BANKRUPTCY

Law on Bankruptcy 2014

Outline
1. General provision
2. Petition for bankruptcy procedure
3. Initiate bankruptcy procedure
4. Properties obligations
5. Creditors meetings
6. Business operation restoration
7. Declaration of bankruptcy
8. Enforcement decision of declartaiton
 Subject of
Application

Enterprises Cooperative
I. General provision
Definition
• Insolvent Enterprise or Cooperative: Means an
enterprise or cooperative that fails to perform the obligation
to pay its debts within 3 moths after such debts become
due
• Bankruptcy: Mean the state of Insolvency of An enterprise
or Cooperative which is declared bankrupt by a people’s
court

3 type of Debt
• Guarantee debts => Guarantee creditor
• Partially Guaranteed Debt => Partially Guaranteed Creditor
• Unguaranteed Debt => Unguaranteed Creditors
Art 4
Bankruptcy Procedure-conducting person
Include
1. Chief justice of people’s court
2. Judges
3. Chief procurators of people’s procuracies
4. Asset management officers (AMO)
5. Asset management and Liquidation firms (AMLF)
6. Head of civil judgment enforcer agencies and enforcers
1. When is an enterprise/cooperative considered
as bankrupt? (Article 4.2 of the law on bankruptcy 2014)

“Bankruptcy is a legal status of an insolvent entity

that is declared bankrupt by the people’s court”
When is an enterprise/cooperative considered
as bankrupt? (Article 4.2 of the law on bankruptcy 2014)

Insolvency
Bankrupt
Enterprise
/
cooperativ
e
Declaration
of the court
 When is an enterprise/cooperative insolvent?
(Article 4.1 of the law on bankruptcy 2014)

Failure to pay due

debts within 3
months

1. When is an enterprise/cooperative considered as bankrupt?

Notes: Insolvency of an enterprise/cooperative

Reflects serious financial difficulties

Does not mean having no property left

Not always shown in the appearance

Does not matter how much debt an

enterprise/cooperative cannot pay

Does not always result in bankruptcy

1. When is an enterprise/cooperative considered as bankrupt?

Person having right and obligation to file petition for
bankruptcy procedure? (art 5)
• Unsecured creditor and partially creditor
• Employees, grassroots trade union or higher level trade
union
• At law representative of enterprise or co-operative
• Owner of private enterprise, owner of LLC1
• Chairman of Board of management of shareholding
company or chairman of Member councils of LLC2+
• Partners of partnership
• Shareholders or group of shareholders holding 20% of
total share
Jurisdiction of courts: (Art 8)

Provincial people’s court District people’s court

(entities registered in) (the headquarter located
in)
Overseas assets or
involving entities Cases not under
the competence
Branches/representative of the provincial
office located in district of people’s court
various provinces

Real estate in district

of various provinces
Complicated bankruptcy
cases under the
competence of district
people’s court
Bankruptcy Fees and Expense (Art 22,23)
Person filing petitions for initiation of Bankruptcy
procedures shall pay
• bankruptcy fee, except employees, grassroots trade union
• Bankruptcy expense : shall be paid with value of assets o
insolvent enterprise
• Person filing petition for initiate bankruptcy procedure
shall advance and amount to pay bankruptcy expense
• People’s Court shall decide levels of bankruptcy expenses
on a Case-By-Case basis
II. Petition for initiation
bankruptcy procedure
How to submit the request? (Art 30)

Directly Submit
submit by post
How is an enterprise/cooperative declared
bankrupt?

Request for a
bankruptcy process

Dismiss the
Accept the request
request

Refuse to initiate
Initiate bankruptcy
bankruptcy
process
process
Resume
Declare bankrupt and
business
liquidate assets
operations
Who will handle the request? (Art 31)

A judge
The
executive
judge A group of 3
judges
3 working
In which cases will the court dismiss the request?
(Art 35)

The
The initiation
bankruptcy
The of bankruptcy
fee and
requester is process
bankruptcy
not entitled already
advance (if
to request made by
applicable)
No another court
not paid
amendment to
the request
The request
made within
withdrawn
10 days
working days
of notification
Can the decision on dismissal of the request be reconsidered? (Art
36)

The Uphold
requester the
The dismissal
Or Uphold
executive The
The judge executiv the
people’s Cancel dismissal
e judge
procuracy the
of the
dismissal Cancel
higher
court the
dismissal
3 working days 3 working days

5 working days 7 working days

In which case will the court accept the request?
(Art 39)

The fee and

advance (if
The request
applicable) paid
is regular
within 15 days from
the receipt
When will the court dismiss or accept the request?

