What options exist in Vietnam for restructuring an insolvent company and protecting creditors' interests?

Question:

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Our company is insolvent and we want to pursue restructuring under Vietnamese law. What formal processes exist, who can initiate them, and how long does the process take? What are the implications for creditors, employees, and existing contracts?

The answer:

In Vietnam, corporate restructuring in an insolvency context is mainly governed by the Law on Bankruptcy 2014, which provides a formal, court-supervised framework, alongside certain practical restructuring solutions commonly used in the market.

1. Formal restructuring mechanisms under Vietnamese law

Vietnam does not have a standalone “restructuring law” comparable to Chapter 11 in some jurisdictions. Instead, restructuring is embedded within bankruptcy proceedings, with the following main pathway:

Court-supervised bankruptcy with a rehabilitation plan
Once bankruptcy proceedings are opened, the debtor may propose a business rehabilitation (restructuring) plan. If approved by creditors and recognized by the court, the company can continue operating under the agreed plan instead of being liquidated. If no plan is approved or implementation fails, the process will move toward liquidation and bankruptcy declaration.

Certain sectors, such as credit institutions, are subject to separate supervisory or special control regimes, which may precede or replace standard bankruptcy procedures.

In parallel, companies often explore contractual or consensual restructuring (debt rescheduling, partial repayment, asset disposals, capital restructuring, M&A). These are not governed by a dedicated statute and rely heavily on creditor agreement, but they are commonly used in practice before or alongside formal filings.

2. Who may initiate insolvency and restructuring proceedings?

A bankruptcy petition may be filed by several parties, including:

– The company itself, through its legal representative (who may have a statutory duty to file once insolvency conditions arise);

– Creditors, typically when undisputed debts remain unpaid for three months after maturity;

– Employees or trade unions, in cases of prolonged unpaid wages or employee-related obligations.

Once proceedings are opened, restructuring becomes a collective process under court supervision rather than individual enforcement.

3. Timing and duration

Statutory timelines exist for key procedural steps (such as acceptance of the petition, opening of proceedings, creditor meetings, and consideration of a rehabilitation plan). However, in practice, the overall duration can vary significantly, ranging from several months to multiple years, depending on factors such as:

– Number and complexity of creditors;

– Disputes over claims or secured assets;

– Operational viability of the business;

– Cross-border elements or asset tracing issues.

4. Impact on creditors

The bankruptcy framework is designed to protect creditors collectively, rather than allowing a race for enforcement. Key implications include:

– Restrictions on certain payments and transactions after proceedings commence;

– Differentiation between secured and unsecured creditors, with secured creditors generally enjoying stronger protection, subject to court oversight;

– Creditors’ meetings and voting playing a central role in approving any rehabilitation plan;

Mechanisms to challenge or invalidate transactions that unfairly prejudice creditors prior to insolvency.

5. Impact on employees

Employees are treated as priority stakeholders under Vietnamese law. Claims relating to unpaid wages, severance, and mandatory insurance contributions rank high in the statutory payment order. Employees (or their representative bodies) also have standing to initiate proceedings in qualifying cases.

6. Impact on existing contracts

Insolvency proceedings can significantly affect contractual relationships:

– Certain contracts may be suspended, renegotiated, or terminated, depending on their nature, governing law, and the stage of proceedings;

– A formal bankruptcy declaration may result in termination of some contracts by operation of law;

– In practice, companies often need to strategically assess which contracts are essential to preserve the business during restructuring and which should be exited.

7. How we can assist

At La Défense, we advise both debtors and creditors on insolvency and restructuring matters in Vietnam. Our services include:

– Assessing restructuring feasibility and legal risks;

– Advising on whether to pursue out-of-court workouts or court-supervised rehabilitation;

– Preparing and managing bankruptcy and restructuring filings;

– Representing clients in creditor negotiations and court proceedings;

– Protecting creditor interests and enforcing or restructuring claims.

Each insolvency situation is highly fact-specific, and early legal assessment is critical to preserving value and minimizing exposure.

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What options exist in Vietnam for restructuring an insolvent company and protecting creditors’ interests?