Dissolution and bankruptcy are completely different legal properties, thus the required procedures for the dissolution and bankruptcy of enterprises are also different. This article explores the fundamental differences between dissolution and bankruptcy to help readers understand these separate processes and their implications in various contexts.
According to Article 207 of the Law on Enterprises (2020), an enterprise can choose to dissolve when:
- The operating term stated in the company charter ends with the absence of a decision to extend;
- According to resolutions and decisions of the: business owner for private enterprises, Board of Members for partnerships, Board of Members and company owners for limited liability companies and the General Meeting of Shareholders for joint stock companies;
- The company no longer has the minimum number of members required by the Law on Enterprises for a period of 06 consecutive months without carrying out procedures for converting the type of business;
- Business registration certificate revoked, unless otherwise stipulated by the Law on Tax Administration.
It should nonetheless be noted that enterprises can only be dissolved when they ensure payment of all debts and other property obligations, and not during the dispute resolution process at Court or Arbitration.
Meanwhile, enterprises are declared bankrupt by a competent Court when they are unable to pay due debts and have an application from the subject entitled to request.
2. Settlement procedures
Subject requesting dissolution: The enterprise’s own competent body is the subject that approves the decision, or resolution to carry out dissolution procedures for the enterprise. Example: The Board of Members and the General Meeting of Shareholders.
The time limit for submitting dissolution registration documents: within 7 working days from the date the resolution, dissolution decision, and dissolution meeting minutes are approved
Subject to receiving and processing: Business registration agency. After that, the Business Registration Authority sends the dissolution registration dossier to the Tax Authority for comments on the enterprise’s completion of tax obligations.
Note: Before registering for dissolution, the enterprise must terminate the operations of business locations, representative offices, and branches (if any).
- Subject requesting bankruptcy: when an enterprise is unable to pay due debts including salaries and allowances of employees, the following subjects have the right to request a declaration of bankruptcy:
- The creditor, at the end of the 3-month period from the date the debt’s enterprise is due,
- Employees, grassroots trade unions, and direct superior grassroots unions in places where a grassroots union has not yet been established shall expire within 3 months from the date on which the enterprise’s obligation to pay salaries and other debts must be fulfilled for employees that the enterprise does not comply with;
- The legal representative of the enterprise is obliged to file a request to open bankruptcy proceedings against the enterprise
- Owner of a private enterprise, Chairman of the Board of Directors of a joint stock company, Chairman of the Board of Members of a limited liability company with two or more members, owner of a one-member limited liability company, a general partner of a partnership is obliged to file a request to open bankruptcy proceedings;
- Shareholders or groups of shareholders owning 20% or more of common shares for at least 06 consecutive months have the right to file a request to open bankruptcy proceedings or other ratios as prescribed by the Charter.
A competent Court’s Processing time is within 30 days from the date of accepting the request to open bankruptcy procedures, the Court will issue a decision to open or not open bankruptcy procedures, except in cases of settlement according to simplified procedures.
3. Legal consequences
Dissolution of an enterprise leads to the termination of the enterprise’s operations and the enterprise’s name is deleted from the business registration book.
Meanwhile, the request to open bankruptcy proceedings for an enterprise does not always lead to the termination of business operations by being declared bankrupt by the Court. Enterprises may have the opportunity to restore business operations through negotiations with creditors and develop a business recovery plan approved by the Creditors’ Conference. The implementation of this business recovery plan will be supervised by the Asset management officer, the asset management and disposal enterprise, and reported to the Judge and creditors.
4. Right to establish and manage other enterprises
The owner of a dissolved enterprise can continue to establish and manage another business after fulfilling his or her property obligations.
On the contrary, both the business owner and the manager of a bankrupt business are prohibited by law from establishing and managing a new business for 3 years, except in cases of bankruptcy due to force majeure circumstances beyond the control of the enterprise. For example: fires, wars, natural disasters, epidemics, riots, strikes, economic crises, state legal policies change or the state where the enterprise does business changes its policies. They lead to heavy losses for the business, being unable to continue operating and being forced to go through bankruptcy procedures.
Thus, bankruptcy and dissolution have completely different legal natures, meaning each comes with different rights and obligations for the enterprise. The subjects receiving and processing dissolution registration documents and bankruptcy declaration requests are also completely different with clearly differentiated sequences and procedures. Therefore, enterprises need to recognize the difference between these two forms to make appropriate choices according to the actual situation of the business and the owner’s business orientation.