Amendments to the Regulations on Filing, Acceptance of Bankruptcy Petitions and Opening or Not Opening Bankruptcy Proceedings

SMEs are eligible to borrow from formal banks. Therefore, they must obtain finance from other sources to compete.

Second, the global economic recession will have negative impacts on Hanoi businesses and if there is no solution, many businesses will be at risk of bankruptcy. 2009 is the third year Vietnam has joined the World Trade Organization. According to the assessment of organizations and experts around the world, the world economy is entering a period of instability with many challenges. The trend of declining world economic growth continues and Vietnam is not outside of those fluctuations.

Exports are declining because our country's main export markets are the US and Europe, so when these markets fall into recession and face difficulties, the demand for cutting will decrease. The decrease in demand will cause our exports to these markets to decrease, which will affect GDP (decrease).

Cooperation and development between Vietnam and foreign partners – which are affected by the crisis – will be interrupted or stalled due to financial difficulties on the other side. This will have a negative impact on our long-term investment or development projects.

The US recession has caused the dollar to lose value in the international market, which has had a significant impact on exports. Because the dollar has lost value, exports are no longer as profitable as before. This has reduced our country's GDP.

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Economic contracts signed with foreign partners are suspended and these contracts may no longer be signed or even have been signed, Hanoi enterprises have delivered goods but the risk of not being able to receive payment is very high. This really causes losses for both enterprises and has a negative impact on the long-term development of our country. According to the report of the Ministry of Planning and Investment, the growth situation in the first quarter of 2009 reached 3.1% compared to the same period last year, the lowest level in the past decade. According to the General Statistics Office, the value of industrial production nationwide in January 2009 only reached 50.6 trillion VND, down 4.4% compared to the same period last year and down

8.6% compared to January 2008 12. The large decrease was mainly for important industrial products such as steel, footwear, clothing...

2. Forecast numbers

Faced with the impact of the economic recession, on March 10, 2009, the Hanoi People's Committee implemented Resolution 30/2008/NQ of the Government on urgent solutions to prevent economic recession, maintain economic growth, ensure social security and warn of bankruptcy for businesses. As a developing city with many types of businesses, Hanoi is also significantly affected by the world economic recession. The meeting of the Hanoi People's Committee and businesses in the city on March 3, 2009 to find a "way out" for businesses during the crisis. Exports have declined, not only most of Hanoi's large industrial export enterprises but also large foreign-invested enterprises in Hanoi that have long had a stable export market have had to cut plans, production output, lack of jobs for workers, poor product consumption... The growth rate from Hanoi's industrial production has decreased significantly. The average total import-export turnover in January and February is usually 5,000 containers of goods, but this year, export revenue has decreased by 30%. Many signed contracts have had to be extended or postponed.

In addition, the challenge of joining the WTO for small and medium enterprises in Hanoi is obvious because they still have many limitations in technology, management and operation capacity, lack of capital and lack of access to external markets. On the other hand, the number of small and medium enterprises in Hanoi accounts for 95% of the total of about 76,000 enterprises in Hanoi. In a working session with small and medium enterprises in Hanoi on March 18, 2009, the Ministry of Finance announced that 7,000 enterprises announced dissolution and more than 3,000 other enterprises had to stop production.

12 Website of the Ministry of Foreign Affairs of Vietnam:

http://www.mofa.gov.vn/vi/tt_baochi/nr041126171753/ns090209152714/view

in 2009 13 . Thus, the whole country has about 10,000 enterprises falling into bankruptcy, accounting for 2.86% of the total 349,309 registered enterprises. As for Hanoi, it is predicted that this rate may reach 3.2% in the coming time, meaning that this year there are about 224 enterprises likely to fall into bankruptcy.

In this situation, finding solutions to prevent bankruptcy as well as to give bankrupt enterprises the opportunity to “rebuild” is very important. This requires that LPS 2004 itself needs to be further revised to improve its practicality.

II. Specific solutions

1. Group of solutions to amend the 2004 Bankruptcy Law

1.1. Amendments to the provisions on filing and accepting applications for opening bankruptcy proceedings and opening or not opening bankruptcy proceedings

1.1.1. Allowing secured creditors to file a petition to open bankruptcy proceedings

LPS 2004 still stipulates that only unsecured or partially secured creditors have the right to file a petition to open bankruptcy proceedings; secured creditors do not have the right to file a petition to declare bankruptcy . 14. The fact that LPSDN 1993 as well as the Bankruptcy Law 2004 stipulate that secured creditors are not allowed to file a petition to open bankruptcy proceedings stems from the view that, for creditors

If the enterprise or cooperative is declared bankrupt, their interests are still guaranteed by the secured assets of the enterprise or a third party. Therefore, whether the enterprise or cooperative is declared bankrupt or not, their interests are still guaranteed. This provision is unreasonable. For enterprises, the common and main creditors are still secured creditors. Therefore, it is necessary to strengthen the role of secured creditors to make bankruptcy procedures more effective.

