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Labour and Employment

Can a Company Owing Taxes Go Bankrupt? FAQ

9 min readFLAT LAW FIRM
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"My company owes over 2 billion VND in taxes, business is losing money and I can't pay — can I go through bankruptcy, or must I clear the tax debt first?" Our lawyers hear this question very often from struggling business owners. Behind it lies a common misconception: that tax debt is "debt to the State" so the enterprise must settle it before going bankrupt — or, conversely, that bankruptcy will "wipe out" the tax debt.

Both misconceptions are wrong. From 01/3/2026, Law No. 142/2025/QH15 on Recovery and Bankruptcy replaces the 2014 Bankruptcy Law and comprehensively governs this issue. This article answers 7 key questions on the relationship between tax debt and bankruptcy proceedings — with a running principle: clearly separate what the law provides (fact), what must be assessed case by case (issue), and what the enterprise should do (recommendation).

Contents

1. Can a company owing taxes file for bankruptcy?

Short answer: Yes. Tax debt is neither an exclusionary condition nor a barrier to opening bankruptcy proceedings.

Explanation: The condition for opening recovery or bankruptcy proceedings is the enterprise's insolvency on due debts — regardless of whether those are tax debts, bank loans, supplier payables or employee wages. The law does not require an enterprise to "clear its tax debts first, then go bankrupt"; on the contrary, it is precisely because it cannot pay its debts (including tax debts) that the enterprise needs bankruptcy proceedings.

Legal basis: Law No. 142/2025/QH15 on Recovery and Bankruptcy (passed 11/12/2025, effective 01/3/2026, replacing the 2014 Bankruptcy Law). Petitioning parties: the enterprise may petition for recovery proceedings (Article 24); for bankruptcy proceedings, creditors, employees and employee representative organisations may also petition (Article 38).

Next steps: The enterprise should prepare a dossier evidencing insolvency (financial statements, a creditor list including the tax authority, tax sanction or enforcement decisions if any) and petition the competent court. Consult a lawyer before filing to assess whether to pursue recovery or bankruptcy.

2. Can the tax authority petition for a company's bankruptcy?

Short answer: Yes — and in some cases it is a duty.

Explanation: The tax administration authority not only has the right but the duty to petition for bankruptcy proceedings against enterprises and cooperatives under the 2025 Law on Recovery and Bankruptcy and tax administration law, when the enterprise meets the Government-prescribed conditions. In other words, for tax debts no longer recoverable through ordinary tax administration measures, the law compels the tax authority to take the bankruptcy route instead of letting the debt hang indefinitely.

Legal basis: The tax authority's petition rights and duties under Law No. 142/2025/QH15 on Recovery and Bankruptcy and tax administration law (Law No. 38/2019/QH14 and Law No. 108/2025/QH15, effective 01/7/2026 — verified against the original text 2026-09-29).

Next steps: Enterprises should not view a tax-authority bankruptcy petition as victimisation — in many cases it is the lawful exit for definitively resolving unpayable tax debts, instead of letting late-payment charges and fines keep compounding.

3. In what order are tax debts paid in bankruptcy?

Short answer: Sixth — after employees and recovery costs, before other unsecured creditors.

Explanation: When the judge declares the enterprise bankrupt, its assets are distributed in the mandatory order of Article 46 of Law No. 142/2025/QH15: (1) bankruptcy costs; (2) wage debts; (3) compulsory social insurance, unemployment insurance, health insurance and work-accident/occupational-disease insurance debts; (4) severance allowances and other employee benefits under collective labour agreements and labour contracts; (5) debts incurred to recover the enterprise's business operations; (6) financial obligations to the State — including tax debts; (7) unsecured debts owed to creditors on the creditor list and secured debts unpaid for lack of security value.

Legal basis: Article 46 of Law No. 142/2025/QH15 on Recovery and Bankruptcy.

Practical meaning: This order shows tax debts are not absolutely prioritised as many assume — employee rights and business-recovery costs rank ahead. In bankruptcies where assets only stretch to group 4 or 5, the tax authority (and unsecured creditors behind it) in practice receives only partial payment or nothing. Where assets are insufficient, creditors of the same priority rank are paid pro rata.

4. During bankruptcy proceedings, can the tax authority keep enforcing tax debts?

Short answer: As a rule, no — individual enforcement measures are suspended.

Explanation: From the decision opening bankruptcy proceedings, enforcement activities and enforcement of administrative decisions — including tax enforcement — are suspended. The rationale is clear: all of the enterprise's assets must be preserved for distribution in the uniform Article 46 order; allowing each creditor (including the tax authority) to continue individual enforcement would destroy the statutory priority order and harm employees and other creditors.

Legal basis: The principle of suspending enforcement after proceedings open under Law No. 142/2025/QH15 on Recovery and Bankruptcy.

Next steps: During this phase, the tax authority participates as a creditor: declaring debts, attending the creditors' meeting, supervising asset management. The enterprise must fully cooperate with the asset administrator and truthfully provide the tax-debt list.

5. Are tax debts wiped out when a company is declared bankrupt?

Short answer: There is no automatic "write-off" — the unpaid portion is handled under the bankruptcy declaration decision.

