Dissolution vs Bankruptcy in Vietnam: Which Path to Take

Dissolution vs Bankruptcy in Vietnam: Which Path for a Loss-Making Company

Three consecutive years of losses, a bank loan due while cash reserves cannot cover it, suppliers starting to send payment demands. At this point, managers and owners often face two choices: dissolve the company or go through bankruptcy. Choosing wrong not only drags out the timeline but can also trigger personal compensation liability for management under the new law. This article compares the two paths under current law — particularly the key changes of the Law on Rehabilitation and Bankruptcy 2025, effective 01/03/2026 — so you can pick the option that fits your company's actual situation.

1. Dissolution and bankruptcy: two completely different concepts
2. Current legal framework: do not cite expired legislation
3. Dissolution: conditions and detailed procedure
4. Rehabilitation and bankruptcy under the new law: which door is open?
5. Dissolution vs bankruptcy: 10 decisive criteria compared
6. Costs, timelines and key milestones
7. Risks and 7 common mistakes when choosing
8. Quick checklist: 9 steps before deciding
9. Frequently asked questions (FAQ)
10. When to work with a lawyer
Language versions
References

1. Dissolution and bankruptcy: two completely different concepts

Many business owners use "dissolution" and "bankruptcy" interchangeably, but Vietnamese law treats them as two regimes that differ fundamentally in nature, conditions and deciding authority.

Dissolution ends a company's existence by the will of its owner or by administrative decision (revocation of the enterprise registration certificate), carried out at the business registration authority. The prerequisite — and the single most decisive point: a company may be dissolved only when it guarantees payment of all debts and other asset obligations, and is not involved in ongoing dispute resolution at the Court or an arbitral tribunal (Article 207(2) of the Enterprise Law 2020). In other words, dissolution is the path for companies still able to pay their debts — even if loss-making.

Bankruptcy is defined in Article 5(4) of the Law on Rehabilitation and Bankruptcy 2025 as the state of a company that is insolvent and subject to a Court decision declaring bankruptcy. "Insolvency" is defined precisely: the company fails to pay a debt after 06 months from the due date (Article 5(2)). Bankruptcy is therefore the judicial path for companies that have collapsed — and it must go through the Court.

The first rule for choosing follows from these two definitions: if you can still pay all debts, dissolve; if you are already insolvent, you cannot dissolve — you must follow rehabilitation or bankruptcy proceedings. This is also the most common real-world mistake: many owners think heavy losses mean they can just "apply to dissolve", while the law does not allow a company that cannot pay its debts to dissolve.

This article is for owners of LLCs, shareholders of joint-stock companies, general partners, CEOs and chief accountants of companies that are loss-making, overdue on debts, or facing a risk of insolvency in the near future. It does not cover the technical mechanics of distressed M&A — a separate topic with its own legal logic.

2. Current legal framework: do not cite expired legislation

Before analysing, the correct body of in-force legislation must be established (as of drafting, 27/09/2026), because this area has recently changed substantially:

Enterprise Law 2020 (59/2020/QH14), effective 01/01/2021: governs company dissolution in full (Articles 207, 208). In force.
Law on Rehabilitation and Bankruptcy 2025 (142/2025/QH15), adopted by the National Assembly on 11/12/2025, effective 01/03/2026 (Article 38(3) effective 01/07/2026). In force.
Law on Bankruptcy 2014 (51/2014/QH13) — as amended by Law 85/2025/QH15 — expired on 01/03/2026, except for a very narrow set of transitional cases (ongoing enforcement proceedings, unresolved proposals or requests regarding bankruptcy declarations) under Article 88(1) of the 2025 Law. This is today's biggest trap: any advisory document still citing the 2014 Law's "03 months" criterion to assess a company's state is already outdated.
Law on Tax Administration 2019 (38/2019/QH14), Article 39 on termination of tax code validity on dissolution or bankruptcy. In force.
Circular 47/2019/TT-BTC, Article 5 on exemption of the dissolution registration fee. In force.

