Dispute resolution
A counterparty delivering late, repeatedly deferring payment, a factory ceasing operations — which is a temporary difficulty that can be overcome together, and which is a sign of insolvency requiring decisive action? Reacting at the wrong time can make you lose both the contract and the money. This article systematises the legal options by level: from preserving evidence, negotiating an obligation restructure, unilateral termination, suing/arbitration, to handling when the counterparty falls into bankruptcy proceedings.
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Identifying: temporary difficulty or insolvency?
Not every breach is the same, and the legal reaction must be commensurate with the level. Temporary difficulty usually has these signs: delays with objective reasons (lack of raw materials, logistics incidents), the counterparty still proactively providing information, proposing a specific remedial schedule, and still maintaining normal business operations. In this case, immediate legal confrontation is often counterproductive — negotiating an obligation restructure is much more effective.
Insolvency has more alarming signs: systematic failure to pay due debts (not only to you but to many creditors), ceasing operations or suddenly downsizing, transferring assets to relatives/related companies, rapid successive changes of the legal representative, or "disappearing" and being unreachable. When these signs appear, time is no longer on your side — each week of hesitation is a week in which the counterparty can dissipate more assets.
The golden principle: assess on the basis of evidence, not promises. A counterparty truly in temporary difficulty will provide transparent information about its situation; an insolvent counterparty usually evades, makes general promises and has no documentary proof.
Step 1: Gather and preserve evidence immediately
As soon as unusual signs are noticed, the first thing is not to send a threatening letter but to lock down the evidence. Gather: the original contract and all appendices; delivery and acceptance records; invoices and payment documents; the most recent debt reconciliation record; and all exchanges with the counterparty (emails, official documents, even work messages — back them up externally before the counterparty retrieves them).
In parallel, record the signs of insolvency systematically: photograph the operating status of the factory/office (if accessible), keep information about asset transfers and changes in the counterparty’s enterprise registration. These documents later serve as the basis for requesting urgent interim measures, proving damage, or requesting the annulment of asset-dissipating transactions.
An important note: do not on your own seize the counterparty’s assets to "offset the debt" without a legal basis — this conduct can turn you from a creditor into the breaching party, and in some situations even attract criminal liability. Every asset-preservation measure must go through the legal route.
Step 2: Official notice and requesting security for performance
After consolidating the evidence, send an official notice document to the counterparty: clearly state the breached obligation, request performance within a defined time limit, and warn of the next legal steps. This document is both a good-faith obligation and evidence proving that you gave the counterparty an opportunity to remedy — valuable when the dispute goes to Court or arbitration.
Depending on the situation, the counterparty may be requested to provide additional security: a bank guarantee, a mortgage of assets, or a payment undertaking with sanctions. In a bilateral contract, civil law also permits the aggrieved party to postpone performance of its own obligations in some cases — for example, stopping the next delivery instalment when the buyer has clearly not paid for the previous one — but the statutory conditions must be correctly applied, to avoid being considered the party breaching the contract oneself.
If the counterparty proposes restructuring the obligations (extension, instalment payments, reduction), consider it seriously, but every new agreement must be made in writing with a specific schedule, breach sanctions and security measures. A verbal agreement in these circumstances has almost no protective value for you.
Urgent interim measures: "freezing" before it is too late
Where there are grounds to believe the counterparty is dissipating assets or the assets are at risk of being transferred, urgent interim measures under the Civil Procedure Code need to be considered: freezing bank accounts, distraining assets, prohibiting the transfer of property rights. This is a powerful tool to "freeze" the status quo while awaiting the final judgment.
The crux: urgent interim measures must be requested promptly — filing when the assets have already "evaporated" is meaningless. The request dossier needs to prove the urgency (the risk of asset dissipation) and the requesting party usually must lodge a financial security obligation. For a dispute within arbitration’s jurisdiction, this measure may be requested from the arbitral tribunal or the Court depending on the stage of the proceedings.
Practice shows that many businesses lose not because their arguments are weak but because they win the case and there are no assets left to enforce against. Urgent interim measures are precisely the bridge between winning the case and recovering the money — do not overlook them.