Cases when
Within 3 working days from the
Dismissal
day of appointment

When receiving the fee and

advance (if applicable)
Acceptance
When receiving the regular
request (the fee and advance
exempt)
When will the court inform their decision?
Case when who
Within 3 working The requesters
days from the day on
Dismiss
which the decision is The people’s procuracy at
made the same level
The requesters
Insolvent
Within 3 working enterprises/cooperatives
Acceptanc
days from the
e The people’s procuracy at
acceptance
the same level
Creditors
Can the requesters withdraw the request?
III. Initiation Bankruptcy
Procedures
 Initiation of bankruptcy process
In which case will the court initiate or refuse to
initiate the bankruptcy process? (Art 42)

Within 30 days from

When the acceptation

Initiate the Refuse to initiate

Decision process the process

The entity is The entity is not

Cases in insolvency in insolvency

Notification of a decision to initiate or not initiate bankruptcy procedures shall be send

within 3 days
Appointment of AMO/AMLF(Art 12,13, 45)
Asset Management officers and asset management and
liquidation firm will be appointed within 3 Working days
Criteria:
For Individual: Lawyers, Auditors, Person possess a
bachelor degree in law, economics, accounting, finance,
banking. 5 years experience in those field; possessing an
AMO practicing certificate

For AMLF:
Partnership, at least 2 partners being AMO
private enterprise; Owner being AMO
Rights and obligation of AMO and AMLF( art 16)

To manage assets, supervise business operations, conduct liquidation of

asset of insolvent enterprise and cooperatives which includes:
• Verifying, collecting and managing documents and evidences related to the
operation of such enterprise
• Making list of assets, creditor and debtors
• Preserving assets, preventing the sale or transfer of assets without
permission of judges, preventing the dispersion of assets, maximizing the
asset value of such enterprise or cooperative upon the the sale and
liquidation of assets
• Supervising the business operation
• Hiring individual and organizations to perform job
• Proposing to judges the sale of assets of such enterprise or cooperatives to
cover bankruptcy expenses
• Selling assets under decision of judges to cover bankruptcy expense
• Organize asset valuation and liquidation
• …….
Rights and obligation of AMO and AMLF( art 16)
• Represent enterprises or cooperative in case such
enterprises have no at law representative
• Report on status of asset, liabilities, operation of
enterprise and participate in the elaboration of plans on
rehabilitation of business operation of insolvent enterprise
• Request Judges to:
• Collect document and evidence
• Declare transaction invalid
• Apply emergency measures.
Business operation after decisions on initiation of
bankruptcy procedures are issued (Art 47)

• Still being continued but submit to supervision by judges

and AMO or AMLF
• Judges shall issue decision to change at law
representative of such enterprise at the request of
creditor’s meeting or AOM/AMLF if they see that the at
law representative of enterprise are incapable of
performing management or show sign of violation
Prohibited activities (art 48)

• Hiding, dispersing or donating their assets

• Paying unsecure debts.
• Waiving the right to claim debts
• Converting unsecured debts into debts secured or
partially secured with asset of enterprise or cooperative
Supervision of operation of enterprise after
decision of IBP are issued
Enterprise and cooperative share report to AMO/AMLF
before:
Conducting business activities related to borrowing,
mortgage, transfer or lease of asset; sale or conversion of
shares.ect
Terminating performance of valid contract
Paying debts arising after the bankruptcy procedure is
initiated; pay salaries to employees

Violaiton?
IV. PROPERTIES OBLIGATIONS and MEASURE
TO PRESERVE ASSETS
Properties obligations (art 51,52,53)

Properties
obligation

Determination
Valuation of Settlement of
of interests on
properties secured debts
debts
Order of division of assets (art 54)
Asset of declared bankrupt enterprise shall be divided to
pay in the following
• Bankruptcy expenses
• Salaries, severance allowances, social insurance and
health insurance owned to employees and other benefits
• Debts arising after the initiation of bankruptcy procedures
for resumption of business operation of enterprise
• Financial obligation toward state, unsecured debts
payable to creditors, secured debts not yet paid
Then
• Owners, members, partners or shareholders.
Measures to preserve assets (art 65,66,67,70)

Measures to
preserve assets

Apply of
Inventory of Sending of debt Making list of
emergency
assets claims debtors/creditor
measures
V. Creditors Meetings
Convening of Creditor
• Judge shall convene a creditor’s meeting within 20 days after the date of
completing the asset inventory. Art 75
• Notice and other relevant documents shall be sent no later than 15 days
before the date of the meeting Art 75

