What is an insolvent business to claim bankruptcy?

MA company owes my company and other companies a lot of money but does not pay despite having assets. The lending and borrowing are agreed upon by the contract, specifying the payment time. Although we have contacted MA many times, the debts were still not resolved. We would like to know how much the debt is required for claiming a company bankrupt. is MA Company considered an insolvent enterprise in this case? In case my company files a petition to open bankruptcy proceedings but only pays the bankruptcy fee without paying the bankruptcy advance, will the court settle it?

FDVN Opinion:

1. Regarding the determination of an insolvent enterprise

The current Vietnamese law does not stipulate a specific level of debt to determine whether an enterprise is insolvent. There are the conditions mentioned in Clause 1, Article 4 of the Law on Bankruptcy as follows: “An insolvent enterprise or insolvent cooperative (hereinafter referred to as insolvent entity) is an enterprise or a cooperative having failed to meet the debt liability for 03 months from the deadline for repayment.”

Based on the above provisions, an insolvent enterprise must fully satisfy the following conditions:

There is a specific and clear debt that is acknowledged, agreed upon by the parties, or determined through a legally effective judgment or decision of a Court, a commercial arbitration award, or is determined in the decision of the competent authority and the parties have no dispute about this debt.
Debts due for payment. A debt that is due for payment is a debt with a clearly defined payment term, to which the enterprise must be obligated to repay. This payment term is recognized and agreed upon by the parties or determined through a legally effective judgment or decision of a Court, a commercial arbitration award or in a decision of a competent authority.

Therefore, in this case, although MA Commpany owns their assets, they don’t repay the debt to your company under a loan agreement concludedwith the term agreed upon by the parties, it is considered “insolvent enterprise”.

2. The payment of bankruptcy fees, bankruptcy advance payment

According to Article 22 and Article 23 of Law on Bankruptcy 2014, the requesters must pay the bankruptcy fee excluding the cases stipulated in Clause 2, Article 5 and Point a, Clause 1 of Article 105 of Law on Bankruptcy 2014. Specifically:

Any employee, internal Trade Union (or the superior Trade Union if the internal Trade Union is not established) is entitled to send a written request for initiation of bankruptcy process after 03 months from the day on which the entity has to pay salaries and other debts to the employees.
A written request for the initiation of the bankruptcy process is submitted in accordance with the regulations in Clauses 3, 4 and 5 of this Law but the insolvent entity cannot afford the bankruptcy fee and bankruptcy advance. (The legal representative of each enterprise or cooperative is liable to send a written request for initiation of bankruptcy process when the entity is insolvent; The owner of any private enterprise, the President of the Board of Directors of any joint-stock company, President of the Member assembly of any multi-member limited liability company, the owner of any single limited liability company or any general partner of any partnership is a liability to submit a written request for initiation of bankruptcy process when the entity is insolvent.)

Besides, according to Article 39 of Law on Bankruptcy 2014, “The People’s Court shall receive the written request for initiation of bankruptcy process on receiving the receipts of the bankruptcy fee and the bankruptcy advance.”

Thus, the payment and receipt of bankruptcy fees, bankruptcy advance payment are mandatory conditions for the Court to accept bankruptcy procedures. If your company is required to pay bankruptcy fees and advances but only pays bankruptcy fees, the Court shall return the petition to your company as prescribed at Point dd, Clause 1, Article 35 of Law on Bankruptcy 2014.

“1. The People’s Court shall dismiss the written request for initiation of the bankruptcy process in the following cases:

…

dd) The requester does not pay the bankruptcy fee and bankruptcy advance except the cases in which the bankruptcy fee and bankruptcy advance are exempt.”

Nguyễn Thị Sương – FDVN Law Firm