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Liability of Directors and Owners When a Company Goes Bankrupt in Vietnam

22 min readFLAT LAW FIRM
Trách nhiệm của giám đốc, chủ sở hữu khi công ty phá sản

When a company can no longer pay its debts, the first question every director and owner asks is usually: must I pay the company's debts from my own pocket? The question of director liability when a company goes bankrupt does not stop at money. From 01/3/2026, the Recovery and Bankruptcy Law 2025 (142/2025/QH15) has fully replaced the Bankruptcy Law 2014, and together with the Enterprise Law 2020, the new regime imposes a multi-layered liability system: asset liability, duties in bankruptcy proceedings, administrative and criminal liability, and disqualification from office. This article analyzes each layer by enterprise type, so directors and owners know where they stand and what to do.

Table of contents

1. What does "liability" in bankruptcy include?

First, two concepts many people confuse need to be settled. Under Clause 4, Article 5 of the Recovery and Bankruptcy Law 2025, "bankruptcy" is the state of an enterprise that is insolvent and has been declared bankrupt by court decision. In other words, a company drowning in debt is not yet legally "bankrupt" — bankruptcy is a legal status declared by the court after insolvency is established (Clause 2, Article 5: failure to pay due debts for 06 months from the due date).

"Liability" of directors and owners in this context falls into four distinct layers:

  • Asset liability: must personal assets be used to pay company debts? The answer depends on the enterprise type.
  • Procedural duties: when the company is insolvent, who must file for bankruptcy proceedings, and how must they cooperate with the court and the asset manager.
  • Administrative and criminal liability: for unlawful acts during the case — from asset dissipation to hiding books.
  • Professional liability: being barred from managerial office, even from establishing a new enterprise, for a defined period.

These four layers are independent: a director may owe nothing for company debts (because it is an LLC) yet still be barred from managing enterprises for 3 years for intentionally breaching procedural duties. Understanding each layer is the only way to protect yourself.

The first and most important legal point: the Bankruptcy Law 2014 (51/2014/QH13) ceased to be effective on 01/3/2026. Its replacement is the Recovery and Bankruptcy Law 2025 (142/2025/QH15), passed by the XV National Assembly on 11/12/2025 and effective from 01/3/2026 under Article 87 (except Clause 3, Article 38 on the tax authority's filing duty, effective 01/7/2026). Article 88 provides transitional rules: cases accepted by courts before 01/3/2026 but not yet resolved continue under the 2025 Law, except for some enforcement matters already underway.

Every citation of the "Bankruptcy Law 2014" in old materials — from the 3-month insolvency definition to Article 130 on disqualification — must be re-read in the light of the 2025 Law. The insolvency threshold, for instance, rose from 03 to 06 months (Clause 2, Article 5), and disqualification now sits in Article 84 with rewritten content.

The instruments governing director and owner liability in bankruptcy today are:

  • The Recovery and Bankruptcy Law 2025 (142/2025/QH15): filing duty (Article 38), prohibited activities (Article 31), void transactions (Article 49), post-declaration asset duties (Article 66), handling of violations (Article 83), disqualification (Article 84).
  • The Enterprise Law 2020 (59/2020/QH14), as amended by Law 76/2025/QH15 (amendments effective 01/7/2025): liability of the legal representative (Article 13), liability of company managers (Article 165), duties of owners, members and shareholders by enterprise type.
  • The Criminal Code 2015 (as amended 2017): for acts showing criminal signs, such as appropriation or dissipation of assets.
  • Implementing decrees, including Decree 65/2026/ND-CP on asset managers, Decree 187/2026/ND-CP on supervision after case acceptance, and Decree 64/2026/ND-CP on enforcement of bankruptcy declarations.

3. Asset liability: must you pay company debts from your own pocket?

This is the most-asked question, and the answer is not the same for every business. The general principle of Vietnamese law is: the company answers for its debts with all of the company's assets. Whether a director or owner must "pay in its place" depends on the enterprise type and how they ran the company.

