BizCLIR

On 15 October 2004, a new Bankruptcy Law replaced Vietnam’s previous legal framework (a law and decree that had taken effect in 1993) that addressed the dissolution or reorganization of insolvent enterprises. Practicing lawyers and state officials generally view the new Bankruptcy Law as an improvement over its predecessor because it clarifies and streamlines the conditions under which companies that cannot pay their debts may enter into bankruptcy. The new law is not yet relevant or useful, however, to the communities that need it most—Vietnam’s increasingly large number of registered private enterprises and their stakeholders, including investors, creditors, and employees. Rather, critical rehabilitation and liquidation procedures established by the law are vague and incomplete. Regulations that might resolve these deficiencies are still undeveloped.

The institutions charged with implementing the new Bankruptcy Law—in particular, the Economic Courts and Trustee Committees—are ill-equipped to handle bankruptcy effectively and on a meaningful scale. Similarly, there is virtually no capacity within the supporting environment—including valuation professionals, lawyers who are fully versed in the bankruptcy process, or even the media—to bolster implementation of the law.

Perhaps most importantly, the social dynamics relating to enterprise insolvency in Vietnam do not support the use of bankruptcy law as a positive force in the Vietnamese economy: bankruptcy is not viewed as a mechanism for reducing risk faced by lenders and other investors, for restoring stalled assets into productive use, or for improving a country’s overall competitiveness. Instead, the emphasis of the law itself and its use since enactment unduly focus on punishing officers and directors who oversee insolvent companies, further stigmatizing business failure. Although insolvency law indeed can be a useful tool for encouraging improved enterprise oversight, the failure of a business should not be viewed inherently as a disgraceful event or a reason to bar an individual from future entrepreneurial endeavors. Vietnam’s challenges with respect to bankruptcy thus lie in promulgating regulations that remedy the deficiencies of its existing framework, strengthening the capacities of key bankruptcy-related institutions, and changing the mindset among businesspeople, lawyers, government officials, and the public about the fundamental importance of bankruptcy law in a market economy.