Restructuring, Dissolution and Bankruptcy of Enterprises

enterprise dissolution

Restructuring, Dissolution and Bankruptcy of Enterprises

There is a only business Law system for both local local and foreigner investors to do business in Viet Nam, deals with the establishment, organization, restructuring, dissolution, and relevant activities of enterprises, including limited liability companies, joint-stock companies, partnerships, sole proprietorships, and groups of enterprises.

We would like to introduce to you four of key topics to know about the business regulations in Viet Nam:

It would be our pleasures to share with you for any query or question about the terms and conditions as well as practical cases which we have been experiencing since years 2000, where the first law on enterprise has allowed private sector to born and blooming.

enterprise dissolutionDOING BUSINESS IN VIET NAM

PART 4 – RESTRUCTURING, DISSOLUTION, AND BANKRUPTCY OF ENTERPRISES

1. Total division

A limited liability company or joint-stock company may divide shareholders/members, and assets of the company (hereinafter referred to as transferor company) to establish two new companies or more (hereinafter referred to as transferee company) in one of the following cases:

  • Part of stakes/shares of members/shareholders and an amount of assets proportional to the value of stakes/shares are transferred to the transferee companies according to their holding in the transferor company and corresponding to the value of assets transferred to the transferee companies;
  • All of stakes/shares of one or some members/shareholders and an amount of assets proportional to the value of stakes/shares are transferred to the transferee enterprises;
  • A combination of both cases above.

Procedures for total division of a limited liability company or joint-stock company:

  • The Board of members, the owner, or the General Meeting of Shareholders of the transferor company shall ratify the Resolution on total division  and the company’s charter. The Resolution on total division must contain basic information including the transferor company’s name, headquarter addresses, names of transferee companies; rules, method, and procedures for asset division; employment plan; method, time limit, and procedures for transferring the transferor company’s stakes, shares, bonds to transferee companies; rules for fulfillment of the transferor company’s obligations; time limit for division. The Resolution on total division shall be sent to all creditors and notified to all employees within 15 days from the ratification date;
  • Members, the owner, or shareholders of each of the transferee companies shall ratify its charter, elect or designate the Chairperson of the Board of members, the company’s President, the Board of Directors, Director/General Director, and apply for business registration. In this case, the application for enterprise registration of the transferee companies must be enclosed with the Resolution on total division mentioned in Point a of this Clause.

The number of members, shareholders, their holding of stakes/shares, quantity of shareholders and charter capital of the transferee companies are corresponding to the method of dividing, transferring stakes/shares of the transferor company to the transferee companies.

The transferor company shall cease to exist after the transferee companies are issued with their Certificates of Business registration. Transferee companies are jointly responsible for the unpaid debts, employment contracts, and other liabilities of the transferor company, or reach agreements with the creditors, customers, and employees to decide on one of the companies to settle such obligations.

The business registration authority shall update the legal status of the transferor company on the National Business Registration Database when issuing Certificates of Business registration to transferee companies. If the transferee company’s headquarter is outside the province in which the transferor company’s headquarter is situated, the business registration authority of the province in which the transferee company’s headquarter is situated shall notify the business registration of the transferee company to the business registration authority of the province in which the transferor company’s headquarter is situated in order to update the legal status of the transferor company on National Enterprise Registration Database.

2. Partial division

A limited liability company or joint-stock company may be partially divided by transferring part of its existing assets, rights and obligations (hereinafter referred to as transferor company) to establish one or some new limited liability companies or joint-stock companies (hereinafter referred to as transferee companies) without terminating the existence of the transferor company. Partial division may be carried out using one of the following methods:

  • Part of stakes/shares of members/shareholders and an amount of assets proportional to the value of stakes/shares are transferred to the transferee companies according to their holding in the transferor company and corresponding to the value of assets transferred to the transferee companies;
  • All of stakes/shares of one or some members/shareholders and an amount of assets proportional to the value of their stakes/shares are transferred to the transferee companies;
  • A combination of both cases above.

