BUSINESS LAW Insolvency and Bankruptcy Group 6: Members Nguyn Thoi - - PowerPoint PPT Presentation

BUSINESS LAW

Insolvency and Bankruptcy

Group 6: Members

Nguyễn Thoại Ngọc. La Phương Thảo Huỳnh Huy Giang Nguyễn Thị Hồng Minh Nguyễn Giáng Hương

Out Outline line

Definition of insolvency, bankruptcy. Something important about bankruptcy

law.

Example.

Insolvency fall into the state lost, consecutive failures in business, must sell all property that is not enough to pay debts Business insolvency is defined in two different ways:

 Cash flow insolvency Unable to pay debts as they fall due.  Balance sheet insolvency Having negative net assets – in other words,

liabilities exceed assets. When a company becomes insolvency they must rectify the situation as soon as possible in order to avoid possible bankruptcy, by generating cash, minimizing overhead costs, cutting back on living expenses and settling or renegotiating current debts and debt repayments.

Bankruptcy:: status as a business due to loss-making and unable to pay due debt and the court, according to the law, decides the business liquidate their assets to pay debts for creditors. The conditions:

 The unsecured/partially secured debt has matured.  A request for payment of the debt has been made and the debtor has

failed to repay the debt.

 The bankruptcy of enterprises shall be carried out in accordance with

the law on bankruptcy. A state of insolvency can lead to bankruptcy but the condition may also be temporary and fixable without legal protection from creditors. Insolvency does not necessarily lead to bankruptcy, but all bankrupt debtors are considered insolvent.

The role of bankruptcy law:

 To protect legitimate interests of creditor, property of debtors are

maximized and pay equally for creditor.

 To protect rightful interests of debtor, free debtor from obligation of

paying and create chance to restart.

 To protect interests of employee, join recovering company and

liquidate property.

 Contribute to organize, structuralize economy, help company have

chance to save and escape from bankrupt situation; or select, eliminate weak company.

 Ensure society’s order: to set order and procedure of bankruptcy, limit

contradictions between debtor and creditor.

BA BANK NKRUPT UPTCY CY LA LAW

 Bankruptcy Law prescribes the conditions and the submission of

applications for opening of bankruptcy procedures; the determination

• f property obligations and measures to preserve property in

bankruptcy procedures; the conditions and procedures for restoration

• f business operation, the procedures for property liquidation and

bankruptcy declaration; the rights, obligations and responsibilities of the applicants for opening of bankruptcy procedures, of the enterprises and cooperatives requested for bankruptcy declaration and of the participants in the settlement of requests for bankruptcy declaration.

 (Chapter I, Article 1, Bankruptcy Law 2004)

Sub ubject ject of

• f Ap

Applic icati ation

• n

 Enterprises  Cooperatives  Unions of Cooperatives

“ This Law applies to enterprises, cooperatives, unions of cooperatives (cooperatives and unions of cooperatives are referred collectively to as cooperatives), which are established and operate according to law provisions.” (Bankruptcy Law 2004,Article 2, Clause 1)

Ef Effect ect of

• f Ba

Bank nkruptcy uptcy La Law

 1. The Bankruptcy Law and other law provisions shall apply

when settling the bankruptcy of enterprises, cooperatives

• perating in the territory of the Socialist Republic of

Vietnam, except otherwise provided for by international agreements which the Socialist Republic of Vietnam has signed or acceded to.

 2. Where there appears the difference between the provisions

• f the Bankruptcy Law and the provisions of other laws on

the same matters, the provisions of the Bankruptcy Law shall apply. (Bankruptcy Law 2004, Article 4, Clause 1 and 2)

Bankruptcy nkruptcy proc

• ced

edures ures

 The bankruptcy procedures applicable to enterprises which

fall into the state of bankruptcy are as follows:

• The submission of applications for, and opening of

bankruptcy procedures;

• The restoration of business operation;
• The liquidation of properties, debts;
• The declaration of bankruptcy of the company.