One frank caveat: the 2025 Law is a new framework statute, and some provisions still await implementing guidance (from the Supreme People's Court and the Government). Where guidance is missing, this article stays open-ended with clear notes rather than stating hard conclusions.

3. Dissolution: conditions and detailed procedure

3.1. Cases in which a company is dissolved

Article 207(1) of the Enterprise Law 2020 lists four cases:

(a) expiry of the operating term stated in the company charter without a decision to extend;
(b) a resolution or decision of the owner: the private-enterprise owner, the Members' Council (partnerships, LLCs), the owner (single-member LLC), or the General Meeting of Shareholders (joint-stock companies). This is voluntary dissolution — the main path for a loss-making company that can still pay its debts;
(c) the company failing to meet the minimum number of members for 06 consecutive months without converting its company type;
(d) revocation of the enterprise registration certificate (dissolution by administrative decision).

The point to stress again: all four cases must satisfy Article 207(2) — all debts and asset obligations paid, and no ongoing dispute at the Court or an arbitral tribunal. In the revocation case, the law adds that related managers and the company are jointly liable for the company's debts. This is a heavy sanction many owners overlook.

3.2. Voluntary dissolution procedure

Article 208 of the Enterprise Law 2020 sets the procedure for voluntary dissolution (Article 207(1)(a), (b) and (c)). In substance it runs as follows:

Step 1: Adopt the dissolution resolution. The resolution or decision must contain the main contents: the company's name and head-office address; the reasons for dissolution; the time limit and procedures for liquidating contracts and paying debts; the plan for handling obligations arising from labour contracts; and the name and signature of the authorised person (Article 208(1)). In practice this document is the root of the entire process — the tax authority and the business registration authority both rely on it to verify legality.

Step 2: Complete financial and tax obligations. This is the most time-consuming step in practice, especially for loss-making companies. The company must pay all debts to suppliers, banks and employees; complete its tax obligations with the tax administration authority; and carry out termination of the tax code's validity under Article 39 of the Law on Tax Administration 2019 (companies ceasing operations, being dissolved or declared bankrupt must terminate their tax code's validity). Practical experience: tax finalisation and debt reconciliation drag the longest, so companies should engage the tax authority proactively as soon as dissolution is contemplated rather than at the end.

Step 3: File the dissolution dossier at the Business Registration Office. Once financial obligations are complete, the company files for dissolution registration. Upon approval, the Office updates the company's legal status to "dissolved" on the National Business Registration Database, and the company's legal-person status ends.

Step 4: Post-dissolution handling. Notify employees and partners; archive books and records as required; handle any residual obligations.

Voluntary dissolution's strengths are full control over timing, no Court involvement, no public disclosure of collapse, and no trading prohibitions on management as in bankruptcy. But its prerequisite — paying all debts — is also its biggest barrier for heavily loss-making companies.

4. Rehabilitation and bankruptcy under the new law: which door is open?

The 2025 Law carries a new philosophy: priority for rehabilitation proceedings (Article 3(1)), making "rehabilitation" a standalone proceeding instead of a dependent phase of business recovery inside bankruptcy proceedings as under the old law. For a loss-making company, this opens three different doors:

4.1. Door one: proactive rehabilitation at the first sign of risk

This is the 2025 Law's most notable innovation. Article 24 allows the legal representative, the Board of Directors, the Members' Council, the private-enterprise owner or the single-member LLC owner to file for rehabilitation proceedings as soon as the company is at risk of insolvency — i.e. when it cannot pay debts due within 06 months, or debts already due but not overdue beyond 06 months (Article 5(1)).