Rights to attend: Art 77

• Creditors named on the list of creditor.
• Employees’ representatives and trade union representatives who are
authorized by employees and have rights and obligations like creditors
• Guarantors who have paid debt for insolvent enterprise => unsecured creditor

Those who filed petitions for initiation of bankruptcy procedures or lawful

representatives of insolvent enterprise have the obligation to attend the meeting
Art 78

Meeting valid: attended by creditor represent ≥ 51% unsecured debt Art 79

Resolution of Creditor meeting

RESOLUTION

Termination of the Application of

settlement of the measure to restore Declaration of
petition for initiation the business banruptcy
bankruptcy operation

If the enterprise
does not become
bankruptcy
VI. BUSINESS OPERATION RESTORATION
Business Operation Restoration (art 87)
• Within 30 days since approval of resolution, Insolvent
Enterprise shall make a business operation restoration
plan and send it to Judge, creditors, ASM/AMLF

• Within 10 days, creditors, ASM/AMLF shall send to the

insolvent enterprise for finalizing the plan

• After receiving the finalized plan. ASM/AMLF shall report

to judge for consider before submitting it to creditor’s
meeting for approval
Business Operation Restoration
Must specify measures for restoring its business operation,
debt repayment conditions, time limits and plans.
Measurement include (art 88)
• Raising capital
• Reducing, writing off or rescheduling debts
• Changing production and business lines
• Renewing production technologies
• Reorganize managerial aparatus
• Selling shares to creditors
• Sell assets
• Ect.
Time limit: within 3 years, otherwise set by Creditor’s meeting
Supervision of implementation; modification and
supplementation of BOR, Art 93
• AMO or AMLF shall supervise the business operation
• Enterprise must report on implementation once every 6 months

Creditors and enterprise may reach agreement on modification or

supplementation of such plan
Agreement shall be approve by more than half of attending
unsecured creditors who represent at least 65% unsecure debts

Judge shall issue a decision to terminate the procedure for RBO

when:
Enterprise has fulfilled the BORP
Enterprise cant implement the BORP
Past time limit
VII. Declaration of Bankruptcy
Declaration of Bankruptcy
People’s court shall settle bankruptcy cases according to summary procedures
if:
• At law representative of enterprise; owner of private enterprise; LLC1, chairman
of board of director of Shareholding companies, chair of MC of LLC, partner of
partnership initiate bankruptcy procedures but enterprise has no money or other
assets to pay bankruptcy fee and bankruptcy expense

People court shall issue decision declaring enterprise bankrupt upon

• failure of creditors’ meeting

Or

• After receiving resolution request for declaration of bankruptcy of the creditors

meeting
• Time limit for BORP has expired
• Creditors’ meeting does not approve BORP
• Fail to implement the BORP
Declaration of Bankruptcy
• Within 10 working day, court shall send decision of
declaration of bankruptcy to Business registration body for
deregistration of the enterprise.
VIII. Enforcement of Decision Declaring Enterprises
and Cooperative Bankrupt
Procedure for enforcement (Art 120)
Within 5 days, shall issue a decision on enforcement of
bankruptcy declaration decision and assign a judgment
enforcer to enforce such decision
Enforcer shall:
• Open a bank account
• Supervise the asset liquidation
• Apply coercive measure to retrieve the asset
• Implement the asset division plan
 AMO/AMLF

Asset
Sale of asset Recovery of asset
valuation/revaluation
Ban from holding managerial posts (130)
• Holders of the posts of president, director, general director
and member of Board of Directors in Enterprises with
100% state capital: prohibited from holding such post in
any state enterprise
• Those who act as representatives of state capital at state-
invested enterprise which are declare bankrupt shall be
prohibited from holding managerial post in any state-
invested enterprise
• Other case judges shall consider and decide to deprive
them of the right to establish, act as managers within 3
years
• Except case of go bankrupt for Force Majeure Reasons.
 Distinguish bankruptcy and dissolution
Criteria Bankruptcy dissolution
The operation duration
expires
The decisions of the owners
Reason In insolvency situation The required minimum
numbers no longer
remaining for 6 consecutive
months
Authority to The registration
business withdrawn
registration
The court
settle office
Does not always
Outcome Terminate the operation
terminate the operation
Managers banned to
No restriction applied for
State’s attitude hold posts in a set
managers
period of time