(Bankruptcy Law 2004, Art.5, clause 1)

Guaranteed creditors Partially guaranteed creditors Unguaranteed creditors Debts secured with properties of enterprises, cooperatives or the third persons. yes no

• Yes. But lower than

debt

App pplication lication for ope pening ning bankruptcy kruptcy pr procedures cedures

 Unguaranteed or partially guaranteed creditors  Representatives of the employees or trade union

representatives

 Shareholders or groups of shareholders of a joint stock

company

 Partnership members of a partnership company  The owner or the lawful representative of a company in

certain cases as provided may request the Court to open bankruptcy procedures when the enterprise is in bankrupt state. (Bankruptcy Law 2004, Article13,14,15,16,17)

Prop

• per

erty ty-managin managing g and nd liquidating uidating tea eams

A property-managing and -liquidating team is

composed of: a) An executor of the judgment-executing agency of the same level

as team leader; b) An official of the court; c) A representative of the creditor; d) The lawful representative of the enterprise or cooperative subject to the opening of bankruptcy procedures; e) In cases where it is necessary that the representative of the trade union organization, the laborers' representative, the representative

• f professional agencies join the property-managing and -

liquidating team, the judge shall consider and decide thereon. (Bankruptcy Law 2004, Article 9, clause 2)

Bankruptcy charges and advance of bankruptcy charges

 The applicants for opening of bankruptcy procedures must advance

bankruptcy charges under courts's decisions, except laborers defined in Article 14 of this Law.

 The bankruptcy charges shall be advanced by the State budget:

The applicants for opening

• f bankruptcy procedures

bankruptcy charges must not be advanced do not have money for payment, but have other assets

Th The cou e courts' ts' ju juris risdiction diction

• 1. The people's courts of districts or provinces have the competence to carry out bankruptcy

procedures for cooperatives which have already made their business registration at the district or provincial-level business registries in their respective localities.

 2. The provincial-level people's courts of the localities where foreign-invested enterprises in

Vietnam are headquartered have the competence to carry out the bankruptcy procedures for such foreign-invested enterprises.

(Bankruptcy Law 2004, Article 7)

Receipt of Application and Procedures at Court

Within thirty (30) days upon receipt of an application, a

decision will be issued to open or not open the bankruptcy procedures by the competent court upon careful consideration of the adequate evidences on the company’s bankruptcy. (bankruptcy law 2004, article 28)

Com

• mplai

plaints nts abo bout ut deci ecisions sions not t to

• pe

pen n bankruptcy kruptcy pr procedures cedures

 Within seven (07) days as from the date of receiving the decisions not

to open the bankruptcy procedures, the applicants shall have the right to complain there about to the chief judges of such courts.

 Within five (05) days as from the date of receiving the complaints

about decisions not to open bankruptcy procedures, the courts' chief judges must issue one of the following decisions: a) To retain the decisions not to open bankruptcy procedures; b) To cancel the decisions not to open the bankruptcy procedures and issue decisions to open the bankruptcy procedures. (bankruptcy law 2004, article 32)

Notif Notifica ication tion of

• f deci

ecisi sions

• ns to op
• open

en th the e bankruptcy nkruptcy pr procedures cedures

 Within seven (07) days as of the issuance of the decision on opening

bankruptcy procedures (bankruptcy law 2004, article 29)

the court must notify

the procuracies of the same level local newspapers

the central dailies for 3

consecutive issues. creditors debtors

Tas asks, ks, power ers s an and responsi ponsibil bilities ities of th the prope perty ty-mana managing ging an and -li liquidating uidating tea eams ms

a) To make the lists of available properties of enterprises; b) To supervise and examine the use of properties of enterprises,; c) To decide on the application of provisional emergency measures to preserve the properties of enterprises in case of necessity; d) To make lists of creditors and debt amount payable to each creditor; the debtors and receivable debt amounts of the enterprises; e) To retrieve and manage properties, documents, accounting books and seals of the enterprises; f) To realize the plans on property division under decisions of judges; g) To detect and propose judges to issue decisions to recover properties, property value or the difference of the value of the properties of enterprises or cooperatives subject to the application

• f liquidation procedures

h) To execute the judges' decisions to auction properties of the enterprises, cooperatives subject to the application of liquidation procedures strictly i) To deposit money amounts collected from debtors and from auction of properties of the enterprises, cooperatives into accounts opened at banks; j) To execute other decisions of judges in the course of carrying out the bankruptcy procedures.

