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It’s not easy for businesses to… die
Since the first bankruptcy law went into effect in 1993, Vietnamese courts have just dealt with a few hundred cases of businesses filing for bankruptcy. Less than 100 have been “allowed” to go bankrupt.
The economic downturn has exhausted a lot of small- and medium-size enterprises. A lot of them are unable to continue operating, while they also cannot declare bankruptcy because they would have to spend five years fulfilling necessary formalities.
The current bankruptcy law stipulates that businesses and cooperatives which cannot pay debts when creditors demand payment are considered as having fallen into bankruptcy.
Experts say that the current regulation on the responsibility of business owners to continue paying debts after declaring bankruptcy proves to be too strict (owners of private businesses and members of partnership companies have to pay unpaid debts after selling all assets). With the regulation, no businessman wants to keep his business running, because if he makes profit he has to continue paying debts.
Tran Minh Tho from Luat Viet Company points out that with the provisions of the bankruptcy law, managing the number of bankrupt businesses is exceedingly difficult. That is also a reason that the reported number of bankrupt businesses does not truly reflect reality.
In 2008, HCM City reported 14 bankrupt enterprises, a very low figure.
In fact, in the majority of cases management agencies do not know the statuses of businesses. The Ministry of Planning and Investment announced that 349,000 enterprises have registered for business, but in fact, only 200,000 pay taxes.
Experts say that there are two scenarios for enterprises that are weak and or bogged down in difficulties. The exhausted businesses need help to go bankrupt legally. These enterprises are unable to survive and develop even if they receive support from the state. The obituaries of such enterprises, termed ‘creative devastation’, will help make the system of businesses healthier and help develop the national economy.
In the other scenario, businesses fall into big difficulties not because of inner problems, which, according to Huynh Van Minh, Chairman of the HCM City Business Association, is what is happening now. The global economic recession has pushed many businesses against the wall. In this case, the Government’s demand stimulus package can help them escape difficulties and restore production.
Minh added that the $1 billion demand stimulus package has helped businesses a lot in cutting production costs and improving competitiveness. However, he said that the Government needs to be selective in providing support. If it gave support to all businesses, it would make the subsidisation mechanism return.
VietNamNet, DDDN
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