Corporate Debt Restructuring in Vietnam

When Does a Company Need Debt Restructuring?

Warning signs usually appear much earlier than the moment a company becomes insolvent. They may include borrowing new money to repay old debt, growing overdue payables, banks refusing to renew credit lines, suppliers switching to prepayment terms, or deteriorating financial ratios (current ratio, debt-to-equity) quarter after quarter. The golden rule: the earlier the restructuring, the more options available. While the company still generates positive cash flow from its core business, creditors are willing to negotiate; once insolvency is complete, negotiating leverage is nearly gone.

The first step of any debt restructuring project is not meeting creditors, but a comprehensive inventory of debt obligations: outstanding principal, interest and penalties owed to each creditor; collateral attached to each debt; personal guarantees of owners and the legal representative; financial covenants in credit agreements the company may have breached; and tax debts and social insurance debts — obligations that cannot be negotiated down like commercial debts. Without a complete debt picture, every restructuring plan is built on sand.

Out-of-Court Restructuring: The Preferred Path

Most successful debt restructurings in Vietnam take place out of court, through direct negotiation between the company and its creditors. Commonly used tools include:

• Rescheduling: extending maturities, granting principal grace periods, paying interest first — suitable when the difficulty is only a temporary liquidity issue.
• Haircut: the creditor agrees to reduce part of the principal or waive penalty interest. This usually happens only when the creditor assesses that recovery through liquidation would be even lower, or when a new investor injects capital on condition of “cleaning up” the balance sheet.
• Debt-to-equity swap: the creditor (often a bank or the owner) converts the debt into contributed capital and becomes a member/shareholder. Procedurally, this is a charter capital increase by the enterprise, carried out under the Law on Enterprises rules on offering, issuance and registration of charter capital changes.
• Collateral restructuring: replacing or supplementing collateral; selling non-core assets to repay debt; sale-and-leaseback arrangements.

The key to out-of-court negotiation is consensus: a plan is only viable when enough influential creditors agree. For syndicated loans, the credit agreement usually sets the voting threshold for amending terms — the company must understand this threshold before proposing a plan. A common mistake is negotiating separately with each creditor without an overall plan, so that one creditor’s agreement is followed by another creditor’s lawsuit.

Rehabilitation under the Law on Recovery and Bankruptcy 2025

When out-of-court negotiation reaches a deadlock, the law offers a formal tool: the rehabilitation procedure under the Law on Recovery and Bankruptcy 2025 (Law No. 142/2025/QH15, effective from 01/3/2026, replacing the Law on Bankruptcy 2014). The philosophical novelty of this law is that it prioritizes corporate rehabilitation rather than focusing only on liquidating assets to repay debts as before — the rehabilitation procedure is designed as an independent regime, standing on equal legal footing alongside the bankruptcy procedure.

Mechanically, the company files a petition for the rehabilitation procedure; after the Court issues a decision opening the procedure, the company builds a rehabilitation plan (debt restructuring, business restructuring, raising new capital, etc.) and submits it to the creditors’ meeting for approval and the Court’s recognition. During implementation of the rehabilitation plan, the company is protected against individual debt collection actions and asset seizures — the “shield” that out-of-court negotiation cannot provide.

Note: the rehabilitation procedure is not a “debt shelter”. The rehabilitation plan must be feasible, must be approved by creditors through the statutory process, and the company must disclose its full financial situation. Abusing the procedure to buy time without a substantive plan will only cost more money and reputation.

Creditors’ Rights and Payment Priority

Whichever restructuring path is chosen, the company must respect the legal order of creditors’ rights. Secured debts (mortgages, pledges) are prioritized from the collateral; tax debts and social insurance debts have their own regime and cannot be “negotiated down” like commercial debts; employees are prioritized for wages, severance allowances and social insurance. Every restructuring plan — especially debt-to-equity swaps or debt write-offs — must be designed so as not to infringe the priority rights of secured creditors and specially protected groups, or the plan risks being declared invalid or challenged by creditors in court.

Another sensitive point: payments and asset transfers made by the company during the distress period may be reviewed if the company is subsequently placed under rehabilitation/bankruptcy proceedings — recovery and bankruptcy law provides a mechanism to declare transactions void where they were aimed at dissipating assets or favoring certain creditors within a defined period before the opening of proceedings. Every asset disposition during restructuring should therefore be legally advised before execution.

How FLAT LAW FIRM Supports Debt Restructuring

We support both sides of the negotiating table — but in each matter we represent only one side to ensure no conflict of interest. For debtor companies: inventorying and classifying all debt obligations, designing an overall restructuring plan, drafting and negotiating debt restructuring agreements, advising on debt-to-equity conversion procedures and enterprise registration changes, and preparing filings and representation in Court rehabilitation proceedings when needed. For creditors and investors: assessing debt recoverability, negotiating to protect interests in the restructuring plan, and advising on debt purchases and investments in companies under restructuring. See also our M&A and corporate restructuring services and our corporate bankruptcy services.

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