(Bankruptcy Law 2004, Article 10)

Ba Banned ned or restri trict cted ed ac acti tivities ities of enter erpr prise ises, s, co cooperat

• perativ

ives es during ng ba bankruptcy ruptcy procedu cedures. res.

 1. As from the date of receiving the decisions to open the

bankruptcy procedures, the enterprises or cooperatives are strictly forbidden to carry out the following activities: a) Concealing, dispersing assets; b) Paying unsecured debts; c) Abandoning or reducing the right to reclaim debts; d) Converting unsecured debts into those secured with assets of the enterprises.

 2. After receiving the decisions to open the bankruptcy procedures,

the following activities of the enterprises or cooperatives must be agreed upon in writing by judges before they are carried out: a) Pledging, mortgaging, transferring, selling, donating, leasing assets; b) Receiving assets from transfer contracts; c) Terminating the performance of effective contracts; d) Borrowing money; e) Selling, exchanging stocks or transferring property ownership; f) Repaying debts newly arising from business activities of the enterprises or cooperatives and paying wages to laborers in the enterprises or cooperatives.

(Bankruptcy Law 2004, Article 31)

De Deter ermi mina nati tion

• n of
• f prop
• per

erty ty ob

• blig

igations ations

 The property obligations of the enterprises or cooperatives which fall

into the state of bankruptcy shall be determined by:

1.

The demands that the enterprises fulfill their property obligations, which have been established before the courts receive the applications for opening of bankruptcy procedures and are not secured;

2.

The demands that the enterprises or cooperatives fulfill the secured property obligations established before the courts receive the applications for opening of bankruptcy procedures, provided that the payment priority order has been cancelled.

(Bankruptcy Law 2004, Article 33)

Handli ndling ng of

• f deb

ebts ts se secured ured wi with th mo mortg tgaged aged or

• r

pl pled edged ged ass ssets ts

 The debts secured with properties mortgaged or pledged before the

courts receive the applications for opening of bankruptcy procedures shall be prioritized with repayment by such properties.

< <

(Bankruptcy Law 2004, Article 35)

debts the value of the mortgaged or pledged property the value of the mortgaged or pledged property

the outstanding debts shall be repaid in the course

• f liquidating the

properties of the enterprises the difference shall be added to the value of the remaining properties of the enterprises

Pr Prop

• per

erty ty-di divid vidin ing g or

• rde

der



After all guaranteed debts are paid off by the pledged and mortgaged assets, the division and liquidation of enterprises’ remaining assets shall be carried out in the following order as determined by the judge:

1.

• Bankruptcy charges;

2.

• Debts of salary, severance allowances, social insurances of employees of the company;

3.

• Unguaranteed debts shall be dealt with in accordance with the List of creditors as

determined by law.



Where the value of the property of the enterprises or cooperative remains surplus after the repayment

• f all debts prescribed in Clause 1 of this Article, the remaining amounts shall belong to:

1.

The cooperative members;

2.

The owners of private enterprises;

3.

The members of companies; the shareholders of joint-stock companies;

4.

The owners of State enterprises. (Article 37, Bankruptcy Law 2004)

Proper

• perty

ty ob

• bligations

igations in case se of

• f joi
• int

nt or

• r

gu guarant ranteed eed oblig igations ations

 Where many enterprises bear joint obligation toward a debt and one or

all of those enterprises or cooperatives fall into the state of bankruptcy, the creditors shall have the right to demand any of those enterprises to repay their debts according to law provisions

(Bankruptcy Law 2004, Article 39)

Falling into the state of bankruptcy Fulfilling the property obligations towards the guarantees.

guarantors guaranteed guaranteed or both the guarantors and the guaranteed guarantors

Trans nsacti actions

• ns co

cons nsid ider ered ed in invalid id

 Within three (03) months before the courts receive the applications for

• pening of bankruptcy procedures, the following transactions shall be

considered invalid: a) Donating moveables or immoveables to other persons; b) Liquidating bilateral contracts in which the obligations of the enterprises are clearly larger than the obligations of the other party; c) Repaying undue debts; d) Mortgaging or pledging properties for debts; e) Other transactions aiming to disperse properties of the enterprises or cooperatives.

