On April 28th, the Parkson Group filed for voluntary bankruptcy at the Ho Chi Minh City Court after more than 18 years of operation in Vietnam, which has attracted significant public attention.  Before that, on April 26th, the People’s Court of Ba Ria – Vung Tau Province held a creditors’ meeting to announce the debts, financial situation, and bankruptcy declaration of Sofel Shipbuilding Company after 4 years of operation in Vietnam.  These are the most recent cases of foreign-invested companies facing bankruptcy.

In the context of Vietnam’s deep integration into the region and the world, the country has received numerous opportunities to attract foreign investment, particularly from the presence of foreign-invested enterprises, multinational corporations, and companies.  Despite the Vietnamese Government’s favorable policies and protection to reassure foreign enterprises, organizations, and individuals investing and doing business in Vietnam, there are still difficulties faced by some foreign-invested companies that may lead to bankruptcy or dissolution.  The liquidation or bankruptcy of these enterprises falls under the jurisdiction of Vietnamese authorities, and in some cases, it may involve the competent authorities of foreign jurisdictions or require relevant procedures related to foreign entities.  Practical experience has shown that handling the bankruptcy of foreign-invested enterprises in Vietnam or the bankruptcy of parent companies with assets in subsidiary companies in Vietnam has encountered various challenges. What considerations should be taken into account when implementing the procedures for liquidating foreign-invested enterprises?

What is meant by the bankruptcy of a foreign-invested enterprise?

The bankruptcy of an enterprise is an inherent phenomenon in market economic mechanisms.  An enterprise is considered bankrupt from the moment a court decides to declare its bankruptcy.  The conditions for declaring bankruptcy for an enterprise are stipulated in Article 4, Clause 2 of the Bankruptcy Law 2014:

  • The enterprise is unable to pay its debts and fails to fulfill its payment obligations within a period of three months from the due date.
  • The court issues a decision declaring the bankruptcy of the enterprise.

Therefore, the bankruptcy of a foreign-invested enterprise occurs when an enterprise with foreign investment loses its ability to pay its debts and is declared bankrupt by the court.  The bankruptcy of a foreign-invested enterprise typically has the following characteristics: the investor is a foreign organization or individual, the legal representative of the enterprise is a foreign person, and the creditors and debtors are foreign organizations or individuals.

Which authority has jurisdiction to handle the bankruptcy of foreign-invested enterprises?

Based on Article 8, Clause 1 of the Bankruptcy Law 2014, the People’s Court of the province or centrally governed city, collectively referred to as the provincial People’s Court, has jurisdiction to handle the bankruptcy of enterprises registered for business or cooperative registration, or registered business cooperatives, within that province, in the following cases:

  • Bankruptcy cases involving assets located abroad or involving foreign participants in bankruptcy proceedings.
  • Enterprises or cooperatives that are unable to pay their debts and have branches or representative offices in multiple districts, towns, and cities within different provinces.
  • Enterprises or cooperatives that are unable to pay their debts and have real estate properties in multiple districts, towns, and cities within different provinces.
  • Bankruptcy cases falling under the jurisdiction of district-level People’s Courts, town-level People’s Courts, or city-level People’s Courts within the province, are referred to the provincial People’s Court for resolution due to the complexity of the case.

Therefore, the bankruptcy of foreign-invested enterprises falls under the jurisdiction of the provincial People’s Court where the enterprise is permitted to operate.

Is the bankruptcy of a foreign-invested enterprise different from the bankruptcy of a Vietnamese enterprise?

Basically, there is no difference in the procedures for bankruptcy of domestic enterprises and enterprises with foreign elements since they operate within the territory of Vietnam and are subject to the laws and regulations of Vietnam, falling under the scope of the Bankruptcy Law. However, foreign-invested enterprises may have additional complexities due to their economic and commercial activities outside the territory of Vietnam and the presence of assets of the bankrupt enterprise not only within Vietnam, so it may arise during the process of resolving bankruptcy procedures for foreign-invested enterprises, and these issues will be addressed according to the provisions of the Law on Legal Assistance.  Therefore, there are some specific provisions regarding bankruptcy procedures with foreign elements, as outlined by the Bankruptcy Law 2014:

  • Participation of foreign participants: According to Article 116 of the Bankruptcy Law 2014, foreign participants in bankruptcy proceedings must comply with the bankruptcy laws of Vietnam.
  • Judicial Entrustment: According to Article 177 of the Bankruptcy Law 2017, in the process of resolving bankruptcy cases with foreign elements, the People’s Court may seek judicial entrustment through agreements on legal assistance, of which Vietnam is a member or follows the principle of reciprocity.  The procedures for Legal assistance are conducted by the laws on civil procedure and laws on Legal assistance.  Article 6 of the Law on Legal Assistance 2007 also provides similar provisions for judicial Entrustment.  Legal assistance is a written request from the competent authority of Vietnam or the competent authority of a foreign country to perform one or more acts of legal assistance according to the regulations of the relevant law or international treaty of which Vietnam is a member.
  • Recognition and enforcement of bankruptcy decisions by foreign courts: According to Article 118 of the Bankruptcy Law 2014, the recognition and enforcement of bankruptcy decisions by foreign courts are conducted by the regulations of agreements on legal assistance of which the Socialist Republic of Vietnam is a member and other provisions of laws on legal assistance.  Agreements on legal assistance are specialized international treaties aimed at establishing principles, norms, and legal frameworks for cooperation and mutual assistance in resolving legal issues between countries.  Typically, agreements on legal assistance are bilateral international agreements on cooperation between the judicial authorities of contracting countries in the fields of civil and criminal matters.  However, there are also cases where agreements on legal assistance are signed for cooperation between countries in a specific area of judicial activities.  Article 4, Clause 2 of the Law on Legal Assistance 2007 also stipulates that in the absence of an international treaty on legal assistance between Vietnam and a foreign country, legal assistance activities shall be conducted based on the principle of reciprocity, not violating Vietnamese laws, and conforming to the laws and international practices.

The common difficulties encountered when carrying out the procedures for bankruptcy of foreign-invested enterprises include the following:

Regarding the basic characteristics of foreign-invested enterprises where the investor is a foreign organization or individual, the legal representative is a foreign person, and the creditors and debtors are foreign organizations or individuals, there are certain difficulties in addressing the bankruptcy requirements of such enterprises:

  • For foreign investors as foreign organizations or individuals: In the case of bankruptcy of foreign investors, joint ventures established with Vietnamese partners can become uncertain, as it may not be clear who will represent the foreign capital in the joint venture to participate in the bankruptcy proceedings.
  • For joint venture enterprises requesting their own bankruptcy declaration, when the legal representatives are foreign persons, they may leave the country without notifying anyone.  Currently, there are no restrictions on their departure abroad.  The Vietnamese side in the joint venture also does not have the authority to require them to stay.
  • When the creditors and debtors are foreign individuals or organizations, there are cases where notifications and documents sent by the court are not received because they have relocated their headquarters and not informed the Vietnamese enterprise.  There are also cases where the foreign debt ratio is relatively high, which makes it difficult to convene a creditors’ meeting if the required ratio is not met according to the law. Therefore, if it is not possible to notify foreign creditors, the bankruptcy case may reach a deadlock, with no possibility of suspension or continuation.

In general, there are no significant differences in carrying out bankruptcy procedures for enterprises. However, due to the specific nature of foreign-invested enterprises, there are specific challenges and complexities in bankruptcy procedures.  Please continue to learn more about related topics in upcoming articles. Do not forget to follow us and stay updated with useful information on our website. If needed, feel free to contact us for more detailed guidance at letran@corporatecounsel.vn.