The bankruptcy of a credit institution greatly affects its depositors, particularly individual depositors, which in turn can have a significant broader effect upon society as a whole. The Government's recognition of this has led to the issuance of Decree No 05/2010/ND-CP in January of this year, regulating the application of the Law on Bankruptcy to credit institutions.

To date, no credit institutions have ever been declared bankrupt in Viet Nam due to the State Bank of Viet Nam policy to rescue any insolvent institutions. However, the global financial crises raised concerns that it would no longer be practical for the State Bank to bail out every credit institution which became vulnerable.

Therefore effective March 15, the decree provides conditions and procedures for filling bankruptcy petitions; determining assets and obligations; measures for safeguarding assets during bankruptcy proceedings; conditions and procedures to recover business operations; procedures for liquidation of assets and the declaration of bankruptcy; and the rights and responsibilities of petitioners and creditors.

Under the decree, a credit institution is insolvent and vulnerable to bankruptcy proceedings when (i) it is unable to pay debts due upon demand of creditors and (ii) the SBV has declared in writing that either it is terminating special control or stating that recovery measures will terminate or are inapplicable.

Bankruptcy procedures for credit institutions will consist of four steps. The first step is the filing of a petition to commence bankruptcy proceedings. The second step is to try and recover or "rescue" the company as a going concern. If the SBV has already terminated the application of special control or stated that recovery measures will terminate or are inapplicable, the court adjudicating the bankruptcy case can issue a decision to skip the second step. The third step is the liquidation of assets and debts, while the fourth and final step is for the court to declare the institution bankrupt.

The People's Court of the province or city in which the credit institution is registered shall have jurisdiction to conduct bankruptcy proceedings. If the credit institution is foreign-invested, then the provincial People's Court in which the head office is located shall have jurisdiction.

Decree No 05 obligates the legal representative of the credit institution to file a bankruptcy petition upon observing that the credit institution has become insolvent. In addition, three other types of entities have the right to file a bankruptcy petition: (i) any unsecured or partly-secured creditor, (ii) employees of the credit institution, and (iii) the State representative in the case of a State-owned credit institution, or the shareholders of a credit institution.

And if the SBV, or any other relevant body as prescribed by law, observes that a credit institution have become insolvent, it must give written notice to the institution to enable it to consider filing a bankruptcy petition.

The court must notify the SBV within five days from the date of accepting jurisdiction to hear a petition. The State Bank must then provide the aforementioned declaration that special control or recovery measures have been terminated or are inapplicable within 15 days from the receipt of the court's notice.

The court shall issue a decision to commence bankruptcy procedures when (i) the SBV has confirmed that special control or recovery measures have been terminated or are inapplicable and (ii) the credit institution remains unable to pay its due debts. After the decision to commence bankruptcy proceedings, the court establishes a committee to undertake the task of managing and liquidating the credit institution's assets. All of the institution's operations are then conducted subject to the supervision of the court and the committee. However if the State Bank of Viet Nam has terminated the application of special controls or stated that recovery measures will terminate or are inapplicable then the credit institution may not conduct any business activity whatsoever.

By providing specific guidelines and procedures for dealing with insolvent credit institutions, Decree 05 significantly improves upon the Law on Bankruptcy. By addressing the unique issues and consequences which arise when credit institutions become insolvent, Decree 05 should go a long way to avoid or at least minimise the negative effects of such bankruptcies.

(Source: Vietnamnet)