Vietnam’s New Restructuring Paradigm: Prioritising Corporate Recovery Over Liquidation

The law establishes recovery as the default legal track, requiring efforts to preserve the business as a going concern before initiating liquidation proceedings.^[1] 

• A successful recovery may result in higher returns compared to distressed asset sales.
• Recovery procedures may delay realisation of collateral or enforcement rights.

Encourages legal and operational efforts to stabilise viable projects, avoiding premature liquidation.

A debtor may initiate recovery proceedings if it reasonably anticipates an inability to meet financial obligations due within six months.^[2]

• Allows early creditor engagement before value is significantly eroded.
• Debtors may invoke protection before any actual default, potentially delaying enforcement unjustifiably.

The right to initiate rests with the debtor's board or legal representative, shielding the company from creditor-initiated filings.^[3]

Only the debtor (through its legal representative, board, or owner) may file for recovery. Creditors may not compel recovery but may still petition for bankruptcy.^[4] Creditors can only petition for bankruptcy.

• Creditors cannot unilaterally trigger restructuring, even if in the company’s best interests.
• Ensures that any recovery plan is management-led, increasing chances of implementation.

Safeguards the debtor’s ability to manage the recovery process without the risk of a creditor-driven restructuring.

Within five working days of the court’s acceptance of a recovery application, all enforcement actions - including secured asset enforcement and civil judgment execution - must be suspended by relevant authorities. This marks a departure from the Law on Bankruptcy 2014, which lacked a unified statutory moratorium mechanism.^[5]

• Secured creditors are temporarily prevented from exercising enforcement rights over collateral.
• If the collateral is essential to the recovery plan, any sale must be approved by the Creditors’ Conference, potentially delaying realisation.

The statutory moratorium provides immediate, court-mandated relief from enforcement actions, enabling the debtor to stabilise operations and develop a recovery plan without asset dissipation.

New financing provided specifically to support the recovery plan ranks above all pre-recovery debts, including certain secured claims, in the event of liquidation.^[6]

• Offers strong protection for new lenders, encouraging the injection of rescue or bridge financing.
• Existing unsecured and potentially some secured creditors may be subordinated to this new priority debt.

This provision enhances the debtor’s ability to raise new funding, including from external investors or shareholders, to support restructuring efforts and avoid liquidation.

Upon acceptance into recovery, the debtor may be eligible for temporary suspension of tax debt enforcement and deferral of social insurance contributions (including retirement and survivorship fund payments), subject to further guidance by Government Decree.^[7]

Frees up short-term cash that may otherwise be directed to state obligations, potentially improving repayment capacity for commercial creditors.

Management can propose the transfer of specific project segments or business lines during the recovery phase.^[8] Upon approval by the Creditors' Conference and a final decision by the court, this allows the debtor to 'cut the tail' of loss-making assets to safeguard core development.

Upon acceptance by the court, the debtor is eligible for tax debt freezing and a pause on social insurance contributions (retirement and survivorship funds). This directly frees up operational cash flow to maintain the site or pay critical suppliers.

The Creditors’ Conference is the primary forum for approving recovery plans. Under standard procedures, resolutions require approval by creditors representing at least 65% of the total debt of those voting. For debtors qualifying under the Expedited Procedure (typically small enterprises), the approval threshold is reduced to 51%.^[9]

• Creditors with significant secured exposures retain substantial influence over restructuring outcomes.
• In expedited cases, lower thresholds may require closer coordination among larger creditors to safeguard their collective interests.

Reduced voting thresholds for eligible SMEs enable a more efficient decision-making process and quicker access to restructuring relief.

Debtors with fewer than 20 unsecured creditors and total unsecured debts below VND 10 billion (approx. USD 380,000) may qualify for the Expedited Procedure, under which all statutory timelines are halved.^[10]

Enables faster resolution of low-value cases, reducing administrative burden and freeing capital more quickly.

Eligible companies can proceed through recovery (or liquidation) on an accelerated timeline, preserving value and minimising disruption to operations.

Completion of Recovery Plan

Upon successful implementation of the recovery plan, the court issues a formal declaration confirming the debtor is no longer at risk of insolvency.^[11]

Creditors may resume standard commercial relations, with reputational and credit risks associated with insolvency proceedings lifted. 

The debtor re-emerges as a solvent, going concern, restoring reputation and market access.

Failure of Recovery and Transition to Bankruptcy: 

If the recovery plan fails or the statutory maximum term (three years) expires, the court terminates the recovery procedure. If the debtor remains insolvent, bankruptcy proceedings commence automatically.^[12]

• Creditor lists and verified claims from the recovery phase are carried forward, expediting the bankruptcy process.
• Asset values may decline during a failed recovery, reducing potential recoveries.

Failure to implement a viable plan within the statutory period leads to court-ordered liquidation and winding up.

