When an enterprise declares bankruptcy, it will always result in certain socio-economic consequences, directly affecting the economic interests of creditors, the enterprise itself and involved entities. In order to protect the lawful interests of the above subjects, current regulations govern the resolution of bankruptcy requests in Vietnam, especially regulations on subjects filing for bankruptcy. The following article shall analyze the provisions of the 2014 Law on Bankruptcy (hereinafter referred to as “Bankruptcy Law”) on subjects submitting written requests for initiation of the bankruptcy process.
Subjects having obligations to file for bankruptcy
Firstly, the legal representative of each enterprise or cooperative: The enterprise’s legal representative is the person that, on behalf of the enterprise, exercises and performs the rights and obligations derived from the enterprise’s transactions, acts as the plaintiff, defendant or person with relevant interests and duties before in court, arbitration, and performs other rights and obligations prescribed by law. The law stipulates that the legal representative filing a petition to open bankruptcy proceedings when the enterprise or cooperative falls into an insolvency state is an obligation, not a right. Because it is the legal representatives’ obligation who “exercise the rights and obligations arising from the business’s transactions” and have the most responsibility in the company’s activities to ensure the rights and interests of the company and the lawful interests of involved entities.
Secondly, the enterprise’s executives: Not all executives are obligated to file for bankruptcy when the business becomes insolvent. According to the Bankruptcy Law, only the sole proprietorship’s owner, the President of the Board of Directors of a joint-stock company, the chairperson of the Member Assembly of a multi-member limited liability company, the owner of a single-member limited liability company, the general partner of a partnership must exercise this obligation (Clause 4 Article 5). These are important positions and titles in the business. These entities are often the people who have the most responsible for the company’s operations.
In a sole proprietorship, there is only one individual to be the owner and such individual is responsible by all of his assets. A single-member limited liability company is an enterprise owned by an organization or an individual, the owner is responsible for the company’s debts and other monetary obligations up to the charter capital. These two entities are the sole owners of the enterprise, therefore they have the obligation to file for bankruptcy.
The President of the Board of Directors of a joint-stock company, the President of the Member Assembly of a multi-member LLC are the persons with great responsibility and authority in the operation of the company.
General partners of a partnership are individuals who have the right to directly participate in the management of the company’s business activities, participate in deciding important issues of the company, hey are the very first persons to be aware of the company’s financial situation, so it is perfectly reasonable for them to fulfill the obligation to file a petition to open bankruptcy proceedings when the company falls into insolvency.
Subjects having the right to filing for bankruptcy
Firstly, the creditors: A creditor is an individual, an agency or an organization entitled to request the debtors to pay debts. Creditors include creditors of unsecured debts, creditors of partly-secured debts and creditors of secured debts (Clause 3 Article 4 of the Bankruptcy Law). Filing a petition to initial bankruptcy proceedings when the enterprise or cooperative fails to fulfill its payment obligation upon maturity within three months is the right of the creditors. In principle, all creditors are equal, but not all creditors have the right to file a petition to initiate bankruptcy proceedings.
The right to file a petition for initiation of bankruptcy proceedings is only for partly-secured creditors and unsecured creditors. Such provisions create conditions for unsecured creditors and partly-secured creditors the opportunity to choose an appropriate procedure to protect their legitimate rights and interests when the enterprises, cooperatives are insolvent. Secured creditors are always preferential to be paid by secured assets of enterprises, cooperatives, or third parties, so it is unnecessary to provide for the right to file a petition to initial bankruptcy proceedings.
Secondly, the employees, (or the superior Trade Union if the internal Trade Union is not established): Employees are those who directly contribute their efforts to maintain the operation of the enterprises. When an enterprise is insolvent, it is not easy for them to settle its debts including the employees’ salaries. In addition to salary, employees can also file for bankruptcy when the enterprise owes three months or more, including severance allowance, social insurance, health insurance, and other benefits under the labor contract and collective labor agreement. In addition to the internal Trade, employees and the immediate superior trade union at the grassroots level shall have the right to file for bankruptcy, in case the grassroots union has not yet been established.
Thirdly, shareholders or groups of shareholders owning at least 20% of ordinary shares for at least 06 consecutive months: In order to protect the interests of shareholders in a joint stock company, especially block-holders, the Bankruptcy Law stipulates that a shareholder or a group of shareholders owning 20% or more of the ordinary shares in a joint stock company continuously for at least 06 months, has the right to file a request to initial bankruptcy proceedings when the joint stock company is insolvent.
Determining the right to file for bankruptcy of a shareholder through the number of shares they hold under the Bankruptcy Law is a legal basis to ensure fairness among shareholders, group of shareholders owning a large number of shares and those who are shareholders, group of shareholders owning a small number of shares, reducing the dependence of minority shareholders. Because, shareholders who hold more shares often have a voice and hold on to the decision rights.
The reason why the Bankruptcy Law stipulates that a shareholder or a group of shareholders must meet the requirement of owning 20% or more of the ordinary shares and must own continuously for at least 6 months before filing a bankruptcy petition is to avoid the shareholders filing arbitrarily, difficulties for the business. These shareholders or groups of shareholders have greater responsibility and better understanding of the company’s operations. However, the Bankruptcy Law also allows a shareholder or a group of shareholders holding less than 20% of the ordinary shares for a continuous period of at least 6 months to have the right to file for bankruptcy when a joint stock company is insolvent if otherwise provided by the company’s charter .
Fourthly, members of any cooperative or legal representatives of any cooperative which is a member of the cooperative union: The members of the cooperatives are those who contribute to the cooperatives. Therefore, when a cooperative falls into insolvency, they are also the ones who have the right to file for bankruptcy. According to current regulations, the members of the cooperative, the legal representatives of any cooperative which is a member of the cooperative union shall have such right.
This is the article advising on “The subjects filing for bankruptcy under the 2014 Law on Bankruptcy” by Apra Law Firm. If you have any questions or concerns, please contact the hotline for further advice and support.
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