The practical significance is huge: companies no longer need to wait for full collapse before turning to the law. Once the Court accepts the rehabilitation petition, the company gains important protections: suspension of civil judgment enforcement against assets, suspension of secured-asset disposal, suspension of coercive debt recovery (Article 27); freezing of tax arrears at the Court's proposal and suspension of contributions to the retirement and survivorship funds (Article 30(3)); and suspension of payment of debts arising before acceptance (Article 30(4)). The company has 30 days to finalise its business rehabilitation plan (Article 28(3)), with the debt repayment plan observing the priority order: rehabilitation costs first, then wages, social insurance and employee benefits, debts incurred to serve rehabilitation, secured debts, and finally other debts (Article 28(2)).

4.2. Door two: bankruptcy proceedings once insolvency has occurred

When the company is already insolvent (more than 06 months unable to pay due debts), Article 38 of the 2025 Law states clearly who may and who must file:

May file: unsecured creditors and partially secured creditors; employees and trade unions (when the company has failed to pay wages and debts due to employees for 06 months); shareholders or shareholder groups holding at least 20% of ordinary shares; members or member groups holding at least 65% of charter capital of a multi-member LLC; the social insurance authority (under statutory conditions).
Must file: the company's legal representative; the Board of Directors of joint-stock companies; the Members' Council of multi-member LLCs and partnerships; the Members' Congress of cooperatives; the private-enterprise owner; the owner of a single-member LLC. Notably, Article 38(3) also obliges the tax administration authority to file for bankruptcy proceedings as provided by the Law on Tax Administration.

The strongest deterrent: a person obliged to file who fails to do so, and whose failure causes damage after the point of insolvency, must compensate (Article 38(5)). This ends the practice of quietly abandoning an insolvent company and opening a new one — behaviour owners previously got away with without clear legal consequence.

After accepting the petition, the Judge must decide to open or not open bankruptcy proceedings within 30 days (Article 41). Once proceedings are opened, the company is prohibited from a range of acts: concealing, dispersing or donating assets; abandoning claims; paying unsecured debts (except debts arising after proceedings open and employee wages); converting unsecured into secured debts; distributing profits (Article 42(2)). Transactions within 06 months before the Court's decision opening proceedings can be declared void if they fall within the listed cases (off-market asset transfers, asset donations, asset dispersal…), and the look-back extends to 18 months for transactions with related persons (Article 49).

If rehabilitation fails, the Court declares bankruptcy; assets are distributed in the order of Article 46: bankruptcy costs, then wage debts, social/health/unemployment insurance debts, work-accident and occupational-disease insurance, severance and other employee benefits, debts incurred to serve rehabilitation, financial obligations to the State, and finally unsecured debts. Any remainder (if any) belongs to the owner, members or shareholders (Article 46(2)). Jurisdiction lies with the regional People's Court where the company has its head office (Article 6).

5. Dissolution vs bankruptcy: 10 decisive criteria compared

For easy comparison, the table below summarises the 10 core criteria that distinguish the two paths:

Criterion	Dissolution	Bankruptcy (with rehabilitation)
1. Conditions	Company can still pay all debts and asset obligations; no ongoing dispute at the Court or an arbitral tribunal (Enterprise Law 2020, Article 207(2))	Company is insolvent (failed to pay a due debt for over 06 months — Rehabilitation and Bankruptcy Law 2025, Article 5(2))
2. Who decides	The owner, Members' Council, General Meeting of Shareholders (voluntary) or the administrative authority (certificate revocation)	The regional People's Court where the head office is located (2025 Law, Article 6)
3. Proactivity	Fully proactive: timing and pace decided by the company	Passive or semi-proactive: creditors, employees or the tax authority may file first (Article 38)
4. Chance to save the business	None — dissolution ends the company	Yes — rehabilitation proceedings are prioritised (Article 3(1)); the company keeps operating under supervision
5. Publicity	Low: administrative procedure at the Business Registration Office	High: publication on the national portal for rehabilitation and bankruptcy; creditors' meeting; Court decisions
6. Trading restrictions	No special prohibitions	Many activities prohibited (Article 42); transactions within 06 or 18 months may be declared void (Article 49)
7. Management's duties	Organise liquidation; be truthful	Must file when insolvent; compensation liability for breach causing damage (Article 38(5))
8. Owner liability for debts	Limited to contributed capital (LLC, joint-stock); unlimited for private enterprises and general partners	Same, but owners only receive what remains after debts are paid in the Article 46 order
9. Typical timeline	Fast if finances are clean; the tax finalisation step is usually the slowest	Longer: multiple procedural stages, creditors' meeting, asset liquidation
10. State fees	Dissolution registration fee exempted (Circular 47/2019/TT-BTC, Article 5)	Must pay the fee and advance the costs when the Court accepts the case

