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The Scope of Entities Entitled to File a Bankruptcy Petition Is Still Too Narrow

The advantage of the 2004 Bankruptcy Law is that it was born when the economy was developing and the operating mechanism was strongly shifting to a market economy. This means that the high level of competition leads to more and more enterprises going bankrupt. In addition, the content of the 2004 Bankruptcy Law itself has many advances compared to the 1993 Enterprise Bankruptcy Law, which also contributes significantly to the more effective implementation of this Law in practice. Specifically:

Firstly , the concept of bankruptcy or the concept of an enterprise falling into bankruptcy has been improved. This is an important concept of Bankruptcy Law. As analyzed above, the concept of bankruptcy in the law of each country is different. Depending on this concept in bankruptcy law, the management and policy of the State towards bankruptcy is positive or negative, and is inclined to protect which side: the creditor or the debtor.

According to the 1993 Bankruptcy Law, creditors have the right to file a petition for bankruptcy if the debtor fails to pay the debt after 30 days from the date of debt collection, and the stipulation is that the debtor must pay the employee's salary for 3 consecutive months. However, in reality, creditors will never exercise their right to file a petition for bankruptcy against their debtors because they must prove that the debtor is making losses in business operations, which is beyond the ability of the creditor. The 2004 Bankruptcy Law (Article 3) introduces the concept of bankruptcy: "Enterprises and cooperatives that are unable to pay their debts when due upon request by the creditor are considered bankrupt." This is an improvement of the 2004 Bankruptcy Law in simplifying the procedures for considering bankrupt enterprises. The debtor is no longer required to prove that the debtor is making losses as before, and therefore the bankruptcy declaration procedure will be faster.

Second , the Bankruptcy Law 2004 affirms that bankruptcy proceedings are a special judicial procedure.

Bankruptcy proceedings can be divided into three main stages:

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+ First stage: The stage of investigating the enterprise's ability to pay its debts. In this stage, if the debtor does not want to fall into the next stage, he must prove to the Court his ability to pay his debts. If the Court finds that the debtor is no longer able to pay the debt when due, the next stage will be applied immediately.

+ Second stage: Stage of resolving the request for bankruptcy declaration. This stage mainly focuses on developing a reconciliation plan to restore the business operations of the enterprise. If reconciliation is not possible or the reconciliation plan is not implemented successfully, the Court will move on to the next stage.

The Scope of Entities Entitled to File a Bankruptcy Petition Is Still Too Narrow

+ Third stage: Bankruptcy and liquidation of business assets.


In bankruptcy proceedings, the tasks of the constituent procedures are largely independent of each other. Performing the tasks of one procedure is not always a prerequisite for performing the tasks of another procedure. For example, the tasks of the business recovery procedure are completely different from the tasks of the asset liquidation procedure, and performing the tasks of the recovery procedure is not a prerequisite for the asset liquidation procedure but may eliminate the need for the asset liquidation procedure itself...

The progress recorded in the 2004 Bankruptcy Law is the provisions on the specific relationship between the constituent procedures in the bankruptcy procedure. This allows the Court to resolve the request for bankruptcy declaration flexibly depending on the specific situation. The Court can decide to declare bankruptcy to the debtor immediately without accepting the bankruptcy declaration request (Clause 1, Article 87 of the 2004 Bankruptcy Law) or after accepting it (Clause 2, Article 87) or when suspending the asset liquidation procedure (Article 86). The rehabilitation procedure is no longer a mandatory procedure before the asset liquidation procedure in the process of resolving the bankruptcy declaration request. Not only that, when the task of this procedure cannot be performed or is performed unsuccessfully, it can be converted to the asset liquidation procedure immediately (Articles 79, 80).

2. Difficulties and shortcomings.


2.1. The scope of subjects entitled to file a petition for bankruptcy declaration is still too narrow.


Bankruptcy law is primarily to protect the property rights of creditors. Therefore, the subjects entitled to file a petition to open bankruptcy proceedings for enterprises and cooperatives are creditors. According to the provisions of the Bankruptcy Law 2004, there are three types of creditors: secured creditors, partially secured creditors and unsecured creditors.

Article 6 (Bankruptcy Law 2004) stipulates:


+ A partially secured creditor is a creditor whose debt is secured by the value of an enterprise, cooperative or third party whose security value is less than that debt.

+ A secured creditor is a creditor whose debt is secured by the value of an enterprise, cooperative or third party whose security value is equal to that debt.

+ An unsecured creditor is a creditor whose debt is not secured by any value of the enterprise or cooperative.

