In the course of business operations, enterprises cannot avoid certain risks such as market, financial and strategic risks. Inability to handle risks well or not improvising to deal with the challenges of the economy can put businesses at risk of dissolution or bankruptcy. Some enterprises, making changes to business goals or operational purposes, or simply not willing to continue operating can choose to dissolve or be subjected to dissolution under the provisions of the Law on Enterprise 2020. So, what are the cases and conditions for dissolution of enterprise?
Cases for dissolution of enterprises
According to the provisions of Clause 1, Article 207 – Law on Enterprise 2020, enterprises will be dissolved in the following cases:
- The enterprises’ operating period specified in the Company’s Charter expires without an extension decided by the owner of private business, or owner of the company, or the member’s council, or the general meeting of shareholders (hereinafter referred to as “Business Owner”).
- The enterprises are dissolved under a resolution of the Owner (for sole proprietorships), or the Board of Partners (for partnerships), or the Member’s Council or the Owner of the company (for limited liability companies) or the General Meeting of Shareholders (for joint stock companies).
- The enterprises failed to maintain the adequate number of members prescribed in the Law on enterprise for 06 consecutive months without converting into another type of enterprise.
- The Enterprise Registration Certificate is revoked, unless otherwise prescribed by the Law on Tax administration.
Conditions for dissolution of enterprises
Besides the provisions on the right to dissolve and terminate enterprises, the ‘Law on Enterprise’ also contains provisions aimed at protecting the legitimate rights and interests of entities related to the dissolved enterprise. In particular, the interests of creditors and employees of the business are protected. Therefore, the conditions for the dissolution of the enterprises are prescribed by the Law on Enterprises as follows:
- Enterprises may only be dissolved after all of their debts and liabilities are fully paid.
- Enterprises are not in any dispute currently being decided at the court or arbitration authority.
The order of dissolution of enterprises
In this article, we only refer to the enterprise dissolution procedure applicable to the cases in Sections 1.1, 1.2, and 1.3 of this Article. They are:
- The Business Owner shall approve the resolution, and decision on dissolution of the enterprise and submit it to the Business Registration Office where the enterprise has registered its business. It must explain the following: (i) reason for dissolution, (ii) time limit and procedures for contract liquidation and debt payment, and (iii) the schedule for handling of the obligations arising from the labor contract(s).
- The Business Owner shall organize the liquidation of the enterprise’s assets or establish a liquidation organization to carry out the liquidation of the enterprise’s assets.
- Debts of the enterprise must be paid. The enterprise’s payable debts are summarized in the following priority order:
- Group of debts for employees of the company, such as: salary, severance allowance, insurances, and other rights of employees.
- Group of obligations towards the state such as tax debt.
- Remaining obligations besides the above 02 groups of obligations.
- Enterprises must carry out procedures to terminate the operation of branches, representative offices, and business locations of enterprises at the Business Registration Office where such branches, representative offices, and business locations are located.
Dissolution application is specified as follows:
- Notification on dissolution of the enterprise.
- Resolution, decision and/or minutes of meeting of the Business Owner(s) on dissolution of the enterprise.
- Debt settlement plan (if any).
- Report on liquidation of enterprise assets.
- List of creditors and paid debts including payment of tax debts and payment of social insurance, health insurance, and unemployment insurance for employees after the decision to dissolve the enterprise (if any).
Note: After the decision on dissolution of the enterprise is issued, the enterprises are strictly prohibited from carrying out the following activities: Concealing, disguising assets, denying or reducing the creditors’ claims to the payable debts, converting unsecured debts into debts secured with the enterprise’s assets, Concluding new contracts except for those necessary for dissolving the enterprise, pledging, donating, leasing out assets, terminating effective contracts, or raising capital in any manner.
Above are some provisions of the ‘law on dissolution of the enterprises’ for your reference.
Time of writing: 18 June 2021
The article is based on the current law at the time of recording as above and may no longer be relevant at the time readers access this article due to changes in applicable law and specific cases that the reader wants to apply. Therefore, the article is for reference only.