The transferor company shall register a change to charter capital and number of members, which are proportional to the decrease in stakes/shares and quantity of members, at the same time with business registration of transferee companies. Procedures for partial division of a limited liability company or a joint-stock company:

The Board of members, the owner, or the General Meeting of Shareholders of the transferor company shall ratify the Resolution on partial division   and the company’s charter. The Resolution on partial division must contain basic information including the transferor company’s name, headquarter addresses, names of transferee companies; employment plan; division method; value of assets, rights and obligations transferred from the transferor company to the transferee companies; time limit for division. The Resolution on partial division shall be sent to all creditors and notified to all employees within 15 days from the ratification date;

Members, the owner, or shareholders of each of the transferee companies shall ratify its charter, elect or designate Chairpersons of the Board of members, the company’s President, the Board of Directors, Director/General Director, and apply for business registration. In this case, the application for enterprise registration must be enclosed with the Resolution on partial division mentioned in Point a of this Clause.

After business registration, the transferor company and transferee companies are jointly responsible for the unpaid debts, employment contracts, and other liabilities of the transferor company, unless otherwise agreed among the transferor company, transferee companies, the transferor company’s creditors, customers, and employees.

3. Corporate amalgamation

Two or some companies (hereinafter referred to as consolidating companies) may consolidate into a new company (hereinafter referred to as consolidated company). After that, consolidating companies shall cease to exist. Procedures for consolidation:

  • The consolidating companies prepare the consolidation contract. The consolidation contract must contain the consolidating companies’ names, headquarter addresses; the consolidated company’s name and headquarter address; procedures and conditions for consolidation; employment plan; time limit and procedures for transferring assets, stakes, shares, bonds of the consolidating companies to the consolidated company; time limit for consolidation; draft charter of the consolidated company;
  • Members, the owner, or shareholders of the consolidating companies shall ratify the consolidation contract, the consolidated company’s charter, elect or designate Chairpersons of the Board of members, the company’s President, the Board of Directors, Director/General Director of the consolidated company, and apply for business registration. The consolidation contract shall be sent to all creditors and notified to all employees within 15 days from the ratification date;

If the consolidated company has 30% – 50% of the market share, legal representatives of consolidating companies shall notify the competition authority before initiating the consolidation process, unless otherwise prescribed by the Law on Competition. Consolidation is prohibited if the consolidated company has more than 50% of the market share after consolidation, unless otherwise prescribed by the Law on Competition.

Documents and procedures for registration of the consolidated company shall comply with this Law. Copies of the following documents shall be enclosed:

  • The consolidation contract;
  • The Resolutions and meeting minutes that ratify the consolidation contract of the consolidating companies.

After business registration, the consolidating companies shall cease to exist; the consolidated company shall inherit the lawful rights and interests as well as unpaid debts, employment contract, and other liabilities of the consolidating companies.

The business registration authority shall update the legal status of the consolidating companies on the National Business Registration Database when issuing the Certificate of Business registration to the consolidated company. If the new company’s headquarter is outside the province in which the divided company’s headquarter is situated, the business registration authority of the province in which the new company’s headquarter is situated shall notify the business registration of the new company to the business registration authority of the province in which the divided company’s headquarter is situated in order to update the legal status of the divided company on National Enterprise Registration Database.

4. Acquisition

One or some companies (hereinafter referred to as acquired companies) may be merged into another company (hereinafter referred to as the acquirer) by transferring all assets, legitimate rights, obligations, and interests to the acquirer. After that, the acquired companies shall cease to exist. Procedures for acquisition:

  • Relevant companies shall prepare the acquisition contract and draft the charter of the acquirer. The acquisition contract must contain the acquirer’s names, headquarter addresses; the acquired company’s name and headquarter address; procedures and conditions for acquisition; employment plan; time limit and procedures for transferring assets, stakes, shares, bonds of the consolidating companies to the acquirer; time limit for acquisition;
  • Members, the owners, or shareholders of each of relevant companies shall ratify the acquisition contract, charter of the acquirer, and apply for registration of the acquirer as prescribed. The acquisition contract shall be sent to all creditors and notified to all employees within 15 days from the ratification date;
  • After business registration, the acquired companies shall cease to exist; the acquirer shall inherit the lawful rights and interests as well as unpaid debts, employment contract, and other liabilities of the acquired companies.