(Bankruptcy Law 2004, Article 43)

Proper

• perties

ties of

• f en

enter erprises prises or

• r coo
• operativ

peratives es wh which ch fall ll into th the e st state e of bankruptcy nkruptcy

a) The assets and property rights of enterprises at the Court accepts the petition for bankruptcy procedures b) The profits and assets that business transactions before the Court the petition. c) Collateral is paid to unsecured creditors if assets exceed liabilities, the excess

• f the assets of the business

d) The value of land use rights of enterprises is determined according to the law

• n land.

 The assets of private enterprises, partnerships fall into bankruptcy, including

assets specified in clause 1 of this Article and property of private owners, general partners are not directly used in the operation business. Where private enterprise owners or partnership members have properties under joint

• wnership, this properties shall be divided according to the provisions of the

Civil Code and other relevant law provisions.

(Bankruptcy Law 2004, Article 49)

Registra istration tion of secured cured tr tran ansa sacti ctions

• ns of ent

nter erprises prises wh which ch fal all l into

• th

the e sta tate e of ba bankruptcy ruptcy

 Enterprises lease their secured properties to others, must make

registration according to law provisions.

 If not, the property-managing and - liquidating team leaders must

effect the registration of such secured transactions.

(Bankruptcy Law 2004, Article 54)

App pplicat lication ion of

• f pr

provisional visional em emer ergency gency me measures sures

 In necessary cases at the requests of the property-managing and -

liquidating teams, the judges shall issue decisions to preserve the properties of the enterprises:

• 1. Permitting the sale of goods easy to decay, goods with use duration

going to expire, goods which will be unsalable if not being sold at due time;

• 2. Distraining, sealing off properties;
• 3. Blocking accounts;
• 4. Sealing off storehouses, funds, seizing and managing the accounting

books and relevant documents;

• 5. Forbidding or compelling enterprises, cooperatives, individuals, other

relevant organizations to perform certain acts.

(Bankruptcy Law 2004, Article 55)

Com

• mplai

plaints nts abo bout ut deci ecisions sions on

• n app

pplicat lication ion

• f pr

provisiona visional em emer ergenc gency y me measures sures

 Within three (03) days as from the date of receiving the courts'

decisions on the application of provisional emergency measures, the enterprises may complain to the courts' chief judges.

 Within three (03) days as from the date of receiving the written

complaints about the decisions on application of provisional emergency measures, the courts' chief judges must issue one of the following decisions: a) To retain the decisions on application of provisional emergency measures; b) To cancel part or whole of the decisions on application of provisional emergency measures.

(Bankruptcy Law 2004, Article 56)

Sus uspension pension of

• f civil

il jud udgm gmen ent t execu ecution tion or

• r

case se set settle tlement ment

 Ex: Company A disputes with the company B to a purchase contract,

another court considers and settles. These disputes will involve the interests of both parties (revenue or profits). Suddenly company B applies for opening of bankruptcy procedures, the dispute between A and B should be temporarily suspended, two cases can happen:

 If B is true in dispute, this profits or revenues will be scheduled

management team determine to repay the debt if B fails on state of bankruptcy.

 If B is false in dispute, A will become a guaranteed creditor or

unguaranteed creditor and the Management team will address property- dividing order provisions in the bankruptcy laws in 2004.

Settlement ettlement of

• f su

susp spended ended cases ses in ba bankruptcy nkruptcy pr procedures cedures

 Ex: Company A and Company B disputed in civil courts about the

contract rents long-term business signed before due. A suddenly falls in state of bankruptcy. Civil court must suspend the settlement of disputes A and B and forward the case file to the Court is addressing the bankruptcy procedures for A. When receiving dossiers, two cases can happen:

1.

The bankruptcy Court decided to A lose - B win, then B is considered a unguaranteed creditor and may demand payment of the value of B’s winning from the assets of Company A.

2.

The bankruptcy Court decided to A win - B lose, then B must pay to a value equal to financial obligations.

Ob Obligations gations of

• f ba

banks ks wh wher ere e en enter erprises prises or

• r

cooperativ peratives es ope pen th thei eir r acco ccounts unts

 As from the date of receiving the courts' decisions on the application

• f liquidation procedures to enterprises, the banks where the

enterprises open their accounts are strictly forbidden to perform the following acts:

1.