Renegotiation and obligation restructuring: when the door to cooperation remains
Not every case of a counterparty in difficulty should go to termination. If the assessment shows the difficulty is only temporary and the counterparty still has recovery capacity, restructuring the obligations usually produces a better result than litigation: extending the performance time limit, dividing the payment obligations by progress, temporarily reducing the order volume, or converting part of the obligations into another form the counterparty can perform.
Negotiation technique in these circumstances differs from ordinary negotiation: you need to understand the counterparty’s real financial situation (requesting reports and a recovery plan), set checkpoints (milestones) instead of extending unconditionally, and attach each milestone to a specific sanction if not achieved. A well-drafted contract appendix at this stage is worth more than a later judgment that is hard to enforce.
However, a time limit must be set for negotiation. If after a reasonable time the counterparty cannot produce a feasible plan or repeatedly breaks its promises, that is the signal to move to more decisive measures — do not let negotiation become a tool for the counterparty to stall for time.
Unilateral termination of the contract and claiming compensation
When the counterparty breaches seriously and no longer has the capacity to remedy, the law permits the aggrieved party to unilaterally terminate the performance of the contract (Civil Code 2015) or to cancel the contract in statutory cases. A distinction is needed: unilateral termination ends the contract from the time of notice (obligations already performed remain effective), while cancelling the contract makes the contract ineffective from the time of conclusion and the parties must return to each other what they have received.
The correct sequence: send a notice of unilateral termination/cancellation in writing, clearly stating the basis (which contract clause, which legal provision, which specific breach event). The notice must be tight because it itself may be sued by the counterparty for a declaration of invalidity — a careless notice can reverse the parties’ positions.
Accompanying termination is the right to claim penalties and compensation for damage. In a commercial contract, the penalty level is agreed by the parties but must not exceed 8% of the value of the breached obligation portion (Law on Commerce 2005); compensation for damage includes actual damage and may also include lost profit if proved. Damage calculation needs full documentation — general estimated figures are hard to accept.
Suing or arbitration: when every other route has closed
If negotiation fails and the counterparty does not cooperate, the final step is to bring the dispute to the adjudicating body. The choice of Court or arbitration depends on the dispute resolution clause in the contract: if there is a valid arbitration agreement, go to arbitration; if not, sue at the competent Court. See the detailed analysis at dispute resolution clauses in bilingual contracts.
Litigation strategy in a case of an insolvent counterparty has a special point: speed is a vital factor. Sue early (note the limitation period for suing in commercial disputes is 02 years), and at the same time request urgent interim measures right from the start to preserve assets. The goal is not only to win the case but to win it before the assets run out — in the race with other creditors, whoever is faster and better prepared has the advantage.
See also our commercial disputes and arbitration section.
When the counterparty falls into bankruptcy proceedings: declare the debt so as not to lose the right
The worst case: the counterparty has bankruptcy proceedings opened against it by the Court. At that point, every individual debt-collection route must stop — debt recovery is brought into the collective bankruptcy procedure under the Law on Recovery and Bankruptcy 2025 (No. 142/2025/QH15, effective from 01/3/2026, replacing the Law on Bankruptcy 2014).
The first and most important thing for a creditor is to declare the debt on time with the asset manager/asset management and liquidation enterprise in accordance with the Court’s notice. Failing to declare the debt is tantamount to removing oneself from the list of creditors to be paid — however full the evidence for your debt may be. The declaration dossier needs to be complete: the contract, transaction documents, debt reconciliation and an accurate calculation of the debt up to the time the proceedings are opened.
Next, the creditor has the right to participate in the creditors’ conference and vote on the business recovery plan or asset liquidation. Note the statutory payment priority order: not all creditors are paid equally — secured creditors with assets and unsecured creditors are in different positions. Understanding your position helps set realistic expectations about the recovery ratio. See also our corporate bankruptcy service.
Prevention from the start: "shock-proof" contract clauses
The lesson from every case of a counterparty unable to perform comes down to one point: prevention in the contract is much cheaper than remedying after a dispute. Clauses that should be present: payment in many instalments tied to performance milestones instead of a single payment; a deposit or bank guarantee for the main obligations; the right to unilaterally terminate when the other party breaches seriously or shows signs of insolvency; clear penalty and compensation clauses; and a feasible dispute resolution mechanism (arbitration with the organisation named correctly).
