#

Resolving Insolvency in

Vietnam

Below is a description of the time, cost and outcome of the most common insolvency proceeding in each economy under the case study assumptions, as well as the strengths and weaknesses in existing insolvency regulations in four areas: commencement of proceedings, management of debtor’s assets, reorganization proceedings and creditor participation.

This information was collected as part of the Doing Business project, which measures and compares regulations relevant to the life cycle of a small- to medium-sized domestic business in 190 economies. The most recent round of data collection was completed in June 2016.

Compare Vietnam to 189 other economies.

  • Indicator Explanation Answer
    Recovery rate (cents on the dollar) 21.6
    Proceeding According to articles 5.3 and 5.4 of the Law on Bankruptcy No. 51/2014/QH13 (thereafter, "Law on Bankruptcy 2014"), the legal representative/owner of Mirage has the obligation to file a petition for commencement of bankruptcy procedures when Mirage become insolvent. With the assumption that Mirage's management want to keep the company operating, they will initiate reorganization and secured creditors are subject to an automatic stay of reorganization. If the reorganization plan is not approved during the meeting of creditors, the court shall issue a decision to commence procedures for liquidation of assets according to Article 107 of the Law on Bankruptcy. liquidation (after an attempt at reorganization)
    Outcome The hotel will stop operating and Mirage assets will be sold piecemeal conducted by an auctioneer in a public sale after the liquidation proceeding. piecemeal sale
    Time (in years) A reorganization procedure that is then converted into liquidation will approximately take 5 years in practice. The following are main steps and relevant timeline as stipulated under the 2014 Bankruptcy Law (with an assumption that the bankruptcy procedures is accepted by the competent court, and reorganization will be apply): 1. Acceptance of the bankruptcy procedures: about 2 months from the submission of relevant petition for commencement of bankruptcy procedures (Chapter II of the 2014 Bankruptcy Law). 2.Issuance of decision on commencement of bankruptcy procedures: 1 month from acceptance date (Article 42 of the 2014 Bankruptcy Law).3.Submission of notices requesting for payment of debts by the creditors: 1 month from the date of a decision to commence the bankruptcy procedures (Article 66 of the 2014 Bankruptcy Law).4. Preparation of list of creditors: 0.5 month from the date of expiry for submission of notices for payment of debts by creditors (Article 67 of the 2014 Bankruptcy Law). 5.Convening and sending notice of meeting of creditors: about 1 month from the date of finalization of list of creditors (Article 75 of the 2014 Bankruptcy Law).6.Formulation and implementation of plan for recovery of business: In practice, it will take almost 2 years to prepare the creditors list, draft and vote the plan, which would be rejected under our case study assumptions. (Chapter VII of the 2014 Bankruptcy Law). 7. The case will then be converted into liquidation (where the assets would be sold as a going concern), taking the formal conversion and the organization and execution of the sale will take approximately 3 years (until the proceeds of the sale are finally distributed among creditors). 5.0
    Cost (% of estate) The costs associated with the case would amount to approximately 15% of the value of the debtor's estate. Cost is based on Art. 4.12, 33 and 23 of the Law on Bankruptcy. Costs incurred during the entire insolvency process mainly include court or government agency fees (1million VND (0.02%), under Article 34 of Decree 70/CP dated 12 June 1997); costs of notification and publication (1%), attorney fees (5%), insolvency representative fees (3.5%) based on Article 21.4, Decree 22/2015/ND-CP dated 16/02/2015, fees of accountants, assessors, inspectors and other professionals (5%). 14.5
    Answer Score
    Strength of insolvency framework index (0-16) 7.5
    Commencement of proceedings index (0-3) 2.5
    What procedures are available to a DEBTOR when commencing insolvency proceedings? (a) Debtor may file for both liquidation and reorganization 1.0
    Does the insolvency framework allow a CREDITOR to file for insolvency of the debtor? (b) Yes, but a creditor may file for liquidation only 0.5
    What basis for commencement of the insolvency proceedings is allowed under the insolvency framework? (a) Debtor is generally unable to pay its debts as they mature 1.0
    Management of debtor's assets index (0-6) 3.0
    Does the insolvency framework allow the continuation of contracts supplying essential goods and services to the debtor? No 0.0
    Does the insolvency framework allow the rejection by the debtor of overly burdensome contracts? Yes 1.0
    Does the insolvency framework allow avoidance of preferential transactions? Yes 1.0
    Does the insolvency framework allow avoidance of undervalued transactions? Yes 1.0
    Does the insolvency framework provide for the possibility of the debtor obtaining credit after commencement of insolvency proceedings? No 0.0
    Does the insolvency framework assign priority to post-commencement credit? (c) No priority is assigned to post-commencement creditors 0.0
    Reorganization proceedings index (0-3) 2.0
    Which creditors vote on the proposed reorganization plan? (c) Other 1.0
    Does the insolvency framework require that dissenting creditors in reorganization receive at least as much as what they would obtain in a liquidation? No 0.0
    Are the creditors devided into classes for the purposes of voting on the reorganization plan, does each class vote separately and are creditors in the same class treated equally? Yes 1.0
    Creditor participation index (0-4) 0.0
    Does the insolvency framework require approval by the creditors for selection or appointment of the insolvency representative? No 0.0
    Does the insolvency framework require approval by the creditors for sale of substantial assets of the debtor? No 0.0
    Does the insolvency framework provide that a creditor has the right to request information from the insolvency representative? No 0.0
    Does the insolvency framework provide that a creditor has the right to object to decisions accepting or rejecting creditors' claims? No 0.0