When a parent company in China enters insolvency proceedings, the first question for investors is: does the Vietnamese subsidiary “die with it” — and what happens to the subsidiary’s assets in Vietnam? From 1 March 2026, Vietnam has, for the first time, a domestic legal framework for cross-border insolvency in the Law on Recovery and Bankruptcy 142/2025/QH15 (replacing the 2014 Bankruptcy Law 51/2014/QH13 in its entirety). This article explains the new mechanism and what Chinese investors should watch for.
1. The 1 March 2026 turning point: Vietnam’s first cross-border insolvency framework
Before Law 142/2025, Vietnamese law had virtually no domestic rules for insolvency cases with foreign elements. The Law on Recovery and Bankruptcy 142/2025 (passed 11/12/2025, effective 1/3/2026) changed that with two central provisions:
- Article 74 — Vietnamese courts consider requests for assistance in foreign recovery/bankruptcy proceedings;
- Article 75 — recognition and enforcement in Vietnam of foreign court or competent authority judgments and decisions on recovery/bankruptcy;
- Article 6 — Regional People’s Courts have jurisdiction over requests to recognize foreign bankruptcy judgments and requests for assistance in foreign bankruptcy cases.
Important note: cases accepted before 1/3/2026 are handled under the transitional rules in Article 88; fees for recognition/assistance requests apply at the bankruptcy fee rate until the National Assembly Standing Committee issues new rules. For new cases arising after 1/3/2026, the 2014 Bankruptcy Law should no longer be cited as the current legal basis.
2. Parent in China goes bankrupt — does the Vietnamese subsidiary go down with it?
The short answer: not automatically. The Vietnamese subsidiary is an independent legal person under the Enterprise Law 59/2020/QH14 (still in force). It enters recovery/bankruptcy proceedings only if it becomes insolvent itself and is accepted by a Vietnamese court under Law 142/2025.
In practice, however, investors must anticipate three transmission channels:
- Capital flows: the parent stops funding or withdraws intra-group loans → the subsidiary becomes insolvent;
- Cross-guarantees: the parent’s guarantees for the subsidiary’s Vietnamese obligations lose real value → creditors tighten;
- Supply chains and intra-group contracts: disruption of supply and contracts with the parent and fellow group companies.
When any of these channels renders the subsidiary insolvent, Vietnamese creditors may petition to open recovery/bankruptcy proceedings against the subsidiary — independently of the parent’s bankruptcy case in China.
3. Article 74: what can the representative of the Chinese insolvency case request in Vietnam?
Under Article 74 of Law 142/2025, Vietnamese courts consider requests for assistance in foreign recovery/bankruptcy proceedings, including:
- Verifying, inventorying, valuing, liquidating and recovering the enterprise’s assets in Vietnam;
- Requiring debtors in Vietnam to pay their debts;
- Other necessary requests.
A Vietnamese court will refuse assistance if the request: contravenes the fundamental principles of Vietnamese law; harms national sovereignty, security or public interests; or affects the lawful rights and interests of creditors in Vietnam’s territory.
4. Article 75: how is a Chinese bankruptcy judgment recognized in Vietnam?
Article 75 provides that judgments and decisions on recovery/bankruptcy issued by foreign courts or competent authorities — which have taken legal effect and relate to assets of individuals or organizations in Vietnam’s territory — are recognized and enforced in Vietnam, unless an international treaty to which Vietnam is a party provides otherwise.
Notably, recognition does not mandatorily require a bilateral treaty on bankruptcy between Vietnam and China. Recognition requests are filed with the Regional People’s Court under Article 6.
5. Warning: pre-bankruptcy asset-stripping transactions may be declared void (Article 49)
This is the biggest risk for Chinese investors tempted to “pull” the Vietnamese subsidiary’s assets back home when the parent runs into trouble. Article 49 of Law 142/2025 provides that transactions made within 06 months before the court issues the decision opening bankruptcy proceedings may be declared void if they fall into one of these groups:
- Transfer of assets not at market price;
- Conversion of unsecured debt into secured debt;
- Payment or set-off favoring one creditor;
- Gifts of assets;
- Transactions not aimed at seeking profit;
- Transactions dissipating assets.