If the acquirer has 30% – 50% of the market share, legal representatives of the companies shall notify the competition authority before initiating the acquisition process, unless otherwise prescribed by the Law on competition. Acquisition is prohibited if the acquirer has more than 50% of the market share after acquisition, unless otherwise prescribed by the Law on Competition.

Documents and procedures for registration of the acquirer shall comply with the enterprise Law. Copies of the following documents shall be enclosed:

  • The acquisition contract;
  • The Resolutions and meeting minutes that ratify the acquisition contract of the acquirer.
  • The Resolution and meeting minutes that ratify the acquisition contract of the acquired companies, unless the acquirer is a member/partner or shareholder that holds more than 65% of charter capital or voting shares of the acquired company.

The business registration authority shall update the legal status of the acquired companies on the National Business Registration Database and adjust the Certificate of Business registration of the acquirer.

If the headquarter of an acquired company is outside the province in which the acquirer’s headquarter is situated, the business registration authority of the province in which the acquirer’s headquarter is situated shall notify the business registration authority of the province in which the acquired company’s headquarter is situated in order to update the legal status of the acquired company on National Enterprise Registration Database.

5. Converting a limited liability company into a joint-stock company

A limited liability company may be converted into a joint-stock company in one of the following manners:

  • Conversion into a joint-stock company without raising capital from other entities, without selling stakes to other entities;
  • Conversion into a joint-stock company by raising capital from other entities;
  • Conversion into a joint-stock company by selling part of or all of the stakes to one or some other entities;
  • Combination of the methods above.

The company shall register the conversion with a business registration authority within 10 days from the day on which the conversion is completed. Within 05 working days from the receipt of the application, the business registration authority shall reissue the Certificate of Business registration.

The converted company obviously inherits all of the lawful rights and interests, debts including tax debts, employment contracts, and other obligations of the old company.

Within 07 working days from the day on which the Certificate of Business registration is issued, the business registration authority shall notify relevant regulatory bodies, and update the company’s legal status on the National Business Registration Database.

6. Converting a joint-stock company into a single-member limited liability company

A joint-stock company may be converted into a single-member limited liability company in one of the following manners:

  • A shareholder receives the transfer of all shares and stakes of all other shareholders;
  • A organization or individual other than a shareholder receives the transfer of all shares of all of the company’s shareholders;
  • The company has only one shareholder for a period of time exceeding the time limit prescribed the enterprise Law.

The transfer or receipt of capital in the form of shares or stakes mentioned shall comply with market prices. Prices are determined according to the asset method, discounted cash flow method, or other methods.

Within 15 days from the completion of share transfer prescribed, if the event occurs, the company shall send or submit the application for conversion to the business registration authority where the enterprise registered. Within 05 working days from the receipt of the application, the business registration authority shall issue the Certificate of Business registration.

The converted company obviously inherits all of the lawful rights and interests, debts including tax debts, employment contracts, and other obligations of the old company.

Within 07 working days from the day on which the Certificate of Business registration is issued, the business registration authority shall notify relevant regulatory bodies as prescribed, and update the company’s legal status on the National Business Registration Database.

7. Converting a joint-stock company into a multi-member limited liability company

A joint-stock company may be converted into a multi-member limited liability company in one of the following manners:

  • Conversion into a limited liability company without raising additional capital or transferring shares to other entities;
  • Conversion into a limited liability company together with raising capital from other entities;
  • Conversion into a limited liability company together with transferring part of or all of shares to other organizations and individuals that contribute capital;
  • Combination of the methods above.