Paying debts of enterprises, except for the payment agreed in writing by the judges.

2.

Performing any acts to clear or pay amounts borrowed from the banks by enterprises

(Bankruptcy Law 2004, Article 59)

Creditors’ Conferences and Business Reorganization

 The creditors’ conference is convened and presided over by the judge for

adopting matters in relation to:

1.

seizing properties of enterprise,

2.

plan on business reorganization,

3.

plan on property liquidation

4.

• ther related issues.

 Right to participate in the creditors' conferences: 1.

The creditors included in the lists of creditors.

2.

The laborers' representatives, the trade union representatives.

3.

The guarantors who have already repaid debts for the enterprises

• r cooperatives which fall into the state of bankruptcy.

(Bankruptcy Law 2004, Article 62)

 Conditions for creditors' conferences to be valid: 1.

They are participated by more than half of the unguaranteed creditors representing two-thirds or more of the total unsecured debt amounts;

2.

They are participated by the persons with obligation to participate in the creditors' conferences, defined in Article 63 of this Law.

(Bankruptcy Law 2004, Article 65)

Condi nditions tions for app pplica licati tion

• n of bus

usines ness s

• pe

perat ration ion res estoration ration pr procedures cedures

 The judge may issue a decision to effect the plan on business

reorganization which has been adopted by the first creditors’ conference.

 Within thirty (30) days as from the date the first conferences of

creditors adopt the resolutions, the enterprises must work out plans to restore their business operations and submit them to the courts

(Bankruptcy Law 2004, Article 68)

Con

• ntents

ents of

• f pl

plans ans on

• n bu

busi siness ness op

• peration

eration res estoration ration

1.

Mobilizing new capital;

2.

Changing goods of production and/business;

3.

Renewing production technologies;

4.

Reorganizing the managerial apparatus; merging or dividing production sections in order to raise productivity and production quality;

5.

Reselling shares to creditors;

6.

Selling or leasing unnecessary properties;

7.

Other measures not contrary to law.

(Bankruptcy Law 2004, Article 69)

Con

• nsi

side deri ring ng bus usine ness ss op

• per

erati tion

• n re

rest storat

• ration

ion plans ns bef efor

• re

e th they a y are re pr pres esen ented ed at t cre redi ditor

• rs'

s' con

• nfer

eren ences es

 Within fifteen (15) days as from the date of receiving the business

• peration restoration plans, the judges must consider the following

decisions:

1.

To present the plans at creditors' conferences

2.

To request the amendment and/or supplementation of the plan if fail to the contents prescribed in Article 69 of this Law.

(Bankruptcy Law 2004, Article 70)

Con

• nsidera

sideration tion and d ado doption ption of

• f pl

plans ans on

• n

bus usines ness s ope perat ration ion res estoration ration

 Within ten (10) days as from the date of deciding to present the plans

before creditors' conferences, the judges must convene the creditors' conference to consider and adopt the restoration plans.

 The conferences consider and discuss the business operation restoration

plans. Be voted for by more than half of the present unguaranteed creditors representing two-thirds or more of the total unsecured debts ->plans for restoration of business operations of enterprises will be adopted.

(Bankruptcy Law 2004, Article 71)

 The courts must send the decisions to recognize the creditors'

conference's resolutions on business operation restoration plans within 07 days as from the date of issuing the decisions.

 These resolutions are binding on all parties concerned.

(Bankruptcy Law 2004, Article 72)

 Supervising the implementation of business operation restoration plans: 1.

Once every six months, cooperation must send to the courts their reports on the implementation of business operation restoration plans.

2.

The creditors are obliged to supervise the implementation of plans

• n restoration of business operations of the enterprises

 The implementation of plans on business reorganization shall be no

longer than 3 years.

(Bankruptcy Law 2004, Article 73,74)

De Decis cision ion to o

• ope

pen n pr prop

• per

erty ty liquid uidation ation pr procedures cedures in sp spec ecial ial cases ses

The implementations of business reorganization measures could not

afford to repay the enterprise’ due debts at the creditors' requests; the courts shall issue decisions to open the procedures for liquidation of the enterprises' properties without having to convene the creditors' conferences.