Crucially: for related persons — including the parent company and fellow group companies — the “look-back” period extends to 18 months. Any asset transfer from the Vietnamese subsidiary to the parent or group companies during this window is exposed to the voidance mechanism.
6. The reverse direction: recognition in China (Article 5 of China’s Enterprise Bankruptcy Law)
China’s Enterprise Bankruptcy Law (promulgated 27/8/2006, effective 1/6/2007, still in force) contains only one article on cross-border insolvency — Article 5:
- Paragraph 1: bankruptcy proceedings opened under Chinese law take effect over the debtor’s assets outside China’s territory;
- Paragraph 2: a foreign bankruptcy judgment or decision relating to the debtor’s assets within China’s territory is recognized only where there is an international treaty concluded or acceded to by China, or on the basis of the principle of reciprocity — and provided it does not violate the fundamental principles of Chinese law, harm sovereignty, security or public interests, or affect the lawful rights and interests of creditors in China.
A word of caution: practical application of Article 5(2) has been very limited — beyond Article 5, Chinese law provides no detailed recognition procedure, depending on case law and reciprocity in each case. Investors should not assume recognition is assured. Also note: neither Vietnam nor China has adopted the UNCITRAL Model Law on Cross-Border Insolvency.
7. Recommendations for Chinese investors
- Review the group structure now: identify intra-group transactions between the parent and the Vietnamese subsidiary over the past 18 months — especially asset transfers, debt conversions and preferential payments;
- Do not strip assets when the parent is in trouble: asset transfers home during the sensitive window risk being declared void under Article 49;
- Prepare for a subsidiary-insolvency scenario: assess the three transmission channels (capital, guarantees, supply chains) before trouble hits;
- Coordinate with the insolvency representative: if a Chinese court has appointed an administrator, consider the Article 74 assistance channel at the Regional People’s Court instead of acting unilaterally;
- Track implementing guidance for Law 142/2025: this is new law with no published precedent yet — check the status of guiding documents before relying on it.
8. Frequently asked questions
If the Chinese parent is declared bankrupt, is bankruptcy automatically opened against the Vietnamese subsidiary?
No. The subsidiary is an independent legal person; proceedings open only if the subsidiary itself becomes insolvent.
Is a Chinese court’s bankruptcy judgment directly effective in Vietnam?
No. It must go through recognition and enforcement under Article 75 of Law 142/2025, filed with the Regional People’s Court.
Can asset transfers from the subsidiary to the parent before bankruptcy be voided?
Yes, potentially — if they fall under Article 49 of Law 142/2025 and were made within 06 months (or 18 months for related persons such as the parent) before the court opens bankruptcy proceedings.
What is the payment priority for Vietnamese creditors when the parent goes bankrupt in China?
Asset distribution follows the law of the jurisdiction where the proceedings are opened; do not assume a priority order without checking the original legal text.
Sources
- Law on Recovery and Bankruptcy 142/2025/QH15 — passed 11/12/2025, effective 1/3/2026 (replacing Bankruptcy Law 51/2014/QH13 in full): Articles 6, 74, 75, 88, 49;
- Enterprise Law 59/2020/QH14 — the independent legal person principle;
- Enterprise Bankruptcy Law of the PRC — promulgated 27/8/2006, effective 1/6/2007: Article 5;
- Investment Law 143/2025/QH15 — effective 1/3/2026: the investment framework for Chinese parent companies in Vietnam.
For reference only; not legal advice. This content was drafted by AI and will be quality-checked by the AI Legal Council of FLAT Law Firm before publication review; it is not legal advice from a human lawyer. Regulations may change; please check the current legal texts before relying on this information.
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