The company shall register the conversion with a business registration authority within 10 days from the day on which the conversion is completed. Within 05 working days from the receipt of the application, the business registration authority shall issue the Certificate of Business registration.

The converted company obviously inherits all of the lawful rights and interests, debts including tax debts, employment contracts, and other obligations of the old company.

Within 07 working days from the day on which the Certificate of Business registration is issued, the business registration authority shall notify relevant regulatory bodies as prescribed, and update the company’s legal status on the National Business Registration Database.

8. Converting a sole proprietorship into a limited liability company

A sole proprietorship may be converted into a limited liability company under a decision of the sole proprietorship’s owner if all of the following conditions are satisfied:

  • All conditions of Certificate of Business registration are satisfied;
  • The sole proprietorship’s owner is the owner (if the sole proprietorship is converted into single-member limited liability company under the ownership of an individual) or member (if the sole proprietorship is converted into a multi-member limited liability company) of the limited liability company;
  • The sole proprietorship’s owner makes a written commitment to take personal responsibility for all unpaid debts of the sole proprietorship with all of his/her property and to settle the debts when they are due;
  • The sole proprietorship’s owner has a written agreement with parties of unfinished contracts that the new limited liability company will take over such contracts; The sole proprietorship’s owner makes a written commitment or agreement with other capital contributors to employ the existing employees of the sole proprietorship.

Within 05 working days from the receipt of the application, the business registration authority shall consider issuing the Certificate of Business registration if all of the conditions are satisfied.

Within 07 working days from the day on which the Certificate of Business registration is issued as prescribed, the business registration authority shall notify relevant regulatory bodies as prescribed, and update the company’s legal status on the National Business Registration Database.

9. Enterprise suspension

A enterprise may suspend its business as long as a written notification of the time and duration of suspension and time of resumption is sent to the business registration authority at least 15 days before the date of suspension or resumption. This regulation still applies in case the enterprise resumes its business before the notified date.

The business registration authority or competent authority shall request an enterprise to suspends the business lines subject to conditions if such conditions are not satisfied by the enterprise.

During the suspension period, the enterprise shall pay outstanding tax, keep paying its debts, executing contracts with customers and employers, unless otherwise agreed among the enterprise, its creditors, customers, and employees.

10. Cases of and conditions for dissolution

A enterprise shall be dissolved in the following cases:

  • The operation period written in the company’s charter expires without a decision on extension;
  • The dissolution is decided by the owner of the sole proprietorship, by all general partners of the partnership, by the Board of members or owner of the limited liability company, or insurance the General Meeting of Shareholders of the joint-stock company;
  • The company fails to maintain the minimum number of members prescribed for 06 consecutive months without following procedures for business conversion;
  • The Certificate of Business registration is revoked.

The enterprise shall only be dissolved if all debts and liabilities can be settled and the enterprise is involved in any dispute at a court or arbitral tribunal. Relevant managers and enterprises mentioned are jointly responsible for the enterprise’s debts.

11. Procedures for enterprise dissolution

The dissolution shall be carried out as follows:

  • Ratify the decision on dissolution. The decision on dissolution must contain:
  • The enterprise’s name and headquarter address;
  • Reasons for dissolution;
  • Procedures for finalizing contracts and settling debts of the enterprise; the deadline for settling debts and finalizing contracts must not exceed 06 months from the day on which the decision on dissolution is ratified;
  • Plans for settlement of obligations derived from employment contracts;
  • Full name and signature of the enterprise’s legal representative.

Sole proprietorship’s owner, the Board of members, owner, or the Board of Directors shall directly organize the enterprise’s asset liquidation, unless a separate liquidation organization must be established according to the company’s charter.

Within 07 working days from the approval date, the decision on dissolution meeting minutes must be sent to the business registration authority, tax authority, and employees of the enterprise; the decision on dissolution shall be posted on National Business Registration Portal, the enterprise’s headquarter, branches, and representative offices.

