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It is necessary to change the misconceptions that many
policymakers have about bankruptcy. Many policymakers think that
firms declare bankruptcy simply to avoid debt obligations. What
they need to understand is that identifying enterprises on the
verge of bankruptcy as soon as possible will actually increase
the possibility of saving them. In the new Law on Bankruptcy of
2004, the criteria for bankruptcy cases have been amended to
comply with international standards. For example, Japan's
Bankruptcy Law states that any person who stops paying debts
could be recognized as unable to pay those debts. However, the
precise administration of this procedure requires well-trained
judges who have experience dealing with complicated and
sophisticated commercial cases. Lawyers, especially those with
international experience in bankruptcy cases, will play a very
important role in helping the bankruptcy law work in Vietnam's
transitional stage, since it is not yet flexible enough for
businesses.
Mr. Ngo Cuong, Deputy Director,
Institute for Judicial Science, The Supreme People's Court
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 The
new Law on Bankruptcy of 2004 has some improvements, such as a
simpler and clearer definition of bankruptcy, expanded
categories of persons having the right to file bankruptcy
petitions, and sanctions and additional restrictions for
directors, board members, owners of bankrupt businesses, etc.
After only one year of implementation, it is unclear whether the
new Law on Bankruptcy 2004 can be effective in practice.
Moreover, effective implementation may be affected by issues
like lack of financial transparency; for example, it is
virtually impossible to monitor the current debt situation–the
most important criterion involved in identifying a bankrupt
enterprise - of private firms in Vietnam.
Because bankruptcy is a litigation process [requiring court
involvement], it is much more time consuming than administrative
alternatives which can also facilitate the closing of
businesses, such as the liquidation of private-owned firms and
the selling, contracting and leasing of state-owned enterprises.
These have proven to not only be more time and cost-effective
but also to better protect the rights of creditors and save
laborers from unemployment.
In order for the Law on Bankruptcy to be effective in practice,
it is critical for the government to develop comprehensive
implementation guidelines and to strengthen the capacity of
relevant agencies (courts and public agencies responsible for
seizing and liquidating assets). In addition, the legal
framework governing administrative measures related to closing
businesses should be improved. In a competitive market economy,
particularly Vietnam's, which has a booming private sector, it
is very natural for a firm to close its failed business and
start a new one. A better legal framework will help failed firms
exit the market more easily while also protecting the rights and
benefits of related stakeholders. A good post-registration
monitoring mechanism may also contribute to this effort. On the
one hand, it can limit the existence of "ghost" or fraudulent
firms; on the other hand, it will allow for faster
identification of firms on the verge of bankruptcy and
facilitate the rescue of potentially viable firms. As a result,
the business environment in Vietnam will be healthier and more
conducive to well-run businesses.
Mr. Tran Tien Cuong, Director of
Department of Enterprise Reform and Development, Central
Institute for Economic Management
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Our new bankruptcy law exists only on the books; it is rarely
used. We should use bankruptcy procedures to close inefficient
and unviable SOEs, as nurturing inefficient SOEs is a waste of
public resources. On the other hand, it is better for
unsuccessful private businesses to liquidate by clearing all
debt obligations and informing the business registration agency
rather to declare bankruptcy. The liquidation process will help
firms avoid the risk of losing their good image among the public
and their clients. In addition, claiming insolvency is much
simpler than declaring bankruptcy, and this way business owners
can start new ventures immediately rather than being restricted
for two years as stipulated under the Law on Bankruptcy.
Ms. Pham Chi Lan,
Prime Minister's Research Commission
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