Nguyen Cong Phu, Deputy Head of the HCM City Economic Court, has noted that state owned businesses only file for bankruptcy when they are instructed by the governing bodies, while they do not do that spontaneously.
Meanwhile, private run businesses only declare the bankruptcy under the pressure of creditors. Only when creditors chase to ask for debts back and threaten to assault, will businesses file for bankruptcy to prove that they have no more assets to escape from creditors.
More harm than good
Phu believes that in most cases, businesses do not want to declare the bankruptcy because they cannot see the benefits in doing this.
Creditors – laborers usually do not force the business owners to file for bankruptcy once they can get their salaries from the bosses already. Besides, laborers do not have deep knowledge about the laws, and they do not have time and financial conditions to raise and follow the lawsuits.
Meanwhile, bankers, also creditors, always hold the assets of the debtors, which are used as the collaterals for the loans. Therefore, bankers prefer raising civil lawsuits instead of asking for filing for bankruptcy.
A director of a bank who asked to be not named, said that he cannot see any benefits from forcing debtors to file for bankruptcy. Especially, in many cases, the long and complicated procedures will only bring disadvantages. For example, this will take banks a lot of time to take back the lent money, which spells that the bad debt ratios of the banks will increase.
Not only banks, but other creditors will make similar choices to protect their benefits in case debtors fall into insolvency.
According to Phu, there are three ways to deal with a business which cannot pay debts, 1) forcing for filing for bankruptcy 2) settling the case with a civil lawsuit to ask for money bank and 3/ doing nothing.
Of the three solutions, the second and third are the biggest choices of businesses, even though the Bankruptcy Law clearly stipulates that right after discovering the signs of bankruptcy, enterprises have the responsibility to ask for following procedures for bankruptcy.
However, the problem is that when businesses deliberately do not file for bankruptcy, they will have to pay the fine of 1-3 million dong, not high enough to deter businesses.
In fact, the provision proves to be unfeasible, because the laws do not stipulate which agency will come forward to supervise the payment of enterprises, and what agencies need to do to discover violations.
As such, filing for bankruptcy may do more harm than good, while the procedures will cause a waste of time and money. Those, who file for bankruptcy, have to pay some kinds of expenses, about tens of millions of dong in total, which is really a heavy burden on the enterprises which have fallen into insolvency.
The current bankruptcy law stipulates that the owners of the businesses that declare bankruptcy, must not set up new businesses and hold the post of managers of the new businesses. As such, the owners of the dissolved businesses will only be able to do as hired workers for other businesses. This is really a punishment on businessmen, which do not encourage them to declare bankruptcy for their businesses.
Less than 10 bankruptcy cases in a year
Also according to Phu, since the Bankruptcy Law took effect in 2005, the HCM City Economic Court has handled 55 applications for filing for bankruptcy, which means that there are only 8 cases a year. The number of applications seems to increase by a little in the last two years: there were 10 in 2010 and 11 in the first 10 months of 2011.
The report released by IFC and WB that ranked the business environment in 2008 pointed out that filing for bankruptcy was really a time and money consuming procedure in Vietnam. It takes at least five years to follow the procedures for declaring bankruptcy, which consumes 15 percent of enterprises’ assets, while creditors only can take back 18 percent of their assets.
Source: TBKTSG
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