3.1 The general rule: the company pays with the company's assets

LLCs and joint-stock companies have independent legal personality: company assets are separate from the personal assets of members, shareholders and managers. In bankruptcy, the company's asset pool is liquidated and distributed to creditors in the statutory order (Article 46 of the Recovery and Bankruptcy Law 2025). Creditors cannot simply reach into the director's personal assets because the company ran out of money.

But the rule has exceptions — and the exceptions are where directors and owners get caught most easily. The first exception comes from the enterprise type (private enterprises and partnerships use unlimited liability). The second comes from the manager's or owner's own conduct (unlawful capital withdrawal, unpaid capital, breach of managerial duties).

3.2 Private enterprises: the owner bears unlimited liability

The private enterprise is the only form with direct unlimited liability. Clause 1, Article 188 of the Enterprise Law 2020 provides: a private enterprise is owned by one individual who is liable with all of their assets for all of the enterprise's activities. A private enterprise has no assets separate from its owner.

This has two serious consequences in bankruptcy:

  • First, a private-enterprise owner may hire someone else as Director, but under Clause 2, Article 190, the owner remains liable for all business activities of the enterprise. Hiring a director does not shift liability away.
  • Second, the bankruptcy declaration does not discharge the private-enterprise owner's asset obligations to creditors whose debts remain unpaid, unless the proceeding participants agree otherwise or the law provides otherwise (Clause 1, Article 66 of the Recovery and Bankruptcy Law 2025). Plainly: after bankruptcy, the owner can still be pursued by creditors for the shortfall, resolved under civil judgment-enforcement law.

3.3 Partnerships: general partners are jointly and unlimitedly liable

A partnership has at least two general partners doing business under one name. Under Clause 2, Article 181 of the Enterprise Law 2020, general partners are jointly liable to pay all remaining debts of the company if the company's assets are insufficient. "Jointly" means a creditor may demand the entire shortfall from any one general partner, who then settles internally with the others.

Like private enterprises, Clause 1, Article 66 of the Recovery and Bankruptcy Law 2025 provides that the bankruptcy declaration does not discharge general partners' asset obligations to unpaid creditors. Note: unlimited liability applies only to general partners; capital-contributing members of a partnership are liable only within their contributed capital.

3.4 Single-member LLCs: limited, but watch three "traps"

The owner of a single-member LLC is liable for the company's debts and other asset obligations within the charter capital — a limited shield. But the Enterprise Law 2020 sets three duties in Article 77 whose breach pierces that shield:

  • Trap one — unlawful capital withdrawal. Clause 5, Article 77 provides that the owner may withdraw capital only by transferring part or all of the charter capital to another organization or individual. Withdrawing contributed capital in any other form (e.g. quietly moving company money to a personal account while the company struggles) makes the owner and related individuals/organizations jointly liable for the company's debts and other asset obligations.
  • Trap two — withdrawing profits while debts are due. Clause 6, Article 77 prohibits the owner from withdrawing profits before the company has fully paid its due debts and other asset obligations. Distributing profits while due debts are outstanding is exactly what asset managers and creditors will scrutinize in bankruptcy.
  • Trap three — failing to separate assets. Clause 3, Article 77 requires an individual owner to identify and separate personal assets from company assets, and personal/family spending from company spending. Routinely spending company money on personal expenses is textbook evidence that the court and creditors use to deny the boundary between company and individual.

The single-member LLC owner is also one of the persons with the duty to file for bankruptcy when the company is insolvent (point d, Clause 2, Article 38 of the Recovery and Bankruptcy Law 2025) — analyzed in section 4.

3.5 Multi-member LLCs and joint-stock companies: limited to contributed capital

For multi-member LLCs, Clause 1, Article 46 of the Enterprise Law 2020 provides that members are liable for the enterprise's debts and other asset obligations within the amount of capital contributed. For joint-stock companies, Article 111 says the same: shareholders are liable only within their contributed capital. A hired director (not a member or shareholder) is, as a rule, not asset-liable for company debts.

