NEW UPDATES IN DISSOLUTION OF ENTERPRISES ACCORDING TO LAW ON ENTERPRISES 2020
Since the beginning of 2020, due to the progressively spreading of Covid-19 pandemic, a large number of enterprises have fallen into crisis. As a result, they failed to have enough ability to keep business operations developing. Therefore, many enterprises had to dissolve as a business terminating method.
In particular, according to data provided by the National Business Registration Portal (dangkykinhdoanh.gov.vn), in the first Quarter of 2020, 11.283 enterprises were waiting for dissolve procedures; the number of enterprises completely dissolved was 5.203, which made an increase of 26,4% compared to the same period in 2020. In addition, new and small enterprises accounted for 90,4% of total dissolved enterprises as the main objects of dissolution. This newsletter hereby shall provide legal issues related to enterprises dissolution according to Law on Enterprises 2020.
Definition of enterprise dissolution
Currently, Law on Enterprises 2020 and other legal documents fail to define “enterprise dissolution” meaning. However, according to the Legal dictionary of Legal Science Institute (Department of Justice), dissolution is the terminating procedure of enterprises which are business entities by the way is a liquidation of the company’s assets to pay debts for creditors. Otherwise, enterprise dissolution can be understood as the termination of the existence and operation of an enterprise by the volition of the business owner or based on competent authorities.
1. Cases and conditions for dissolution of enterprises
a. Cases for dissolution of enterprises:
According to the Law on Enterprise 2020, there are 4 cases divided into 2 groups that enterprises being dissolved as follows:
- Voluntary dissolution: is ceased to exist of enterprises by the volition of the business owner including:
- The operating period specified in the company's charter expires without an extension decision.
- The enterprise is dissolved under a resolution or decision of the owner (for sole proprietorships), the Board of Partners (for partnerships), the Board of Members and the owner (for limited liability companies) or the GMS (for joint stock companies).
- Compulsory dissolution: fails to base on the volition of the business owner; however, it is based on competent authorities.
- The enterprise fails to maintain adequate members according to laws for 06 consecutive months without converting into another type of business.
- The ERC is revoked according to the Court's judgment.
b. Conditions for dissolution of enterprises:
An enterprise shall only be dissolved if meet the following conditions:
- All of its debts and other property liabilities are fully paid;
- It is not involved in any dispute at the court or arbitration.
2. Dissolution procedures
a. In cases Voluntary dissolution or the enterprise fails to maintain the adequate members according to Law on Enterprises 2020:
In the event of an enterprise falls into the above cases, it needs to register for dissolution with competent authorities according to the following steps:
i. A resolution or decision on the dissolution is issued
Holding a meeting to issue a dissolving resolution or decision. Such a resolution or decision shall contain the following information:
- The enterprise’s name and headquarter address.
- Reasons for dissolution.
- Duration and procedures for liquidation of contracts and payment of the enterprise’s debts.
- Plan for settling obligations under employment contracts.
- Full name and signature of the owner of the sole proprietorship, the company’s owner, the Chairman of the Board of Members, the Chairman of the Board of Directors.
ii. Notifications on dissolution shall be sent to the people having relevant interests and duties
The dissolution enterprises send the notification on dissolution to the business registration authority, tax authority and the enterprise’s employees within 07 working days from the ratification date.
Notification sent to the business registration authority where the company headquartered contains the following documents:
- The enterprise’s dissolution notification.
- The resolution or decision and the meeting minutes on dissolution.
- Debt payment plan (if any).
iii. The enterprise liquidate the enterprise’s assets and debts
The owner of the sole proprietorship, the Board of Members or the owner, the Board of Directors directly liquidates the enterprise’s assets and debts. However, in case of the company's charter requires a separate liquidation organization, it shall liquidate the enterprise’s assets.
An enterprise’s debts shall be paid in the following order of priority:
- Unpaid salaries, severance pay, social insurance, health insurance, unemployment insurance premiums and other benefits of employees under the collective bargaining agreement and concluded employment contracts.
- Tax debts.
- Other debts.
iv. Enterprises send the application for dissolution to the business registration office where the company headquartered
After completing the payment of debts, within 05 working days, the enterprise must send the application for dissolution to the business registration office where the company is headquartered. The application includes:
- The enterprise’s dissolution notification.
- The report on the enterprise’s assets liquidation; list of creditors and paying debts, including tax debts, social insurance, health insurance, unemployment insurance of employees after the dissolution decision is issued (if any).
Note: Before submitting the application for dissolution, the enterprise must complete procedures for terminating its branches/representative offices/business locations with the Business Registration Office of provinces where the branch/representative office/business is located.
v. The Business Registration Office sends information about the enterprise's dissolution registration to the tax authority for opinions
After receiving the information from the Business Registration Office, the tax authority sends opinions on the fulfillment of the tax payment obligation of the enterprise to the Business Registration Office within 2 working days.
vi. Issue an enterprise’s dissolution notification
From the dissolving application receipt date, in case of the tax authority has no refusing opinion within 05 working days, the Business Registration Office shall issue a notice on the dissolution of the enterprise.
Note: Within 180 days from the date the Business Registration Office receives the notice with the resolution or decision on dissolution, the enterprise has not submitted the dissolution dossier (and there are no comments from related parties), Business Registration Office shall issue a notice of dissolution within 3 working days from the end of the above period.
At the same time, within 180 days from the date of receipt of the notice with the resolution or decision on dissolution, if the enterprise needs to cancel the dissolution, it shall send a notice of the annulment of the resolution or decision to the Business Registration Office (the cancellation notice which is the decision of the business owner shall be enclosed). Within 3 working days, the Business Registration Office cancels the dissolution, restores the legal status of the enterprise on the National Business Registration Information System and sends cancellation information to the tax authority.
b. In case The Certificate of Enterprise Registration is revoked or under court decision
Step 1: Notification
The business registration authority shall post on the National Enterprise Registration Portal a notification that an enterprise is undergoing dissolution on the same day on which the decision to revoke the Certificate of Enterprise Registration is issued or right after the court decision on the enterprise’s dissolution is received. The notification shall be enclosed with the effective revocation decision or the court decision.
Step 2: The enterprise issues a notice on the enterprise’s dissolution
Within 10 days from the receipt of the effective decision, the enterprise shall convene a meeting to dissolve the enterprise.
The dissolution resolution or decision and copies of the effective decision shall be sent to the business registration authority, tax authority and the enterprise’s employees and displayed at the enterprise’s headquarters, branches and representative offices.
Step 3: The enterprise liquidate the enterprise’s assets and debts
An enterprise’s debts shall be paid in the following order of priority:
- Unpaid salaries, severance pay, social insurance, health insurance, unemployment insurance premiums and other benefits of employees under the collective bargaining agreement and concluded employment contracts.
- Tax debts.
- Other debts.
Step 4: Send the dissolving dossiers
The enterprise’s legal representative shall apply for dissolution to the business registration authority within 05 working days from the day on which the enterprise’s debts are fully paid.
Step 5: Issue a notice on the dissolution of the enterprise
After 180 days from the date the Business Registration Office announces the dissolution of the enterprise on the National Business Registration Portal without further comments from the enterprise or written objections from relevant parties, or within 05 working days from the receipt of the application for dissolution, the business registration authority shall update the enterprise’s status on the national enterprise registration database.
Above is DHT Law Firm’s legal advice on business dissolution procedures updated according to Law on Enterprise 2020. If you have any questions or concerns, please contact us for timely and quality support.
