Scenario: the company is seven months overdue on its debts, its accounts are nearly empty, yet the director keeps signing new contracts and paying salaries on time — «let’s hold on, maybe we’ll get through». Under the Law on Rehabilitation and Bankruptcy 142/2025/QH15, this state is no longer the company’s private affair: the legal representative carries a specific legal duty — to file for bankruptcy proceedings — and ignoring it creates real personal liability.
When is an enterprise deemed insolvent?
The quantitative threshold of the Law on Rehabilitation and Bankruptcy 142/2025/QH15: an enterprise is insolvent when it fails to perform a payment obligation within six months from the due date. This is a notable change from the old law (a three-month threshold) and the marker every director must self-monitor: a debt unpaid six months past due is no longer «ordinary late payment» — it is the legal state triggering the filing duty and creditors’ right to petition for proceedings.
Practical signs usually arrive before the six-month mark: multiple creditors suing at once, frozen accounts, prolonged tax and social-insurance arrears, suppliers collectively switching to prepayment. Management should record these signs in writing (meeting minutes, financial reports) — that file later becomes the evidence of when the insolvency state was «known or should have been known».
The duty to file, and the price of not filing
Once the enterprise is insolvent, its legal representative is obliged to petition the Court to open bankruptcy proceedings — a principle running through Vietnamese bankruptcy law, maintained in Law 142/2025. Fail to file, or file late while assets keep eroding, and creditors’ damage grows with the delay — that incremental damage is the basis for holding the manager personally liable in compensation.
Worse is conduct in the grey zone of waiting: signing transfers to related persons, selectively repaying friendly creditors, or mortgaging the last assets to secure an old unsecured debt. All fall within the deemed-invalid catalogue of Article 49 of Law 142/2025 (six-month window, 18 months for related persons) — assets are clawed back and the signer faces management-liability scrutiny. Taking new orders and new customers’ prepayments while knowing performance is impossible pushes the risk toward criminal territory depending on the specific conduct.
What should a director do on hitting the threshold?
- Assess honestly, in writing: build a due-debt balance sheet — how much is over six months overdue, what liquid assets remain — and minute a management meeting on the insolvency state;
- Freeze abnormal transactions: stop every asset transfer outside ordinary business and every selective repayment; from this point, each payment needs a clear business rationale and market-price evidence;
- Choose the right procedure: petition to open rehabilitation/bankruptcy proceedings for the court’s and asset manager’s protective framework, or negotiate a debt restructuring with major creditors before the six-month threshold if a genuine recovery path still exists;
- Separate personal assets: members who have not fully paid charter capital face the duty to pay it in on bankruptcy; personal assets commingled with company assets are a weakness counsel should review immediately.
Frequently asked questions
Must a director file for bankruptcy when the company is insolvent?
Yes. The legal representative of an insolvent enterprise is obliged to petition for bankruptcy proceedings under current bankruptcy law (Law 142/2025/QH15). The insolvency threshold is failure to pay a debt within six months from its due date.
What happens if the director does not file?
Creditors’ damage increased by the late filing grounds personal compensation liability for the manager. In addition, dissipation or preferential transactions made in this period are declared invalid under Article 49 of Law 142/2025 and the assets recovered.
Can an insolvent company keep signing contracts and taking new customers’ money?
That is very risky. Taking prepayments while knowing performance is impossible can be examined on both the civil and criminal planes depending on the conduct. Civilly, transactions inside the 6/18-month window before opening fall under the Article 49 invalidity review.
Must the director pay company debts from personal funds?
In principle no — limited liability protects personal assets, except in statutory cases: unpaid charter capital (payable in on bankruptcy), damage caused by breaching management duties (late filing, dissipation transfers), or personal guarantees given for the company’s loans.
This article has been quality-reviewed by the FLAW AI Legal Council