Phuoc & Partners Vietnam International Law Firm

Your Language:
+84 (28) 3744 9977
Phuoc & Partners Attorneys At Law

The creditor is worried about the debtor’s shutdown

The article with the title: “The creditor is worried about the debtor’s shutdown ” written by Lawyer Nguyen Van Quynh – Phuoc & Partners is published on Saigon Economic Times dated 21/03/2013.

***

Recently, a client has contacted an attorney to seek his assistance on a quite interesting affair. The story has it that the enterprise A has a stubborn debtor as the enterprise B who is in the process of shutting down its business. A is afraid of its failure to recover debts upon B’s closure, hence A submitted an official letter to the business registration authority and the tax agency where B registers its operation in order to inform the situation and suggest these two agencies disapprove of B’s dissolution procedure if B has not yet paid off all debts. A week later, A receives a reply letter from by these agencies rejecting A’s satisfaction due to no basis for dealing with A’s request and suggesting that A should initiate a lawsuit against B at the court under litigation procedures.

It is evitable that A’s legal action is initiated, however, if B is in time to conduct its dissolution before A completes lodging its petition dossier or before the court handles the case, hence, whom will A take legal proceeding against? Like A, the current creditors are predominantly left with worries amid the scenario where the enterprises remains intricately interlocked in debts. And a  careful review will let you see a big gap between the law and its reality.

The law: the enterprise shall discharge all its debts before dissolution

The Law on Enterprise 2005 regulates that an enterprise shall be dissolved only after paying off all its debts and other property liabilities (Article 157.2). With such a blunt structure of “only…when”, this provision clearly means a mandatory condition and it is obvious that there is no statute that supports or facilitates any easy debt cheating. Even, in order to be stricter, the Law on Enterprise also governs that the decision to dissolve an enterprise must clearly specify time-limit and debt payment procedures (Article 158.1), and such decision must be sent to all creditors within seven working days from the date of adopting together with the plan to settle debts. Within seven working days from the day of clearing all debts, the enterprise must submit its dissolution dossier to the business registration authority (Article 158.5).

The debtor on its own must implement and take full responsibility for all tasks related to its debts and creditors during the process of dissolution. The business registration authority shall deal with dissolution file of the enterprise in case of its appropriate and complete file, however, this authority is gives itself up to a feeling of inability to check the dossier accuracy because it cannot identify any accuracy as well as have no opportunity to do so. Even in case where the law requires the enterprise to submit a list of creditors and their confirmation on receiving any debt payment plan or any debt payments, such law will be deemed an “oblivion-lost” provision because it is impossible to be enforced in practice. The reason is that the business registration authority cannot know who the creditors of the enterprise are, how many they are and whether their confirmations are true. Furthermore, if the creditors know that a debtor seeks their confirmation in order to facilitate its dissolution progress, would they agree to do so for the debtor to erase its legal entity? Obviously, the existing simple dissolution procedure is problematic from the perspective of protecting the interests of creditors.

Amid the debtor enterprise’s dissolution, leaning on its willingness to pay debts is seen as an unsecure solution to the creditors. The litigation procedures are time-consuming and disabling. And it is a reasonable and legitimate measure for the creditors to protect themselves by sending any official letter to the business registration authority and the local tax agency to prevent such corporate dissolution.

 The business register agencies and tax agencies: paying debts is the enterprise’s business.

Pursuant to the written reply by the business registration authority in the said case, the creditors’ request for preventing the debtor enterprise from dissolving is ill-founded to be satisfied. The business registration authority only deals with such request to the order of the court with respect to a temporary emergency application that bans or enforces the concerned party’s conducting implement a certain behaviour pursuant to Article 102.2 of the Civil Procedure Code (Here is enforcing the debtor enterprise’s operation maintenance).

 How about the tax agency’s view? Having a direct conversation with me, an officer of the District Y tax agency that manages the tax dossier of a debtor enterprise acknowledges that, regardless of sensing the creditor’s worries, the tax agency searched and could not find any provision or regulation that allows for their failure to deal with tax finalization procedures and remove tax code of the enterprise under dissolution process in case of a request for intervention from any organization or individual declaring that the enterprise under dissolution has not yet cleared all debts.

The answer of the business registration authority and the tax agency is not unreasonable because the dissolved enterprise must be responsible on its own for honesty and accuracy of the dissolution dossier including its clearance of all debts. The provincial-level business registration authority is held responsible for notifying that an enterprise was dissolved and erased its name from the business register within seven working days from the date of receiving its appropriate dissolution dossier provided that the tax agency and the police department have not any other requirement with respect to such enterprise (Article 26 of Circular 14/2010 of the Ministry of Planning and Investment). Meanwhile, the tax agency have no foundation to make “other requirement” when they work with the business registration authority.

However, many people are questioning: the creditor enterprise requests a failure to implement dissolution procedures for the debtor enterprise prior to its lodging dissolution file and this may put the business registration authority and the tax agency in a “wavering mind”, but what if the creditor enterprise requests the same when the debtor enterprise put its dissolution on media release?

In accordance with the laws, the enterprise must display its dissolution decision at its main office and branch and have such decision posted on the National Enterprise Registration Information Portal (Article 8c of Decree 05/2013). This publication aims at keeping creditors, employees and stakeholders informed of the dissolution decision of the enterprise. Hence, what is the purpose of this information if it aims at something other than helping the involved people take some measures to protect their rights and benefits in the face of the dissolution decision of the enterprise? If that is the case, is it whether the business registration authority should satisfy the creditor’s request after the debtor enterprise publishes its dissolution decision while there is no applicable law governing such matter? Not to mention about the fact that the creditors are not always likely to be informed of the dissolution decision of the debtor enterprise in a press release or on the National Enterprise Registration Information Portal while they are entitled to economic interests related to the debtor and in need of appropriate protection.

Approach

As above analyzed, the fact that the creditors request the business registration authority to prevent such dissolution should also be deemed a notification about any dishonest dissolution file of the enterprise. At a logic glance, the business registration authority cannot ignore such notification.

It is necessary to have regulations that allow the business registration authority not to approve the debtor’s dissolution application if they receive the official letter from any organizations, individuals notifying of all debts not yet paid by the debtor. Of course, there must be any accompanying evidence.

In addition, it is possible to regulate that within a particular time-limit, if the requestor does not make a written notice about retaining the previous request, the business registration authority will handle any enterprise dissolution as stipulated. This waiting time is reasonable to determine whether a dissolution application is legitimate and honest. On the debtor enterprise’s part, once it pays up all debts, it is eligible to request the business registration authority to handle its dissolution application attached with its creditor’s confirmation on debt payment or request withdrawal.

In a sense, this approach sounds fairer to the creditors; because of the existing enterprise dissolution procedures, every year myriad enterprises are erased from the business register alongside with an “evaporation” of unpaid debts about which the creditor cannot do anything.