According to the 2004 Bankruptcy Law, only three entities have the right to request bankruptcy proceedings: bankrupt enterprises or cooperatives, creditors and representatives of employees. However, only unsecured creditors and partially secured creditors can file a petition, while secured creditors and public authorities such as the Court, Inspectorate, Tax Department, etc. do not have this right. In reality, creditors in our country rarely file a petition for bankruptcy or if they do, it is for other purposes than protecting their rights. They often seek measures to recover debts, which they think is easier, while filing a petition for bankruptcy is both time-consuming and sometimes impossible because the assets of a indebted enterprise are very small while the creditors are numerous.

2.2. Bankruptcy settlement procedures are still prolonged.


In addition to the reason that the feasibility of bankruptcy law is not high, when conducting a bankruptcy case, the related parties (insolvent enterprises, creditors, and the Court) carry out the steps according to the bankruptcy law slowly and uncooperatively, leading to the time to resolve a bankruptcy case in our country often lasting at least one year instead of the four to six months expected by law.

The case of Tamexco Company in Ho Chi Minh City took more than 3 years from the time it filed its bankruptcy petition until it was declared bankrupt by the court. This discouraged related parties such as creditors, employees, and even competent State agencies such as the Court.

One of the main reasons for this delay is due to weaknesses in the corporate finance implementation regime. Currently, the legal provisions on auditing are very diverse and related to auditing when an enterprise falls into bankruptcy, there are at least the following documents: Decree No. 189/CP dated December 23, 1994 guiding the implementation of the Enterprise Bankruptcy Law 1993 (Article 11); Law on State-owned Enterprises 2003 (Article 89); Law on Enterprises 1999 (Article 92); Decree 105/2004/ND-CP dated March 30, 2004 on independent auditing (Article 10), all of which contain the content that annual reports of companies and enterprises must be audited. Therefore, how to apply these documents consistently is a difficulty that often occurs in practice, for example:

Point a, Clause 4, Article 15 of the Bankruptcy Law 2004 stipulates: “report on the business performance of the enterprise or cooperative, explaining the causes and circumstances related to the insolvency; if the enterprise is a joint stock company that is required by law to be audited, the financial statements must be audited by an independent audit organization”, while Clause 2, Article 4 of the Bankruptcy Law 2004 stipulates: “ In case there is a difference between the provisions of the Bankruptcy Law and the provisions of other laws on the same issue, the provisions of the Bankruptcy Law shall apply ”.

However, applying this regulation, when receiving a request to open bankruptcy proceedings (regardless of economic sector), local courts require that the annual financial report of the enterprise be audited. If available, the application will be accepted for settlement. If the financial report has not been audited, the application will be returned. Therefore, the time for accepting and settling a request to declare bankruptcy is often prolonged due to waiting for an audit. This leads to the consequence that transactions made within 03 months before the date the Court accepts the request to open bankruptcy proceedings are considered invalid according to Clause 1, Article 43 of the Bankruptcy Law 2004.

2.3. Many enterprises and cooperatives fall into bankruptcy without filing for bankruptcy because the provisions in the 2004 Bankruptcy Law are not yet specific.

In fact, many businesses know that they are in bankruptcy but do not file for bankruptcy. This is also the main reason why the number of businesses declared bankrupt is very small.

In addition to bankruptcy, businesses can also choose another path, which is dissolution or abandonment. Compared to bankruptcy, dissolution is a quicker way to end a company's operations. In addition, the director of the company that conducts dissolution can still continue to establish a business or run another company, but if they choose bankruptcy, they cannot. Many companies choose the safe measure of "doing nothing". For example, the Agricultural and Forestry Construction and Import-Export Company has been insolvent since 2004 and has not yet declared bankruptcy. The Agricultural and Forestry Construction and Import-Export Company is a company under the Hanoi Department of Agriculture and Rural Development with 9 member enterprises, 5 branches in the provinces and 5 functional and professional departments. In a short time, the company has been involved in two criminal cases, and now only one building remains at No. 01, Lane 1002, Lang Street, Dong Da District, Hanoi, and two security guards along with a number of other key positions. Some foreign businesses operating in Vietnam have fled back to their home countries when their businesses have suffered losses. Two businesses, Anjin Shoes Co., Ltd. and Vina Haeng Woon Industry Co., Ltd. (in Ho Chi Minh City) managed by Korean businessmen, have fled when their businesses have suffered losses.

went bankrupt, leaving hundreds of Vietnamese workers unemployed, without paying salaries and insurance.

3. Causes of shortcomings in the implementation of the 2004 Bankruptcy Law


The 2004 Bankruptcy Law was amended a lot compared to the 1994 Enterprise Bankruptcy Law, but in practice, the application of the law encountered many difficulties and inadequacies due to the following reasons:

3.1 The law's feasibility is not high


For state-owned enterprises, bankruptcy or not depends too much on the owner, that is, the Ministry or the Provincial People's Committee, which is the governing body of the enterprise. For some reasons, both collective reasons and personal reasons of some people, and it is not excluded that because of the incorrect perception of some business leaders, because of their own achievement motives, of a minority of people, they delay or prolong the bankruptcy of the enterprise when the enterprise has lost its ability to pay.