From this comparison, the selection rules by actual situation are:

Choose dissolution when: the company is loss-making but its assets still cover all debts (selling assets, collecting receivables is enough); no pending disputes; the owner wants a fast, clean, discreet ending. The optimal path for "controlled losses".
Choose rehabilitation when: the company is only at risk of insolvency (debts due within 06 months or overdue but not beyond 06 months) yet its core business model remains viable and its assets still have exploitable value. This is the door the 2025 Law opens and encourages — file early for protection, frozen tax arrears and a debt repayment plan instead of waiting for collapse.
Go through bankruptcy when: the company is already insolvent and its assets cannot cover debts. Dissolution is no longer available, and management has a legal duty to file — delaying only increases compensation liability.

6. Costs, timelines and key milestones

On state costs, the two paths must be distinguished clearly:

Dissolution: business dissolution registration is exempt from the business registration fee under Article 5(2) of Circular 47/2019/TT-BTC. In practice, the biggest costs of dissolution are not state fees but the costs of completing financial obligations: paying debts, tax finalisation, audit costs (if any) and legal service fees if an adviser is engaged. FLAT does not publish fixed service fees on the website — each case has a different debt, tax and labour structure and needs individual assessment; please contact hotline 0988424851 for a case-specific fee quote.
Bankruptcy or rehabilitation: the petitioner must pay the fee and advance the costs when the Court accepts the petition (Articles 25 and 39 of the 2025 Law). For the rehabilitation fee level, Article 88(2) of Law 142/2025 temporarily applies the bankruptcy fee level until the Standing Committee of the National Assembly sets a new one — the exact amount must be checked at filing as the guidance documents are being finalised. In addition, the costs of the asset management officer or asset management and liquidation enterprise, audits and enforcement of Court decisions are all counted as bankruptcy costs and paid first in asset distribution (Article 46).

Key statutory timelines to remember (these are legal deadlines, not commitments on case completion time):

06 months: the insolvency threshold (Article 5(2) of the 2025 Law); also the maximum period a company may fail to meet the minimum number of members before it must convert or dissolve (Enterprise Law 2020, Article 207(1)(c)).
30 days: for the Judge to decide whether to open bankruptcy proceedings from acceptance (Article 41); for the company to finalise its business rehabilitation plan from acceptance of the rehabilitation petition (Article 28(3)).
15 days: for creditors to send their debt claims from the Court's decision opening bankruptcy proceedings — missing the deadline means losing the right to participate (Article 55(1)).
18 months: the look-back period for transactions with related persons before proceedings open (Article 49(2)).
03 years: the maximum implementation period of a business rehabilitation plan if the creditors' meeting does not set one (Article 29(2)).

7. Risks and 7 common mistakes when choosing

Mistake 1: Trying to "apply for dissolution" while unable to pay debts despite heavy losses. Signs: filing for dissolution while still owing tax and overdue bank debts. Consequences: the dossier is refused for failing Article 207(2) of the Enterprise Law 2020; time is lost while penalties and obligations keep growing. Prevention: prepare an honest debt-vs-asset balance sheet before choosing; if assets cannot cover debts, go straight to rehabilitation or bankruptcy proceedings.

Mistake 2: Failing to file for bankruptcy once insolvent, hoping to "hold on". Signs: debts overdue beyond 06 months while management stays silent. Consequences: under Article 38(5) of the 2025 Law, a person obliged to file who fails to do so must compensate for damage arising after the point of insolvency caused by the failure to file. Prevention: when overdue debts approach the 06-month mark, assess immediately and consult a lawyer on the filing duty.