A. Outbound Requests: Foreign Assets of Vietnamese Debtors

Vietnamese courts may request foreign authorities to assist in identifying, securing, and recovering assets located outside Vietnam that belong to the debtor.^[13]

• Enhances the ability of secured creditors to reach offshore assets supporting their claims, especially where collateral includes foreign components or floating charges.
• It prevents the "leakage" of value where a debtor might attempt to shift capital to offshore jurisdictions to avoid local enforcement.

Debtors may seek court assistance in accessing overseas assets to support their recovery plan, improving the viability of restructuring.

B. Inbound Requests: Foreign Proceedings Seeking Assets in Vietnam

Upon request by a foreign court, Vietnamese courts may assist with enforcement, recovery, or preservation of a debtor’s assets located in Vietnam. However, such cooperation is subject to a mandatory safeguard: the court must refuse assistance where it would prejudice the rights of creditors in Vietnam.^[14]

• While the Vietnamese courts may assist foreign restructurings by freezing local assets, it must refuse any request that harms the rights of creditors in Vietnam.^[15]  
• This provides a robust "Creditor Protection Safeguard" for all lenders - including offshore lenders - provided their security interests are duly registered in Vietnam. Foreign proceedings cannot arbitrarily override local enforcement rights if it prejudices creditors within the jurisdiction.^[16]

Vietnamese courts now have the authority to secure local assets to support a global recovery plan upon a formal request for judicial assistance from a foreign court, even if a domestic recovery has not been initiated. This ensures project assets are protected from fragmented enforcement - even before a domestic recovery is initiated or the final foreign judgment is formally recognised - provided that such actions do not prejudice the rights of creditors in Vietnam.

C. Recognition and Enforcement of Foreign Judgments

Foreign court judgments relating to insolvency may be recognised and enforced in Vietnam. However, recognition must be refused if the judgment falls within any of the following statutory grounds for refusal (Refusal Grounds):^[17]

• The judgment prejudices the rights and interests of creditors in Vietnam (Creditor Protection Safeguard);
• The judgment violates the fundamental principles of Vietnamese law;
• The foreign court lacked jurisdiction over the matter;
• The proceedings involved procedural unfairness (e.g. the parties were not properly summoned or were deprived of their right to a fair defence);
• The judgment has not yet attained legal effect or remains subject to appeal or protest in the originating jurisdiction;
• The judgment conflicts with a legally effective decision of a Vietnamese court;
• The judgment conflicts with a foreign judgment already recognised and enforced in Vietnam;
• The application for recognition is submitted after the expiry of the statutory time limit under Vietnamese law; or
• The judgment falls under any other circumstances prescribed by Vietnamese law.

Once recognised, a foreign judgment carries the same weight as a domestic ruling. However, its execution is subject to two critical strategic safeguards: 

• Local Priority (Statutory Moratorium): Even if a foreign judgment is recognised, the Statutory Moratorium (Article 27) takes precedence. This ensures that the handling of secured assets in Vietnam remains suspended for the duration of the local recovery procedure to protect the "going concern" value.
• The Creditor Protection Safeguard Shield: Vietnamese courts must refuse the recognition of any foreign judgment that prejudices the rights and interests of creditors on Vietnamese territory. This core protection is further reinforced by a comprehensive set of refusal grounds set out in Article 75.3 of the Law on Bankruptcy 2025. Collectively, this framework provides a robust legal safeguard for both onshore and duly registered offshore lenders against arbitrary or adverse foreign rulings.

This allows for a unified recovery strategy across multiple jurisdictions. Even if a foreign judgment is recognised, the Statutory Moratorium ensures the project assets in Vietnam remain protected from immediate seizure, providing the breathing space needed to implement a global restructuring plan without losing local operational control.

Before Recovery Proceedings

Enforcement was typically based on contractual default terms, proceeding through administrative channels with limited court involvement.

Status quo remains until the court formally accepts a recovery application. Creditors retain enforcement rights under contract.

No change until filing: Creditors may enforce normally until recovery proceedings commence.

During Recovery Proceedings

No immediate stay; enforcement continued until a formal "Commencement Decision" was issued. This created a procedural gap during which assets could be seized.

Statutory Moratorium: Triggered within five working days of court acceptance of the recovery petition. All enforcement actions must pause.

Certainty and coordination: Prevents uncoordinated enforcement and protects estate integrity.

Use of Secured Assets ^[18]

No clear rules on asset necessity. Disputes over whether collateral was essential often delayed restructuring.

Necessity Test: Assets required for recovery are retained; others may be released per original security terms. The Creditors’ Conference decides.

Minimises delay and provides clear process for asset allocation.

• If the secured asset is needed for the recovery plan, its handling is determined by the Creditors' Conference.
• If not needed, handling follows the original security agreement terms.

Failure of Recovery Plan

Transition to liquidation was procedurally complex, often requiring re-initiation of enforcement or re-verification of claims.

Direct Transition: Automatic shift to bankruptcy. Secured assets are liquidated immediately based on a verified list.

De-risked enforcement: Creditors gain a clear and expedited path to recovery upon plan failure.