But "limited" does not mean "untouchable" in every case. Two important exceptions:

  • Unpaid committed capital: under Clause 4, Article 47, a member who has not contributed or not fully contributed capital is liable in proportion to the committed capital for the company's financial obligations arising before the company registers the charter-capital change. "Paper" capital on the license is a real asset risk in bankruptcy.
  • Acting ultra vires in the company's name: Clause 5, Article 50 makes members personally liable when acting in the company's name in violation of the law, conducting business or transactions not serving the company's interests that cause damage to others, or paying not-yet-due debts ahead of a foreseeable financial risk to the company. The third point is especially relevant before bankruptcy: rushing to repay a "friendly" creditor while the company is on the brink can make the decision-maker personally liable.

3.6 Where does the owner stand in the distribution order?

Even without paying company debts, owners still suffer direct economic loss: contributed capital is almost certainly wiped out. Article 46 of the Recovery and Bankruptcy Law 2025 sets the distribution order when the Judge declares bankruptcy: bankruptcy costs; wage debts; compulsory social insurance, unemployment insurance, health insurance, work-accident and occupational-disease insurance; severance allowances and employee benefits; debts incurred for business recovery; financial obligations to the State; unsecured debts; the shortfall of secured debts.

Only if assets remain after all of the above are paid does the remainder go to the private-enterprise owner, the single-member LLC owner, members or shareholders (Clause 2, Article 46). In practice, a surplus after full repayment is very rare. In bankruptcy, the owner is always last in line — and usually leaves empty-handed.

4. The duty to file for bankruptcy: who must file, and what if they don't?

Many directors think filing for bankruptcy is a "right" — file if you feel like it, otherwise let creditors sue. The Recovery and Bankruptcy Law 2025 says otherwise: for some persons, it is a duty.

Who has the filing duty?

Clause 2, Article 38 lists those who must file for bankruptcy proceedings when the enterprise is insolvent (except where a recovery-proceedings application has already been filed):

  • The enterprise's legal representative;
  • The Board of Directors of a joint-stock company, the Members' Council of a multi-member LLC, the Members' Council of a partnership;
  • The Members' Assembly of a cooperative;
  • The private-enterprise owner; the single-member LLC owner.

So whether you are a hired director (as legal representative) or an owner, the duty names you directly. It arises when the enterprise is insolvent — failure to pay due debts for 06 months from the due date (Clause 2, Article 5). This is new compared with the 2014 Law's 03 months: the law gives businesses more time to save themselves, but once past the 06-month mark without paying, the filing duty formally arises.

Another notable change: Clause 3, Article 38 requires the tax authority to file for bankruptcy against enterprises under the Law on Tax Administration. This provision takes effect on 01/7/2026 (per Article 87). From mid-2026, even if the director hesitates, the tax authority can press the button to start proceedings.

What happens if you don't file?

Article 38 imposes the duty but prescribes no direct penalty for failing to file. "No direct fine" does not mean "no consequences". Stonewalling once insolvency is established can lead to three consequences:

  • Compensation liability: a manager or legal representative who breaches duties may be personally liable for damage caused to the company and third parties under Articles 13 and 165 of the Enterprise Law 2020 (analyzed in section 6).
  • Procedural disadvantage: when the court examines the case, non-cooperation and concealment of insolvency count against you and may be assessed as intentional breach of procedural duties.
  • Disqualification: under Clause 3, Article 84, a manager of a bankrupt enterprise who intentionally breached procedural duties may be barred by the Judge from establishing enterprises or serving as an enterprise manager for 3 years.

Practical advice: as soon as you see the company may be unable to pay debts falling due in the next 06 months (the "risk of insolvency" in Clause 1, Article 5), consult a lawyer to assess whether to file for recovery or bankruptcy proceedings. Filing early and lawfully is always safer than letting creditors or the tax authority file first.

5. Things absolutely not to do when the company is on the brink

The distressed phase is when directors and owners make the most mistakes — usually from good intentions (saving the company, protecting family, repaying a long-time partner) but in violation of the law. The 2025 Law erects two "fences": one applying once the court accepts the application, one looking back at transactions already made.

5.1 After the court accepts the application: prohibited activities and supervision

From the moment the court accepts the bankruptcy application, Article 31 prohibits the enterprise from certain activities — focused on preventing asset dissipation and favouritism toward selected creditors. Every significant transaction in this phase sits under procedural control.