(Bankruptcy Law 2004, Article 78)

De Decis cision ion to o

• pe

pen n pr proper perty ty liquid uidation ation pr proc

• ced

edures ures wh when en th the e credit editor

• rs'

s' con

• nferenc

erences es fail il

 - The creditors’ conferences fail due to absence of owners of company

• r lawful representative of the company at the creditors' conferences, or

due to insufficient quorum of creditor participants in the creditors' conferences;

 Where there are not enough creditors defined in Clause 1, Article 65 of

this Law to participate in the creditors' conferences after the creditors' conferences were postponed once if the applicants for opening of the bankruptcy procedures fall into the cases prescribed in Articles 15, 16, 17 and 18 of this Law.

(Bankruptcy Law 2004, Article 79)

Deci ecision sion to open en th the e prope perty ty li liquidation idation proce cedures dures af after th the e ad adopt

• ption

ion of th the e resol solutions utions of th the first t co conf nference erences s of cr credi ditors

 After the first conference of creditors adopts the solutions to reorganize

business operation, the courts shall decide to open procedures for liquidation of properties of the enterprises in one of the following cases:

• 1. The enterprises or cooperatives cannot draw up plans for business
• peration restoration within the time limit prescribed in Clause 1,

Article 68 of this Law;

• 2. The creditors' conferences fail to adopt plans on restoration of business
• peration of enterprises or cooperatives;
• 3. The enterprises have implemented improperly or fail to implement the

business operation restoration plans, except otherwise agreed upon by the involved parties.

(Bankruptcy Law 2004, Article 80)

Activi tivities ties of

• f en

enter erprises, prises, coo

• operat

perativ ives es in th the e cour urse se of pr proper perty ty liquidation uidation

The judges may issue decisions permitting the enterprises

• r cooperatives to conduct a number of activities necessary

for the property liquidation or for the increase of the properties of such enterprises or cooperatives. (Bankruptcy Law 2004, Article 82)

De Decl clari aring ng ban ankruptc ruptcy y of

• f en

enterpr erpris ises, es, co coope

• perativ

atives es

 Upon the completion of the liquidation, the Court will deliver a

decision on the declaration of bankruptcy of the company as well as a decision on the completion of the liquidation. (Bankruptcy Law 2004, Article 86)

Proper

• perty

ty obligati igations

• ns up

upon th the e iss ssuance uance of deci ecisions sions to d

• declare

eclare ba bankruptcy nkruptcy of

• f

en enter erpris prises, es, cooperativ peratives es

 The decisions to declare bankruptcy of enterprises do not immunize the

property obligations of owners of private enterprises or partnership members towards creditors whose debts have not yet been repaid

 The property obligations arising after the issuance of the decisions to

declare bankruptcy of enterprises shall be settled according to law provisions on civil judgment execution and other relevant law provisions. (Bankruptcy Law 2004, Article 90)

Liabilities abilities for law w violations lations in th the c e cour urse se of carr rrying ying out ut th the ba e bankruptcy nkruptcy pr procedures cedures

 Those who commit acts of law violation in the course of

carrying out the bankruptcy procedures shall be disciplined, administratively sanctioned or examined for penal liability; if causing damage, they must pay compensations therefore according to law provisions.

Ex Example ple of Ba Bankr kruptc uptcy y in Vietna etnam Vinas nashin hin

• 1. A short history of Vinashin

 The Vietnam Shipbuilding Industry Group (Vinashin), formally known as the

Vietnam Shipbuilding Union, was set up in 1972 to consolidate the country’s shipbuilding industry. It is the largest shipbuilder in Vietnam by capacity, accounting for approximately 70 to 80 percent of total domestic capacity and is

• ne of the largest state-owned enterprises in Vietnam.

 Vinashin’s businesses include shipbuilding, ship repair, shipping, heavy industries

and other related services in Vietnam and abroad, and it is a holding company with over 160 subsidiaries, includes 39 shipyards with the capability to build modern ships, oil tankers and other equipment.

 Vinashin’s shipyards and industrial complexes are located throughout the

country, in 34 out of Vietnam’s 64 coastal provinces.

