Who is responsible for the bankruptcy of LLC?

Every enterprise wants to get the long-term and sustainable development. However, loss and bankruptcy are sometimes unavoidable. Who are responsible for the bankruptcy of a liability limited company?

1. When is an enterprise considered bankrupt?

In accordance with Clause 2, Article 4 of the Law on Bankruptcy 2014:

Bankruptcy means the state of insolvency of an enterprise or a cooperative which is declared bankrupt by a people’s court.

Within that, Clause 1, Article 4 points out clearly that insolvent enterprise or cooperative means an enterprise or a cooperative that fails to perform the obligation to pay its debts within 3 months after such debts become due.

At the same time, enterprises cannot declare bankrupt by themselves, they must make the procedure of bankruptcy in accordance with law provisions so that the People's Court makes the decisions on declaration of bankruptcy.

Therefore, enterprises or cooperatives are considered bankrupt when have insolvency and decisions on declaration of bankruptcy from People's Court.
 

2. Who is responsible for the bankruptcy of LLC?

In accordance with the Enterprise Law, limited liability companies mean single-member limited liability companies and limited liability companies with two or more members.
 

Within that, the Article 50 of the Enterprise Law 2020 prescribes those obligations of members of the Members’ Council of the limited liability companies with two or more members:

1. To fully and timely contribute their committed capital amounts and be liable for debts and other property obligations of the company within the contributed capital amounts, except the cases specified in Clauses 2 and 4, Article 47 of this Law.

2. To refrain from withdrawing their contributed capital amounts from the company in any form, except the cases specified in Articles 51, 52, 53 and 68 of this Law

3. To comply with the company charter

4. To observe resolutions and decisions of the Members’ Council.

5. To bear personal responsibility when committing the following acts in the name of the company:

a/ Committing illegal acts;

b/ Conducting business or other transactions not for the interests of the company and causing damage to other persons;

c/ Paying premature debts when the company is likely to be in financial danger.

6. To perform other obligations specified in this Law.

Also, in accordance with the Article 77 of the Enterprise Law 2020, the obligations of the company owner of single-member limited liability companies are as follows:

1. To make contributions to the charter capital of the company in full and on time

2. To comply with the company charter

3. To identify and separate assets of the company owner from those of the company.  An individual owner shall separate his/her personal expenditures and expenditures for his/her family from expenditures for him or her as the President or Chief Executive Officer of the company

4. To comply with the law on contracts and relevant laws in the purchase, sale, borrowing, lending, lease or rent and other contracts and transactions between the company and the company owner

5. Only to be entitled to withdraw capital by transferring part or the whole of the charter capital to another organization or individual; in case of withdrawal of part or the whole of his/her/its contribution made to the charter capital from the company in another form, the company owner and related individuals and organizations shall take joint responsibility for debts and other property obligations of the company.

6. To refrain from withdrawing profits when the company has not paid in full debts and other property obligations which become due

7. To perform other obligations specified in this Law and the company charter.

From above regulations, payment of full debts are compulsory obligations for members of liability limited companies.

After the declaration of bankruptcy, enterprises shall be responsible for all the remained debts by their own assets. Accordingly, the company owner of single-member limited liability companies and members of the limited liability companies with two or more members shall be responsible for the relevant contribution capital/commitment in the process of property obligations when the enterprises declare bankrupt.

After fully paying the payable amounts, the remaining value of assets of enterprises or cooperatives shall belong to owners of single-member limited liability companies or members of limited liability companies with two or more members

3.  Who has the right and obligation to file petitions for initiation of bankruptcy procedures?

Pursuant to the Article5 of the Law on Bankruptcy, the persons having the right and obligation to file petitions for initiation of bankruptcy procedures:

- Creditors;

- Employees, grassroots trade unions or immediate higher-level trade unions in enterprises or cooperatives where no grassroots trade union has been established

- At-law representatives;

- Owners of single-member limited liability companies or chairpersons of members’ councils of limited liability companies with two or more members.

4. What are court fee levels for the declaration of bankruptcy of LLC?

In accordance with the List of legal cost and court fee levels issued with Resolution No. 326/2016/UBTVQH14, the fee for file written requests to open bankruptcy procedure is VND 1.5 million.

Except for cases where court cost advances are not required or are exempt from payment of court cost advances:

- Employees, grassroots trade unions or immediate higher-level trade unions in enterprises or cooperatives where no grassroots trade union has been established may file petitions for initiation of bankruptcy procedures when the payment term is overdue.

- Persons who file written requests to open bankruptcy procedure but the insolvent enterprises have no money or other assets to pay the bankruptcy fee and advance money to pay bankruptcy expenses;