13 Website of the National Center for Socio-Economic Information and Forecast, Ministry of Planning and Investment:

http://thongtindubao.gov.vn/Default.aspx?mod=News&cat=33&nid=13389.

14 Article 13, Vietnam Bankruptcy Law 2004

According to the bankruptcy laws of most countries, creditors have the right to file a petition to open bankruptcy proceedings, have the right to decide whether the debtor is rehabilitated or liquidated, request the Court to apply necessary measures to preserve the debtor's assets, etc. However, in the bankruptcy laws of countries where the purpose of protecting the interests of creditors is given priority, such as the UK, Germany, etc., bankruptcy proceedings are a key tool to help creditors recover their money. In addition to the right to file a petition to open bankruptcy proceedings, the law also stipulates the rights of creditors, including secured creditors, to appoint a property manager to control those assets.

According to Professor Yasuhei Taniguchi, in practice, when debtors or unsecured creditors file a petition to initiate bankruptcy proceedings, it is often too late, when the debtor has almost no assets left or very few assets left. Therefore, the law in some countries allows secured creditors to also file a petition to initiate bankruptcy proceedings (8).

Bankruptcy proceedings are just a special method of debt collection. Not allowing secured creditors to file a petition to open bankruptcy proceedings deprives these creditors of the right to choose the method of debt collection.

Lawmakers need to carefully study and consider whether secured creditors should have the right to initiate bankruptcy proceedings or not. This is because there are still many unclear points: When secured creditors fail to collect their debts on time, they have the right to enforce their security interests (such as selling mortgaged assets). So how is the right to request the initiation of bankruptcy proceedings related to this right? However, we should agree on an issue that is already very clear: secured creditors should be allowed to participate in bankruptcy proceedings once bankruptcy proceedings have been initiated. Therefore, the Bankruptcy Law should be amended in the direction of:

- Secured creditors are creditors in bankruptcy proceedings,

- The collateral is a part of the bankruptcy estate,

8 Presentation by Professor Yasuhei Taniguchi, Tokyo Kei Zai University in Hanoi to the Bankruptcy Law Editorial Board of the Ministry of Justice on June 21 and 22, 2000.

- Secured creditors are entitled to vote as one of the classes of creditors on the debtor's rehabilitation plan, and their rights may be affected by that plan,

- In liquidation proceedings, the interests of secured creditors must be given higher priority than the administrative costs of bankruptcy (bankruptcy fees) and other types of creditors.

The interests of secured creditors need special attention in bankruptcy proceedings, otherwise it will be very harmful to the secured credit system. Once the interests of secured creditors are placed behind the bankruptcy costs and the costs of privileged creditors (such as workers' wages, severance pay, workers' disability benefits, social insurance), it will lead to secured creditors not being able to calculate in advance how much their interests will be worth in the event of the debtor's bankruptcy. Therefore, the advantage of secured credit, that is, safety, will be lost.

1.1.2. Supplementing regulations on the right to file a petition to open bankruptcy proceedings for a number of special entities

According to the Bankruptcy Law, creditors are one of the entities that have the right to file a petition to open bankruptcy proceedings. This is also consistent with the legal practices of countries around the world. However, studying the regulations on bankruptcy in the banking and credit sector, a practice that many countries have stipulated is to limit the right of creditors to file a petition against credit institutions in order to minimize bankruptcy for these institutions. The banking and credit sector is highly sensitive and can easily cause a chain reaction in the monetary system and the economy, so a requirement is to have regulations to limit the arbitrary filing of petitions to open bankruptcy proceedings, which can have a negative impact on this system. To protect the rights of creditors, the law stipulates that the State Bank and the deposit insurance agency have the right to file a petition to open bankruptcy proceedings. These two agencies are the agencies that supervise the activities of credit institutions, and apply special control measures to credit institutions at risk of insolvency. In case a credit institution has applied special control measures but the credit institution still loses its ability to pay,

In the case of a credit institution, these two agencies will have the right to file a petition to open bankruptcy proceedings to protect the interests of creditors. However, according to the LPS 2004, these two agencies do not have the right to file a petition to open bankruptcy proceedings and this has not been recognized by the Banking Law and the Law on Credit Institutions. Given the characteristics of credit institutions, the experience of other countries on the right to file a petition to open bankruptcy proceedings of the State Bank and the deposit insurance agency needs to be studied and specified in Vietnam's bankruptcy law.

1.1.3. Amendment of the content of the petition to open bankruptcy proceedings

The content of the application should be revised in the following direction:

In case the business owner or business proprietor, etc., when submitting a petition to the Court, they have the right to choose the form: liquidation or business production restoration.

If they choose the form of “business production recovery”, it means that they have to think and form recovery measures that they think are feasible. Bankruptcy law needs to stipulate specific mechanisms on this content. For example, indebted enterprises have the right to negotiate with creditors or some creditors supporting them before filing a petition to the Court. Thus, the settlement will be faster.