• 2. The downfall of Vinashin

 As of June 2010, Vinashin faced debts totalling VND86 trillion (about US$4.5 billion) while its

total assets were worth VND104 trillion (about US$5.4 billion). As a result, from nearly 200 invested projects, Vinashin has by 2010 focused on only 13 shipbuilding projects.

 The group is on the verge of bankruptcy, and nearly 17,000 workers have resigned and 5,000

• thers have lost their jobs.

 Twelve subsidiaries and five projects of Vinashin were handed over to the Vietnam Oil and Gas

Group (PetroVietnam) and the Vietnam Shipping Lines Corporation (Vinalines).

Example of Bankruptcy in Vietnam Vinashin

• 3. Causes of the downfall

 The subjective cause is the main one, being Vinashin leadership’s management

weaknesses and wrongdoings. The group’s leadership made numerous decisions contrary to Vietnamese law, inaccurately reported the use of capital for investment, the establishment of new companies, business lines and production performance, and even made foolish mistakes relating to the use of investment capital.

 The group’s reckless expansion, and scattered investments and financial problems

brought it to the brink of bankruptcy, resulting in a standstill of much of its business and its investment projects. Internal troubles also caused nearly 17,000 of its workforce to leave the group.

 According to the government, in 2006, the Vietnamese Prime Minister already

• rdered the examination and monitoring of Vinashin’s capital mobilisation and use,

and requested the group to cut many invested projects and focus on those involving modernising and upgrading new shipbuilding facilities.Inefficient use of capital is Vinashin’s major problem. Its investment and financial management was loose and

• ineffective. Facing a cash flow crisis, Vinashin took out new loans to pay old debts

and borrowed short-term to pay long-term debts. It even used working capital as investment capital. Its losses in 2009 were heavy. By June 2010, though its total assets were estimated at VND104trillion (about US$5.4 billion) its liabilities had risen to VND86 trillion(about US$4.5 billion).

Example of Bankruptcy in Vietnam Vinashin

• 4. The settlement of government

 On August 12, the Prime Minister established a steering committee to restructure Vinashin.

Permanent Deputy Prime Minister Nguyen Sinh Hung will be in charge of the committee while another Deputy Prime Minister, Hoang Trung Hai, was named as vice chair, demonstrating the seriousness of the situation. The 14 other members are representatives from relevant ministries, branches and sectors.

 The committee’s task is to study the situation and propose policies and other remedies for

Vinashin, as well as to organise the implementation of these policies and measures to enable it to stabilise and develop its business. The committee also gives instructions to the mass media in disseminating information on Vinashin’s situation and the government’s plans.

 The committee is composed of two working groups and a coordinating section. Working

Group No. 1 is in charge of organisational restructuring, development strategy, and the direction of investment, production and business lines for Vinashin. Working Group No. 2 is responsible for reshaping Vinashin’s financial structure to ensure that it is able to cover debts, production, business and investment activities.

 The government’s policy is to restructure Vinashin with the objective of reducing its debt,

restoring capital and cutting losses to a minimum. In particular, the government aims to prevent the Vinashin case from negatively affecting macro-economic stability and the investment environment in Vietnam. The state will ensure sufficient capital to Vinashin to pay

• ff mature foreign debts. Vinashin’s mission will be to restructure production loans and debts

to suppliers while completing projects.

Example of Bankruptcy in Vietnam Vinashin

• 5. Lesson learned

 Too much authority was given to the group chairman Pham Thanh Binh. He

should have been restricted to making investment decisions within an approved investment plan.

 The trial period for the establishment of state-owned groups meant there

was no foundation for working out guidelines for their operation in time.

 Authorities and agencies failed to discover the group’s serious shortcomings

and faults from 2006 to 2009, despite many warnings from the public and mass media,

 Other state-run economic groups and corporations must be examined,

inspected and evaluated accurately, and their financial situation and production and business performance should be disclosed publicly and transparently.

 The government should be urged to promptly keep a close watch on these

groups and corporations when they expand their investment into fields

• utside of their main business, and harmonise the interests of all parties

involved.

Example of Bankruptcy in Vietnam Vinashin

References

http://www.hg.org http://www.luatviet.com http://www.luatphasan.net

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