Question:
My limited liability company with two or more members is facing cash-flow difficulties. Several debts owed to suppliers and banks are more than six months overdue and cannot be paid. Management wants to keep operating and has not considered bankruptcy. Under the current regulations, when is an enterprise deemed insolvent, is the legal representative obliged to file a petition for bankruptcy proceedings, and what penalties apply if no petition is filed?
Answer:
Since 1 March 2026, this matter has been governed by the 2025 Law on Recovery and Bankruptcy (Law No. 142/2025/QH15), which replaced the 2014 Law on Bankruptcy. Specifically:
- Test for insolvency (Article 5.2): an enterprise is insolvent when it fails to pay a debt after a period of 6 months from the due date (the 2014 Law on Bankruptcy previously set this at 3 months). An enterprise that cannot pay a debt falling due within the next 6 months, or a debt that is overdue by no more than 6 months, is regarded as being at risk of insolvency (Article 5.1).
- Duty to file (Article 38.2): when the enterprise is insolvent, the legal representative; the Board of Directors of a joint-stock company; the Members’ Council of a limited liability company with two or more members or of a partnership; the owner of a private enterprise; and the owner of a single-member limited liability company must file a petition for bankruptcy proceedings. The petition is filed with the Regional People’s Court where the enterprise has its head office (Article 6.2 and Article 39.1).
- Exception: the duty to file for bankruptcy does not apply if the enterprise has already filed a petition for recovery proceedings (Article 38.2). Under Articles 24 and 25, an enterprise may file for recovery as soon as it is at risk of insolvency, enclosing a business recovery plan, a list of creditors and debtors, and supporting documents and evidence.
- Civil liability (Article 38.5): a person who is obliged to file but does not is legally responsible, and must pay compensation for any damage arising after the enterprise became insolvent that is caused by the failure to file.
In addition, other parties may also file when the enterprise is insolvent (Articles 38.1, 38.3 and 38.4), including: unsecured creditors and partially secured creditors; employees and trade unions once 6 months have passed since the enterprise was due to pay wages or other debts owed to employees without paying; shareholders or groups of shareholders holding at least 20% of ordinary shares; and members or groups of members holding at least 65% of the charter capital of a limited liability company with two or more members (or a lower percentage if the charter so provides). The tax authority must file in accordance with the Law on Tax Administration, and the social insurance agency may file in the cases prescribed by law.
Note also that delay creates risk for the enterprise’s transactions. Transfers of assets below market price, gifts of assets, conversion of unsecured debt into secured debt, or payments favoring one creditor made within the 6 months before the court decides to open bankruptcy proceedings may be treated as void; the period is 18 months for transactions with related persons (Article 49). Once the court accepts a recovery petition, the enterprise is prohibited from concealing, dissipating or gifting assets and from waiving rights to collect debts; it also may not pay debts arising before acceptance, convert unsecured debt into secured debt, or distribute profits, unless the law provides otherwise or the judge permits (Article 31).
Penalties (Decree No. 109/2026/ND-CP, effective 18 May 2026):
- Failing to file a petition for bankruptcy proceedings when the enterprise is insolvent (Article 71): a fine of VND 1 – 3 million on the legal representative, Board of Directors, Members’ Council, owner of a private enterprise or owner of a single-member limited liability company who is obliged to file. No penalty applies if a petition for recovery proceedings was filed beforehand.
- Obstructing or hindering a person entitled to file a petition for bankruptcy proceedings (Article 70): a fine of VND 500,000 – 1,000,000; the new rules drop the warning option that existed under Decree No. 82/2020/ND-CP.
- Concealing or dissipating the enterprise’s assets, documents or evidence (Article 72): a fine of VND 3 – 7 million. Abusing recovery or bankruptcy proceedings to infringe the lawful rights and interests of the State, organizations or individuals: a fine of VND 10 – 20 million.
- Enterprise breaches of the rules on operations after the court accepts the petition or decides to open bankruptcy proceedings (Article 74): a fine of VND 5 – 10 million for failing to report to the administrator or the asset management and liquidation enterprise before carrying out transactions that require reporting; and VND 10 – 20 million for concealing, dissipating or gifting assets, waiving rights to collect debts, paying debts arising before acceptance, converting unsecured debt into secured debt, or distributing profits or income. These are the fine levels applicable to organizations.
Conclusion:
Once an enterprise is insolvent, waiting is no longer a safe option: its managers and representatives are obliged to file a petition for bankruptcy proceedings, and failure to do so may lead to administrative fines, liability for resulting damage, and the risk that transactions are declared void. A notable innovation of the 2025 Law on Recovery and Bankruptcy is that an enterprise may proactively file for recovery as soon as it is at risk of insolvency, and having filed excludes the duty to file for bankruptcy. Enterprises should proactively review overdue payables, track the 6-month mark from each due date, avoid unusual asset transactions, and promptly assess recovery or bankruptcy options. If your company needs detailed advice on assessing insolvency, preparing a business recovery plan, or preparing a petition to the court, please contact SB Law for timely assistance from our team of lawyers and experts.
