What is Business Bankruptcy? Signs of Business Bankruptcy

Currently, a significant number of businesses declare bankruptcy daily. According to data from the General Statistics Office for the first four months of 2024, the number of businesses withdrawing from the market reached 86.4 thousand, an increase of 12.2% compared to the same period last year. On average, 21.6 thousand businesses exited the market each month. In this article, Inter Justice will help businesses better understand what business bankruptcy is and the rights and obligations when filing a request to initiate bankruptcy proceedings. Let’s explore!

1. What is Business Bankruptcy?

According to Clause 2, Article 4 of the Bankruptcy Law 2014, bankruptcy is the state where an enterprise or cooperative no longer has the ability to pay its due debts on time and cannot restore its solvency for a long period, and is unable to quickly or fully compensate for damages caused to creditors or those with the right to demand debt payment. In such cases, the People’s Court or competent adjudicatory body will declare that the enterprise or cooperative is bankrupt.

Additionally, Clause 1, Article 4 of the Bankruptcy Law 2014 stipulates that an enterprise or cooperative loses its solvency when it fails to fulfill its debt payment obligations within 3 months from the due date.

2. When Does a Business Fall into Bankruptcy?

According to Article 2 of the Business Bankruptcy Law, a business may be considered to show signs of insolvency if it has incurred business losses for two consecutive years to the extent that it cannot pay its due debts, and for three consecutive months, the business cannot fully pay wages to its employees according to the labor agreement and labor contract. This indicates that the business no longer has the financial capacity to ensure the rights of its employees.

Thus, determining whether a business shows signs of insolvency does not solely depend on whether the business can repay its debts but also relies on various other factors such as the ability to pay employee salaries, the business’s operating situation, and the overall financial capacity of the enterprise. 

3. Entities with the Right and Obligation to File a Request to Initiate Business Bankruptcy Proceedings

According to Article 5 of the Bankruptcy Law 2014, the entities with the right and obligation to file a request to initiate business bankruptcy proceedings include:

• Unsecured creditors or partially secured creditors have the right to file a request to initiate business bankruptcy proceedings after 03 months from the date the debt is due and the enterprise or cooperative fails to fulfill its payment obligation.
• Employees, grassroots trade unions, or directly superior trade unions in places where grassroots trade unions have not yet been established all have the right to file a request to initiate bankruptcy proceedings after 03 months from the date the enterprise or cooperative is obligated to pay salaries and other debts to employees.
• The legal representative of the enterprise or cooperative has the obligation to file a request to initiate business bankruptcy proceedings when it is no longer able to pay.
• The owner of a private enterprise, the Chairman of the Board of Directors of a joint-stock company, the Chairman of the Members’ Council of a limited liability company 1 with two or more members, the owner of a one-member limited liability company, and the general partners of a partnership all have the obligation to file a request to initiate bankruptcy proceedings when the enterprise becomes insolvent.  
• Shareholders or a group of shareholders owning 20% or more of the ordinary shares for a continuous period of at least 06 months, or less than 20% of the ordinary shares for a continuous period of at least 06 months (if stipulated in the company’s charter), all have the right to file a request to initiate bankruptcy proceedings when the joint-stock company is no longer able to pay.
• Cooperative members or the legal representative of the cooperative, and members of the union of cooperatives all have the right to file a request to initiate bankruptcy proceedings when the cooperative or union of cooperatives is no longer able to pay.

Therefore, according to legal regulations, if you are the owner of a private enterprise, you have the obligation to file a bankruptcy request with the competent authority when the enterprise becomes insolvent. Note that this is a legal obligation, not a right. Filing a bankruptcy request will help avoid the escalation of financial problems and prevent liability for damages when losses occur. 

4. Payments Employees Receive When a Business Goes Bankrupt

According to Article 48 of the Labor Code 2019, the responsibilities upon termination of a labor contract are stipulated as follows:

• Within 14 working days from the date of labor contract termination, both parties are responsible for fully paying all amounts related to each party’s benefits, except for the following cases where the deadline may be extended but not exceed 30 days:
  • The employer is not an individual and ceases operations;
  • The employer changes its structure, technology, or for economic reasons;
  • Division, separation, consolidation, merger; sale, lease, conversion of enterprise type; transfer of ownership or usage rights of the enterprise’s or cooperative’s assets;
  • Due to natural disasters, fires, enemy sabotage, or dangerous epidemics.
• Wages, social insurance, health insurance, unemployment insurance, severance allowance, and other benefits of employees according to the collective labor agreement and labor contract are prioritized for payment in case the enterprise or cooperative terminates operations, is dissolved, or goes bankrupt.
• The employer has the following responsibilities:
  • Completing procedures for confirming the period of social insurance and unemployment insurance contributions and returning them along with the other original documents if the employer has kept them from the employee;
  • Providing copies of documents related to the employee’s working process if the employee requests them. The employer shall pay the costs of copying and sending documents.

Therefore, in business bankruptcy, priority must be given to paying wages, social insurance, health insurance, unemployment insurance, severance allowance, and other benefits of employees according to the collective labor agreement and labor contract. 

The above is a detailed article sharing not only what business bankruptcy is and who has the obligation to file for bankruptcy proceedings but also the rights of employees when a business declares bankruptcy. If your business has any further legal questions regarding bankruptcy procedures, please contact Inter Justice immediately for more detailed support and consultation.