Explanation: Bankruptcy proceedings distribute what the enterprise has, in the statutory order. The unpaid portion of financial obligations to the State, for lack of assets, does not magically "disappear" — it is handled under the decision declaring the enterprise bankrupt and tax administration law, with the tax authority accounting for and tracking the remaining debt as regulated. The key point: once proceedings lawfully conclude, the enterprise (legal entity) ceases to exist and there is no one left to pursue — but the process must run its full course; a company cannot "verbally declare bankruptcy" to escape tax debts.

Next steps: The enterprise should work with the tax authority on confirming debt figures, declaring them fully on the creditor list, and completing tax finalisation obligations up to cessation as required by tax administration and enterprise registration law.

6. Can a business owner face criminal liability after a tax-indebted bankruptcy?

Short answer: No — if it was honest business loss and the proceedings were lawfully conducted.

Explanation: Bankruptcy is an economic procedure under law — not a crime. An enterprise losing money, becoming insolvent on tax debts and entering bankruptcy proceedings does not constitute a criminal offence. The line to draw clearly: if during operations or during the proceedings the owner commits fraud such as dissipating assets to evade debts, fabricating vouchers and accounting books, or misdeclaring to evade taxes — those acts may independently attract criminal liability under the Penal Code (e.g. tax evasion), unrelated to whether the enterprise goes bankrupt.

Next steps: This is the most important reason for struggling enterprises to act with absolute transparency: no transferring assets to relatives, no destroying documents, no sham transactions. Any pre-bankruptcy "clean-up" can be unwound and turn a civil bankruptcy into a criminal case.

7. What should a company do when it both owes taxes and is insolvent?

Recommended steps:

Step 1 — Honestly assess the finances. Draw up a real balance sheet: how much the assets can actually realise, how much is due (tax debts, wages, bank loans, supplier payables). Honest figures ground every decision that follows.

Step 2 — Proactively engage the tax authority. Request extensions and staged payments within capacity. Tax authorities value cooperating enterprises far more than ones that "disappear". The engagement file also evidences good faith if bankruptcy proceedings later become necessary.

Step 3 — Weigh three paths. (i) Recovery proceedings under Law 142/2025/QH15 — the law's important innovation: the enterprise gets a chance to build a business-recovery plan before bankruptcy; suitable where markets and income-generating assets remain but cash flow is temporarily short. (ii) Voluntary dissolution — only viable where the enterprise still has enough assets to pay all debts (including tax debts). (iii) Bankruptcy proceedings — where insolvency is real.

Step 4 — Never dissipate assets. As analysed in question 6, this is the line between lawful bankruptcy and criminal liability.

Step 5 — Consult a lawyer before petitioning. Choosing between recovery, dissolution and bankruptcy; timing the petition; preparing the creditor list and asset plan — each decision affects the rights of the owner and employees. An early consultation always costs less than a procedural mistake.

Your question not answered here?

Every enterprise has a different debt structure — the proportions of tax debt, secured bank debt and employee wage debt — and the Article 46 distribution order produces different outcomes for each case. If your enterprise faces unpayable tax debts, do not let time worsen the situation: late-payment charges and fines accrue every day.

FLAT Law Firm advises enterprises through the full process of handling tax debts tied to financial distress: assessing real solvency, negotiating extensions and staged-payment plans with the tax authority, choosing between recovery, dissolution and bankruptcy under Law 142/2025/QH15, preparing petition dossiers and representing clients in bankruptcy proceedings. Contact hotline 0988424851 for an initial assessment of your situation.

References

  1. Law No. 142/2025/QH15 on Recovery and Bankruptcy, passed 11/12/2025, effective 01/3/2026, replacing Bankruptcy Law No. 51/2014/QH13.
  2. Law No. 38/2019/QH14 on Tax Administration and Law No. 108/2025/QH15 on Tax Administration (effective 01/7/2026).
  3. Penal Code No. 100/2015/QH13 (amended 2017) — tax evasion and economic offences.

NEW REVIEW RECORD — 2026-09-29 (3 rounds, files read in full + source checked)

  • V1 (legal): checked against Law 142/2025/QH15 — Article 46 (seven groups, State financial obligations sixth) ✓; Article 38(3) (tax authority must petition; Government sets conditions) ✓; suspension of enforcement after proceedings open (Article 40(3)–(5)) ✓; Law 108/2025/QH15 on Tax Administration passed 10/12/2025, effective 01/7/2026 ✓ (previously open V1 point now verified). FOUND + FIXED 1 ERROR: FAQ Q1 and §1 "Legal basis" lumped creditors/employees as entitled to petition for recovery proceedings — incorrect: under Article 24 only the enterprise/cooperative may petition for recovery; Article 38 grants creditors/employees standing only for bankruptcy proceedings. Corrected precisely, synced VI/ZH.
  • V2 (language): concise international law firm style; no machine translation.
  • V3 (technical): author "FLAT Law Firm" added to all three frontmatters; YAML/H1/word count/rank_math/FAQ 7/7/7/jpv-language-links verified by v3-check script.
  • VERDICT 2026-09-29: PASS after fix.