Even if a business wants to file a petition to open bankruptcy proceedings without the consent of the competent authority, it cannot do so. Furthermore, according to regulations, only non-state enterprises are bound by the request to open bankruptcy proceedings, while for state-owned enterprises, this obligation is considered a right. In the current context, it is clear that doing so is creating conditions for businesses to avoid bankruptcy.

For business owners themselves, due to various personal motives, they do not report or file for bankruptcy when the business has lost its ability to pay its debts. People avoid responsibility by retiring or waiting for a transfer to a new workplace, while others who replace them will be the ones who have to deal with the consequences that should have been their fault. In many cases, when a business files a petition to open bankruptcy proceedings with the Court, the business is left with only a house, an empty or insignificant account, only a few security guards to look after the counselors, and the workers have long since left to make a living.

Another reason is that the opportunity cost of bankruptcy for a business is too large compared to the benefits that the business receives. The biggest benefit here is that after being declared bankrupt, the business will no longer have to worry about paying debts (except for private businesses), and for businesses that are able to recover, they will be given the opportunity to repair and operate again. Meanwhile, in return for the above benefits, businesses have to face many troubles. In addition to having to make six different reports for the court, businesses have to pay advance bankruptcy costs and waste time. If done smoothly, just the period from opening bankruptcy proceedings to opening asset liquidation proceedings will take at least six months. But in reality, successful bankruptcies also take at least more than a year. In addition, according to the regulations, bankrupt business owners and business managers will be banned by the court from establishing businesses and from holding managerial positions for one to three years from the date the business is declared bankrupt. This regulation has also affected the mentality of businesses that are facing bankruptcy and do not want to file for bankruptcy.

Creditors are also not interested in filing a petition to open bankruptcy proceedings against their debtors. The reason is that according to regulations, when a business opens bankruptcy proceedings, it is mandatory to publicly notify all creditors. From here, creditors develop a mentality of preventing creditors from going to court by filing a petition to declare bankruptcy: if a petition is filed, it is easy for the business to become bankrupt and debtors to flock to it, then the creditors' own rights may not be in their turn, so it is better to stay silent and find a way to collect the debt or sue in a separate lawsuit, which still has the possibility of recovery.

3.2 Documents guiding the implementation of the law are still slow.


The documents guiding the implementation of the law are still slow, the content of the instructions is not suitable for reality or is too general, making it difficult for researchers to apply the law. For example, the Bankruptcy Law of 2004 was passed on June 15, 2004, effective from October 15, 2004, but it was not until July 11, 2006 that the Government issued a Decree guiding the activities of asset management and liquidation teams, leading to

The psychology of waiting, fear of making mistakes and not daring to do anything, is also the main reason why in the whole year of 2005, the whole country's Court sector was only able to resolve one bankruptcy case.

Up to now, to implement LPS 2004, the following sub-law documents have been issued:

+ Decision No. 01/2005/QD-TANDTC/KHXX dated April 27, 2005 of the Chief Justice of the Supreme People's Court on the Working Regulations of the Panel of Judges in charge of conducting bankruptcy proceedings.

+ Resolution No. 03/2005/ND-HDTP dated April 28, 2005 of the Council of Judges of the Supreme People's Court guiding the implementation of a number of provisions of the Bankruptcy Law.

+ Decree No. 94/2005/ND-CP dated July 11, 2006 of the Government guiding the application of the Bankruptcy Law to special enterprises and the organization of the operation of the Asset Management and Liquidation Team.

+ Joint Circular No. 19/2008/TTLT-BTC-BTP dated February 19, 2008 of the Ministry of Finance - Ministry of Justice guiding the establishment, management, use and determination of funds to ensure the operation of civil judgment enforcement agencies and the Asset Management and Liquidation Team of bankrupt enterprises and cooperatives.

In addition, many documents are still in the process of research. For example, the document guiding the Bankruptcy Law on the specific recovery and handling of assets to suit the specific nature of bankruptcy because it is fundamentally different when handling mortgaged assets, assets seized to ensure the enforcement of civil judgments against individuals, households, or businesses that are not in bankruptcy has not yet been built.

II. Application of the 2004 Bankruptcy Law in Hanoi City


1. Practical application of regulations on resolving requests to open bankruptcy proceedings for enterprises in Hanoi city and issues raised.

Hanoi and Ho Chi Minh City are the two cities with the largest concentration of enterprises and cooperatives in the country. This also means that the number of bankruptcies in these two cities is much larger than in other provinces and cities. Below

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