Different results for dissolution and bankruptcy

Wednesday, Nov 05, 2014 08:07

Both dissolution and bankruptcy lead to the termination of a company's activities. However, their causes, settlement procedures and legal consequences, as well as the resultant liabilities of the proprietor are very different.

First: The cause

According to the Law on Enterprises (2005), there are many reasons that lead to the dissolution of an enterprise, namely:

(i) The duration of operation as stated in the company charter has expired, and yet there is no decision on extension;

(ii) The owner of a private enterprise; all the general partners of a partnership; the council members and the proprietor of a limited liability company; or the general meeting of shareholders of a joint stock company decide to dissolve the firm;

(iii) The enterprise fails to maintain the minimum number of members as prescribed by law for six consecutive months;

(iv) The enterprise's business registration certificate has been revoked.

However, it is important to know that an enterprise is permitted to be dissolved only when all its debts and other liabilities are guaranteed to be fully paid.

Meanwhile, a competent court can declare an enterprise bankrupt as provided by law, once it loses its ability to repay its debts and those requested by the creditors.

Second: Settlement procedures

During the dissolution, the enterprise is required to issue a written decision, including all the contents prescribed by law. The decision must be sent to the business registration office; all creditors; and persons with relevant rights, obligations and benefits; as well as its employees. In addition, it is mandatory that such decision is publicly displayed at the headquarters and branches of the enterprise. Furthermore, within seven working days, commencing from the date of payment of all debts, the enterprise must file the dissolution dossiers with the business registration office to have its name deleted from the business registration book. In case the business registration certificate is revoked, the enterprise must be dissolved within six months from the date of revocation of the certificate.

Once they are aware of the fact that an enterprise is going bankrupt, the creditors and employees are entitled to submit a petition for commencement of the bankruptcy proceedings, while the legal representative of that enterprise is obliged to do so. If there are grounds to prove that the enterprise is going bankrupt, the court will decide on the commencement of bankruptcy proceedings and inform the firm along with its creditors and debtors. This decision will be published in local and national newspapers. Depending on the actual situation of the enterprise, the court may decide to apply recovery procedures on the enterprise's business activities, or skip them in case of the enterprise's inability to recover, and if necessary, move onto the phase of liquidation of assets. The distribution of corporate assets is carried out in the following order: bankruptcy fees; unpaid wages, severance allowances and social insurance; and unsecured debts.

After the division of corporate assets, the remaining assets will go to the owner of a private enterprise, or members and shareholders of other entities. Finally, the judge will decide on declaring an enterprise bankrupt after applying fully or partially the bankruptcy proceedings as described above.

Third: Legal consequences

While the dissolution of a firm leads to cessation of business, bankruptcy does not lead to complete termination of an enterprise's activities if it is able to resume them after filing a request for declaration of bankruptcy.

Fourth: The right to establish and/or administer another business

The owner of a dissolved enterprise may continue to establish and administer another enterprise after fulfilling his asset obligations.

On the contrary, both the owner and manager of a bankrupt enterprise are prohibited by law from establishing and administering a new enterprise within the period of one to three years, except in cases of bankruptcy due to force majeure and beyond the control of the enterprise (for instance, fire, war and natural disasters, as well as epidemics, riots and strikes, besides economic crisis, when the State of Viet Nam changes its legal policies or the State where the enterprise carries out business co-operation and modifies its policies, etc.), leading it to experience serious losses, making it unable to maintain operations. Thus, the firm will be required to begin procedures for bankruptcy declaration. — PLF LAW FIRM

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