After the decision to open bankruptcy proceedings, business operations are closely supervised under Article 42. Notably, the Judge may change the enterprise's legal representative at the request of the proceeding participants. From this point, the director no longer has full disposal power — every major asset decision must follow the bankruptcy framework.

5.2 Transactions within 6 months (18 months with related persons) may be declared void

This is the rule every director and owner should memorize. Article 49 of the Recovery and Bankruptcy Law 2025 provides: transactions made within 6 months before the court's decision to open bankruptcy proceedings are void where they fall into one of these cases:

  • a) Transfers of assets not at market price (selling company assets cheap);
  • b) Converting unsecured debts into secured or partly-secured debts with company assets;
  • c) Payments or set-offs favouring one creditor for not-yet-due debts or in amounts larger than due debts;
  • d) Gifts of assets;
  • đ) Transactions not aimed at seeking the enterprise's profit;
  • e) Other transactions aimed at dissipating the enterprise's assets.

For transactions with related persons (spouses, parents, children, siblings of managers, companies controlled by managers…), the look-back extends to 18 months (Clause 2, Article 49). The asset manager must review these transactions and request the court to declare them void (Clause 4, Article 49); assets are recovered into the bankruptcy estate for distribution to creditors.

Practical meaning: selling the company's car to your brother at a discount 4 months before filing, or rushing to repay one friendly supplier in full while other creditors get nothing — both risk being declared void. Good faith is no shield; only market-price, properly-sequenced transactions stand.

6. Personal liability of directors and managers for mismanagement

Even in LLCs and joint-stock companies — where members and shareholders enjoy limited liability — the director as manager carries a separate layer of personal liability, independent of the company's asset liability. It is set by the Enterprise Law 2020 and is creditors' safety net when management goes wrong.

The legal representative is personally liable for damage to the enterprise caused by breaching their duties (Clause 2, Article 13 of the Enterprise Law 2020, as amended by Law 76/2025/QH15 effective 01/7/2025). Signing contracts beyond authority, failing disclosure duties, neglecting to file for bankruptcy when the law requires it — all can be attributed to the legal representative personally.

Company managers (Board members, company Chair, Members' Council members, Directors, General Directors) must exercise their powers honestly, carefully, and in the company's best lawful interests. Clause 2, Article 165 makes a manager who breaches these duties personally — even jointly — liable to compensate the company and third parties. In bankruptcy, this means: if a director knew the company was insolvent yet signed risky deals, distributed profits, or let assets drain away, creditors have solid grounds to claim against the director's personal assets.

Additionally, Clause 5, Article 50 makes members of multi-member LLCs personally liable when acting in the company's name in three groups of conduct: violating the law; conducting business or transactions not serving the company's interests that cause damage to others; paying not-yet-due debts ahead of a foreseeable financial risk to the company. The third group is especially relevant pre-bankruptcy: "early repayment" to selected creditors while the company is in peril not only voids the transaction under Article 49 of the 2025 Law but may also make the decision-maker personally liable.

7. Criminal and administrative liability

When misconduct crosses the civil boundary, criminal and administrative enforcement step in. Article 83 of the Recovery and Bankruptcy Law 2025 sets the handling principle: agencies, organizations and individuals violating the law during recovery or bankruptcy proceedings face disciplinary action, administrative penalties or criminal prosecution depending on the nature and gravity of the violation; damage caused must be compensated as prescribed by law. Clause 2, Article 83 assigns the Government to detail administrative violations and penalties in this field.

In practice, the most common bankruptcy-related acts with criminal signs include: dissipating or hiding enterprise assets for appropriation; falsifying books and accounting documents to hide the true financial state; deceiving creditors, the asset manager or the court. Depending on the facts, violators may face criminal liability under the Criminal Code — for example, abuse of trust to appropriate property (Article 175 of the Criminal Code 2015) where assets are taken through fraudulent transactions around bankruptcy. The specific charge in each case belongs to the proceeding authorities, based on actual evidence.