If there are unsettled financial obligations, the decision on dissolution shall be enclosed with the debt settlement plan and sent to the creditors, people with relevant rights, obligations, and interests. The plan must contain the creditors’ names and addresses; the amount of debts, deadline, location, and method of payment; method and deadline for settlement of creditors’ complaints.

The business registration authority shall post a notification of the status of every enterprise undergoing dissolution process on the National Business Registration Portal right after receiving the decision on dissolution from the enterprise. The notification must be posted together with the decision on dissolution and debt settlement plan (if any).

The enterprise’s debts shall be paid in the following order:

  • Unpaid salaries, severance pay, social insurance as prescribed by law, other benefits of employees according to collective bargaining agreement and signed employment contracts;
  • Tax debts;
  • Other debts.

After all debts and dissolution costs are paid, the remaining value shall be received by the sole proprietorship’s owner, members, shareholders, or owner of the company according to their holding of stakes or shares in the company.

The legal representative of the enterprise shall send the petition for dissolution to the business registration authority within 05 working days from the day on which all of the enterprise’s debts are settled.

The business registration authority shall update the enterprise’s legal status of National Enterprise Registration Database if no opinions or objections from relevant parties are received after 180 days from the day on which the decision on dissolution is receipt as prescribed or within 05 working days from the receipt of the petition for dissolution.

12. Petition for enterprise dissolution

The petition for dissolution include the following documents:

  • A notification of the enterprise dissolution;
  • A report on liquidation of the enterprise’s assets; a list of creditors and paid debts, including tax debts, outstanding social insurance contributions, and debts owed to employees after deciding the dissolution (if any);
  • The seal and seal certificate (if any);
  • The Certificate of Business registration.

Members of the Board of Directors of the joint-stock company, members of the Board of members of the limited liability company, the company’s owner, the sole proprietorship’s owner, the Director/General Director, general partners, legal representative of the enterprise shall be responsible for the truthfulness and accuracy of the petition.

If the petition are not accurate or fraudulent, the persons mentioned are jointly responsible for paying the unpaid debts, taxes, and unsettled employees’ benefits, and take personal responsibility for any consequence that ensue within 05 years from the day on which petition for dissolution is submitted to the business registration authority.

13. Banned activities as from issuance of decision on dissolution

From the issuance of the decision on dissolution, the enterprise and its manager are prohibited to:

  • Hide, illegally liquidate assets;
  • Renounce or reduce the right to claim debts;
  • Convert unsecured debts into debts secured on the enterprise’s assets;
  • Sign new contracts, except for those serving the enterprise’s dissolution;
  • Mortgage, pledge, give, lease out assets;
  • Terminate effective contracts;
  • Raise capital in any shape or form.

Depending on the nature and seriousness violations, the individual that commits the violations shall face administrative violations or criminal prosecution, and pay compensation for any damage caused.

14. Shut down of branches and representative offices

A branch or representative office of an enterprise shall be terminated under a decision of the enterprise or a decision to revoke the Certificate of registration of branch or representative office issued by a competent authority. Documents for Shut down of a branch or representative office includes:

  • The decision of the enterprise to shut down the branch or representative office, or the decision to revoke the Certificate of registration of branch or representative office issued by a competent authority;
  • The list of creditors and outstanding debts, including tax debts, of the branch and outstanding social insurance contributions;
  • The list of employees and their corresponding benefits;
  • The Certificate of registration of the branch or representative office;
  • The seal of the branch or representative office (if any).

The enterprise’s legal representative and the head of the shut down branch or representative office are jointly responsible for the truthfulness and accuracy of the said documents.

The enterprise whose branch is shut down is responsible for execution of contracts, payment of debts, including tax debts, of the branch, keep employing the branch’s employees or provide them with adequate benefits.

Within 05 working days from the receipt of sufficient documents prescribed , the business registration authority shall update the legal status of the branch or representative office on National Enterprise Registration Database.

15. Bankruptcy

Regulations of law on bankruptcy shall apply to bankruptcy of enterprises.

 

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