According to statistics on the national business registration portal, there are more than 500 new businesses established every day. This shows the prosperity of Vietnam’s economy. Apart from enterprises that are growing strongly, not all companies can last in the market where failure could lead to dissolution or bankruptcy. However, the concept of dissolution and bankruptcy can be confusing in some aspects, so what are the similarities and differences between them? Here, in this article, Apra Law Firm will give some comparisons on the matter.
Similarities between dissolution and bankruptcy
First of all, dissolution and bankruptcy, both occur when enterprises terminate their operation.
Secondly, when an enterprise is dissolved or goes bankrupt, its seal and a business registration certificate will be revoked.
Third, enterprises have to perform and settle financial obligations for related parties.
Differences between dissolution and bankruptcy
First, the causes of dissolution and bankruptcy of an enterprise:
According to Article 201 of the Law on Enterprises, dissolution cases can be divided into two cases: voluntary dissolution and compulsory dissolution.
Meanwhile, the bankruptcy of the enterprise has only one cause which is the enterprise is insolvent when it fails to fulfill its financial obligation within three months from the due date.
Second, the nature of dissolution and bankruptcy of an enterprise:
The procedure for the dissolution of an enterprise is an administrative procedure and is implemented according to the Law on Enterprises 2014.
On the other hand, the procedure for bankruptcy of an enterprise is a judicial procedure and is implemented according to the Law on Bankruptcy 2014
Third, the entity entitled to make the decision:
The decision to dissolve an enterprise is made by the owner of the sole proprietorship, by all general partners of the partnership, by the Board of members or owner of the limited liability company, by the General Meeting of Shareholders of the joint-stock company; or the expiration of the term of operation specified in the company’s charter without a decision to extend the term of operation.
After the enterprise has fully and legally completed all the procedures for the bankruptcy of the enterprise, the decision for the bankruptcy of the enterprise shall be decided by the competent authorities which are the People’s Court.
Fourth, the condition for the dissolution and bankruptcy of an enterprise
The conditions for the dissolution of an enterprise stipulated in Clause 2, Article 201 of the Law on Enterprises 2014 is to ensure the payment of all debts and other liabilities of the enterprise, such as wages for employees, tax liabilities, social insurance liabilities, and debt to business partners; Enterprises must not be in the process of resolving disputes at Court or Commercial Arbitration.
However, for the bankruptcy of enterprises, ensuring the payment of all debts and other liabilities of the enterprise is not a prerequisite. The debts of the creditors will be paid in the order specified in Article 54 of the Law on Bankruptcy 2014, based on the remaining assets of the enterprise, except for sole proprietorships or partnerships. In case the property value is not enough to fulfill all payments as stipulated, the entities given the same priority shall be paid in proportion to the debt; the creditors must bear the risk of outstanding debts. Therefore, a bankrupt enterprise may pay off or not pay off all debts to its creditors.
Fifth, the legal consequences of the dissolution and bankruptcy of an enterprise
The dissolution of an enterprise leads to the termination of its operation, and its name will be removed from the enterprise registration book.
On the other hand, the bankruptcy of an enterprise is not always lead to the termination of its operation, not all initiation of the bankruptcy process will lead to the declaration of bankruptcy and the enterprise must be terminated, there may also be an opportunity for the enterprise to revive its business.
Sixth, the legal consequences for the managers and executives of the business
Current law does not restrict the business freedom of the manager or operator after the dissolution of an enterprise.
But for bankruptcy, the state can limit the freedom of business of the owner or executive manager, for example, Article 130 of the Law on Bankruptcy 2014 stipulates: “Prohibition of holding posts after entities are declared bankrupt”
This is the article advising on “Comparing the dissolution and bankruptcy of enterprises” by Apra Law Firm. If you have any questions or concerns, please contact the hotline for further advice and support.
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