One practical note: administrative penalties in enterprise and cooperative recovery and bankruptcy are now detailed in Decree 109/2026/ND-CP, effective 18/5/2026 (replacing Decree 82/2020/ND-CP). Under Article 4 of this Decree, the maximum fine for an individual in this field is VND 40 million (double for organizations). The specific fine for each act must be checked against the full decree — directors and owners should consult a lawyer before assessing the risk.

8. Disqualification after the company is declared bankrupt

Beyond money and criminal exposure, bankruptcy can scar a managerial career. Article 84 of the Recovery and Bankruptcy Law 2025 sets three disqualification cases after bankruptcy declaration:

  • Clause 1: Chairpersons, General Directors, Directors and Members' Council members of enterprises 100% state-owned that go bankrupt may not hold those positions at any state enterprise for 3 years from the bankruptcy declaration.
  • Clause 2: Representatives of state capital at state-invested enterprises that go bankrupt may not hold managerial positions at any state-invested enterprise for 3 years.
  • Clause 3: Managers of a bankrupt enterprise who intentionally breached procedural duties (the cases listed in that clause, covering violations of Clause 1 Article 13, Clause 1 Article 31, Clause 5 Article 38, and Clause 2 Article 42 of the Law) may be barred by the Judge from establishing enterprises or serving as enterprise managers for 3 years from the bankruptcy declaration.

The crux of Clause 3: merely directing a bankrupt company does not disqualify you — the law bars only those who intentionally breached procedural duties. An honest director who cooperated fully with the asset manager and the court, dissipated nothing, may still establish and manage new enterprises after bankruptcy. Concealing books, dissipating assets or refusing cooperation, by contrast, can cost 3 years of managerial career.

9. Six common mistakes that drag directors and owners down

Mistake 1: Thinking "it's an LLC, I'm not involved" and neglecting to file. In reality, the legal representative and the single-member LLC owner have a filing duty under Clause 2, Article 38. Neglect lets debts balloon and can lead to compensation liability and a 3-year disqualification under Article 84.

Mistake 2: Selling company assets cheap to relatives before filing. Transactions within 6 months (18 months with related persons) before the decision to open proceedings may be declared void under Article 49. Assets are clawed back, and the person behind the deal faces personal liability.

Mistake 3: Favouring one friendly creditor with full repayment. Payments favouring one creditor for not-yet-due debts or in excessive amounts are voidable under point c, Clause 1, Article 49, and may make the decision-maker personally liable under point c, Clause 5, Article 50 of the Enterprise Law 2020.

Mistake 4: Withdrawing capital or profits while due debts are unpaid. For single-member LLCs, this is prohibited by Clauses 5 and 6, Article 77 of the Enterprise Law 2020 — with joint liability for the company's debts as the consequence.

Mistake 5: Mixing personal and company assets. Spending company money on personal expenses, keeping no separate books — a breach of the duty in Clause 3, Article 77 and evidence that courts and creditors use to deny the limited-liability boundary between company and individual.

Mistake 6: Hiding books and refusing to cooperate with the asset manager and the court. Proceeding participants owe duties of honesty and cooperation; concealing assets or books is a violation punishable under Article 83, potentially criminal, and grounds for disqualification under Clause 3, Article 84.

10. Condensed checklist for directors and owners

  • [ ] Determine which phase the company is in: temporary difficulty, risk of insolvency, or already insolvent (the 06-month mark — Clause 2, Article 5 of the 2025 Law).
  • [ ] Review your enterprise type and your level of asset liability (unlimited for private enterprises/partnerships; conditional limited for LLCs/joint-stock companies).
  • [ ] Stop immediately all off-market asset transfers, asset gifts, and preferential payments to selected creditors.
  • [ ] Do not withdraw capital or profits while due debts remain unpaid (especially single-member LLCs — Article 77).
  • [ ] Keep accounts, books and spending strictly separated between personal and company.
  • [ ] Prepare complete, honest accounting books and records, ready to cooperate with the asset manager and the court.
  • [ ] Perform the filing duty for recovery or bankruptcy proceedings in time under Article 38 — do not let creditors or the tax authority file first.
  • [ ] Consult a lawyer before every major asset decision while the company is distressed.

11. Frequently asked questions

Must a director of an LLC use personal assets to pay debts when the company goes bankrupt?