With a new counterparty or one showing risk signs, a preliminary appraisal should be carried out before signing: looking up the business’s legal status and dispute history, and if possible, a credit report. The appraisal cost is only a small part of the contract value but can help avoid a mistaken decision. Compare against the Vietnam–China cross-border contract checklist before signing.
How does FLAT LAW FIRM support businesses?
We accompany businesses through the entire handling cycle when a counterparty cannot perform: assessing the risk level based on evidence; gathering and preserving evidence; drafting notice documents and negotiating obligation restructures; requesting urgent interim measures; unilaterally terminating/cancelling contracts in the correct sequence; representing in suing at Court or arbitration; and when the counterparty falls into bankruptcy proceedings, we declare the debt, participate in the creditors’ conference and protect your interests throughout the procedure under the Law on Recovery and Bankruptcy 2025. See also commercial disputes and arbitration and corporate bankruptcy.
Frequently asked questions
How can temporary difficulty be distinguished from insolvency in a counterparty?
Based on actual signs, not on promises. Temporary difficulty: delays with objective reasons, the counterparty proactively providing information and giving a specific remedial schedule, still maintaining normal operations. Insolvency: systematic non-payment to many creditors, suddenly ceasing/downsizing operations, transferring assets, rapid successive changes of representative, or loss of contact. When the second group’s signs appear, move to decisive rights-preservation options instead of continuing to wait.
May the counterparty’s goods/assets be kept on one’s own to offset the debt?
It should not be done. Seizing a counterparty’s assets on one’s own without a legal basis (a judgment, a decision of a competent authority or a clear agreement) can turn you from a creditor into the breaching party, and even attract other legal liability. The correct route is to request the Court or the arbitral tribunal to apply urgent interim measures (distraint, freezing) to preserve assets lawfully.
What should be noted in unilaterally terminating a contract?
Three points: first, there must be a basis — a serious breach by the other party or a case permitted by law/the contract; second, notice must be given in writing, clearly stating the basis and the termination time; third, fully calculate the consequences — payment for the performed part, penalties, compensation for damage. A termination notice lacking a basis may be sued in reverse by the counterparty, reversing the parties’ positions.
If bankruptcy proceedings are opened against the counterparty, how is my debt handled?
The debt is handled in the collective bankruptcy procedure under the Law on Recovery and Bankruptcy 2025 (No. 142/2025/QH15, effective from 01/3/2026). You must declare the debt on time with the asset manager in accordance with the Court’s notice — failing to declare is tantamount to losing the right to be paid in the procedure. Afterwards, you participate in the creditors’ conference and are paid in the statutory priority order, depending on whether you are a secured or unsecured creditor and the outcome of the procedure (recovery or liquidation).
What is the limitation period for suing when a counterparty breaches a commercial contract?
Under the Law on Commerce 2005, the limitation period for suing in a commercial dispute is 02 years from the time lawful rights and interests are infringed. Do not let the negotiation and waiting process extend beyond the limitation period — every extension agreement and debt confirmation during negotiation should be made in writing to preserve the limitation period.
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- Vietnam–China cross-border contract checklist
You should talk to a lawyer if:
- The counterparty shows signs of insolvency: loss of contact, asset transfers, suddenly ceasing operations.
- You need to decide within a short time between negotiating a restructure, unilateral termination or suing.
- You wish to request urgent interim measures to preserve the counterparty’s assets.
- You have sent a contract termination notice and the counterparty objects or sues in reverse.
- Bankruptcy proceedings have been opened against the counterparty and you need to declare the debt and participate in the creditors’ conference.
Talk to a FLAT LAW FIRM lawyer
Describe your counterparty’s situation — we will assess the risk level and propose an action plan by level within 48 working hours. Send a legal consultation request
The content on this website is for general information purposes only and does not replace legal advice for each specific case. Legal regulations, the authority of state agencies and administrative procedures may change over time, by locality and by specific dossier. You should consult a lawyer before making a decision or carrying out a transaction.
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This legal analysis has been verified against current Vietnamese regulations and cross-border FDI transaction practices by the attorneys at FLAT LAW FIRM.