If they choose the form of "liquidation", it means that they have thought of every way but are no longer able to hold on. In this case, the Bankruptcy Law should stipulate that from 1 to 2 weeks after accepting the application, the Court will issue a decision to open bankruptcy proceedings immediately, and should not prolong the consideration. In the case where the creditor files a petition to open bankruptcy proceedings, the time for the Court to consider must of course be longer. And when the decision to open bankruptcy proceedings has been made, there should be no provision to suspend the bankruptcy settlement.

1.1.4. Clearly and specifically identify the representative of the state-owned enterprise owner who has the right to file a petition to open bankruptcy proceedings.

Researching the provisions of the Law on State-owned Enterprises 2003 shows that, among the companies specified in Article 1 and Article 3 of this Law, only state-owned companies

are the subjects of application of the Law on State Enterprises. Therefore, the representative of the owner of a State enterprise as prescribed in Article 16 of the Bankruptcy Law should only be understood as the representative of the owner of a State enterprise. Therefore, applying Article 63 of the Law on State Enterprises, the representative of the owner of a State enterprise is the organizations and individuals including: the Prime Minister, Ministers, Heads of ministerial-level agencies under the Government, Chairmen of provincial People's Committees and Boards of Directors of State enterprises. However, to uniformly apply this provision, there must be specific instructions from the Government or at least there must be a provision referring to the Law on State Enterprises. Such a provision is intended to help the Court have a legal basis to consider and decide whether to accept or return the application accurately and in accordance with the law.

1.1.5. Add specific instructions on how to handle the case of the business and the debtor not being able to determine their address.

Regarding the method of handling the failure to determine the address of the enterprise and the enterprise (debtor), we think this issue should be handled as follows: It is possible to flexibly apply the provision "The Court shall issue a decision to return the petition for opening bankruptcy proceedings when the enterprise or cooperative proves that it is not in a state of bankruptcy" (Clause 5, Article 24 of the 2004 Law on Enterprises) to return the petition, on the grounds that the enterprise requested to open bankruptcy proceedings has not yet fulfilled this request, so the Court has no basis to decide to open bankruptcy proceedings or to decide not to open bankruptcy proceedings. In addition, the guidance for enterprises and creditors submitting petitions is that they continue to determine the address, debts and assets of the indebted enterprise to provide to the Court when submitting the next petition for opening bankruptcy proceedings; If these contents cannot be determined, they should ask the local police agency to consider whether the indebted enterprise has signs of committing fraud or abusing trust to appropriate property, then criminally prosecute it.

1.1.6. There is a need for clearer guidance on bankruptcy fees.

It can be said that the current level of advance payment of bankruptcy fees depends on the subjective perception of the judge, so it will be difficult to reach a consensus and easily cause unnecessary questions. The law should stipulate a minimum payment level for the judge to base on.

Depending on the nature and complexity of the bankruptcy, an appropriate level of bankruptcy advance fee is determined to ensure the smooth conduct of the bankruptcy process.

Regarding bankruptcy fees: there should be detailed regulations on fees, charges, and expenses that are considered reasonable in the bankruptcy settlement process. The court fee should be set higher than the current fee of 1 million VND/case, depending on the complexity of the bankruptcy case.

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1.2. Supplementing regulations related to the operation of the Asset Management and Liquidation Team

The operating regulations of the Asset Management and Liquidation Team need to be specifically stipulated in the

LPS 2004, especially in the provisions on the assignment, division of tasks and working mechanism of the members of the Asset Management and Liquidation Team as well as the implementation of the tasks of the Asset Management and Liquidation Team. The author proposes the following recommendations:

1.2.1. Strengthen the supervision and inspection of the members of the Asset Management and Liquidation Team in the use of the enterprise's assets.

First of all, it is necessary to assign one member of the Asset Management and Liquidation Team to be the representative of the enterprise subject to bankruptcy proceedings and another member to be the representative of the creditor with the largest debt to monitor and inspect the use of the enterprise's assets as well as monitor prohibited and restricted acts according to Article 31 of the 2004 Law on Bankruptcy.

At the same time, it is necessary to specify the rights and duties of the members of the Team. In the Asset Management and Liquidation Team, the positions and roles of the members are not the same. This is a very special institution, in which there is the participation of representatives of public authorities. Therefore, it is necessary to have detailed regulations on the Working Regulations of the Team, the limits of responsibility and authority of each type of member.

In particular, it is necessary to stipulate the personal responsibilities of the Head of the Asset Management and Liquidation Team and its members when implementing the Court's decisions. The activities of the Head of the Team are very important, because they are the ones who coordinate activities, organize the implementation of important decisions of the Judge and make payments to creditors. Therefore, it is necessary to clearly stipulate the reporting regime of the Head of the Team to the Judge.

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