As a rule, no. Members of a multi-member LLC are liable only within the amount of capital contributed (Clause 1, Article 46 of the Enterprise Law 2020), as are shareholders of a joint-stock company (Article 111). A director must use personal assets only where they breach managerial duties: personal liability for damage caused by breaching duties under Clause 2, Article 165 of the Enterprise Law 2020, or personal liability when acting in the company's name in violation of the law, or in transactions not serving the company's interests that cause damage to others, under Clause 5, Article 50.

Can the owner of a single-member LLC who withdrew capital before bankruptcy be pursued?

Possibly. Clause 5, Article 77 of the Enterprise Law 2020 provides that the owner of a single-member LLC may withdraw capital only by transferring part or all of the charter capital; a withdrawal in any other form makes the owner and related individuals/organizations jointly liable for the company's debts and other asset obligations. The owner also may not withdraw profits while due debts remain unpaid (Clause 6, Article 77).

Is the legal representative penalized for not filing for bankruptcy when the company is insolvent?

Article 38 of the Recovery and Bankruptcy Law 2025 imposes the filing duty on the legal representative, the Board of Directors, the Members' Council, the private-enterprise owner and the single-member LLC owner, but prescribes no direct penalty for failing to file. Delaying, however, can trigger compensation liability under the Enterprise Law 2020 (Articles 13 and 165), and for intentional breach of procedural duties, the Judge may bar the person from establishing or managing enterprises for 3 years under Clause 3, Article 84.

Can a sale of company assets to a relative before bankruptcy be clawed back?

Very likely. Article 49 of the Recovery and Bankruptcy Law 2025 provides that transactions made within 6 months before the court's decision to open bankruptcy proceedings are void where they involve transfers not at market price, gifts of assets or asset dissipation. For transactions with related persons, the look-back period extends to 18 months. The asset manager must request the court to declare such transactions void, and the assets are recovered into the bankruptcy estate.

After the company is declared bankrupt, may the director establish a new company?

As a rule, yes — except in the cases barred by Article 84 of the Recovery and Bankruptcy Law 2025. A manager of a bankrupt enterprise who intentionally breached procedural duties (the cases listed in Clause 3, Article 84) may be barred by the Judge from establishing enterprises or serving as an enterprise manager for 3 years from the bankruptcy declaration. Managers of enterprises 100% state-owned that go bankrupt are barred from positions at state enterprises for 3 years.

12. When to work with a lawyer

Bankruptcy is a complex judicial procedure, and the line between "managing through difficulty" and "breaking the law" can be thin. Directors and owners should work with a lawyer as soon as they see any of these signs:

  • The company cannot pay due debts and risks hitting the 06-month insolvency threshold;
  • You are considering selling assets, transferring capital or repaying selected creditors before filing;
  • You have received a bankruptcy application from creditors, employees or the tax authority;
  • You are a private-enterprise owner or general partner — the unlimited-liability group needing a lawful personal-asset protection plan;
  • You need to assess a manager's personal-liability risk before signing any major transaction.

A lawyer will help assess the company's true legal state, choose between recovery and bankruptcy proceedings, prepare a lawful filing, and accompany you through dealings with the asset manager, the creditors' meeting and the court — protecting directors' and owners' lawful interests to the maximum.

Contact FLAT Law Firm for advice on legal liability in enterprise bankruptcy: hotline 0988424851.

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References

  • Recovery and Bankruptcy Law 2025 (Luật Phục hồi, phá sản 2025) (142/2025/QH15), passed 11/12/2025, effective from 01/3/2026.
  • Bankruptcy Law 2014 (51/2014/QH13) — ceased to be effective from 01/3/2026.
  • Enterprise Law 2020 (59/2020/QH14), as amended by Law 76/2025/QH15.
  • Criminal Code 2015 (as amended 2017).
  • Decree 65/2026/ND-CP on asset managers; Decree 187/2026/ND-CP on supervision after case acceptance; Decree 64/2026/ND-CP on enforcement of bankruptcy declarations.
  • Decree 109/2026/ND-CP on administrative penalties in enterprise and cooperative recovery and bankruptcy, effective from 18/5/2026.