquidation of assets upon receipt of reports from asset management
officers and asset management and liquidation enterprises in case of
unsuccessful asset auctions. Accordingly, it is necessary to consider clearly
stipulating in the direction that in case the property auction fails, the
enforcer may consider issuing a decision to reduce the price or decide to
continue selling the property... With such clear regulations, enforcers will be
able to determine the work they must perform when the auction of assets fails,
which also helps to overcome losses and complete the legal system on
bankruptcy.
4.
Conclusion
It
can be seen that the 2014 Bankruptcy Law was
promulgated and came into effect, contributing to perfecting the legal system
on business, creating a transparent legal basis for businesses to withdraw from
the market, protecting the interests of creditors and debtors. The Bankruptcy
Law in 2014 has made many breakthroughs, overcoming many inadequacies and
obstacles of the previous Bankruptcy Law and is considered to have many
progress points. However, in addition to the positive points, in the process of
practical implementation, the Bankruptcy Law 2014 and its guiding documents
have revealed certain limitations and inadequacies, which significantly affect
the implementation of the law in practice. Therefore, it is necessary to come
up with remedial solutions soon to contribute to improving the legal system on
bankruptcy in Vietnam in the current situation.
References