Mistake 3: Dispersing assets before filing. Signs: transferring assets at undervalue to relatives or related companies; donating assets; preferential payment to one creditor. Consequences: transactions within 06 months (18 months with related persons) before proceedings open can be declared void by the Court (Article 49); assets are clawed back into the bankruptcy estate; the actor may face administrative or criminal liability. Prevention: once filing is contemplated, have all major asset transactions legally reviewed first.

Mistake 4: Ignoring obligations to employees. Signs: dissolving or going bankrupt without a plan for labour contracts, wage arrears and social insurance. Consequences: wage and social insurance debts rank first in bankruptcy distribution (Article 46); employees and trade unions may file for bankruptcy themselves (Article 38(1)(b)); a dissolution resolution lacking a labour plan may have its legality questioned. Prevention: the employee plan is a mandatory part of the dissolution resolution (Article 208) and must be prioritised in every plan.

Mistake 5: Citing the expired 2014 Law on Bankruptcy. Signs: using the "03 months" criterion to assess insolvency; preparing dossiers under the old procedures. Consequences: misassessing the company's legal state (the threshold is now 06 months), rejected dossiers, missing the golden window for a rehabilitation filing. Prevention: all internal documents and templates predating March 2026 must be reviewed against Law 142/2025.

Mistake 6: Ceasing operations in fact but completing no legal procedure. Signs: closing the office, stopping business, but neither dissolving nor filing; the legal representative "disappears". Consequences: the company still exists legally; tax debts and late-payment penalties keep accruing; the legal representative remains responsible; in certificate-revocation cases, managers are jointly liable for the company's debts (Enterprise Law 2020, Article 207(2)). Prevention: always close a company with a complete legal procedure.

Mistake 7: Confusing bankruptcy with "debt erasure". Signs: thinking that after the Court declares bankruptcy, all owner obligations end. Consequences: overlooking the exceptions — unlimited liability of private-enterprise owners and general partners (Article 54 of the 2025 Law); liability of personal guarantors; compensation liability of managers who failed to file (Article 38(5)). Prevention: fully assess the liability structure (company type, personal guarantees, management roles) before deciding.

8. Quick checklist: 9 steps before deciding

[ ] Prepare a full schedule of debts (due, overdue, not yet due) and current assets — determine whether all debts can still be paid
[ ] Check the 06-month threshold: any debt overdue beyond 06 months (the insolvency criterion — Article 5(2) of the 2025 Law)
[ ] Review ongoing disputes at the Court or an arbitral tribunal — if any, dissolution is unavailable (Enterprise Law 2020, Article 207(2))
[ ] Identify the company type and the owners' liability scope (limited or unlimited)
[ ] Take stock of employee obligations: wage arrears, social insurance, severance
[ ] Reconcile tax obligations and prepare the tax-code termination dossier (Law on Tax Administration 2019, Article 39)
[ ] Review major asset transactions in the last 06 to 18 months to avoid voidance risk (2025 Law, Article 49)
[ ] Assess the feasibility of a rehabilitation plan if the company is only "at risk" — do not wait for collapse
[ ] Consult a lawyer before signing any dissolution resolution or rehabilitation/bankruptcy petition

9. Frequently asked questions (FAQ)

Q: My company is loss-making but can still pay its debts — should it dissolve or go bankrupt?

Short answer: Dissolve, by decision of the owner.

Explanation: Voluntary dissolution (Article 207(1)(b) of the Enterprise Law 2020) is the proactive path — no Court involvement, faster and more discreet than bankruptcy proceedings. The mandatory condition: the company must pay all debts and asset obligations, and not be involved in ongoing dispute resolution at the Court or an arbitral tribunal (Article 207(2)). Failing that condition, the dissolution dossier will be refused and the company must move to rehabilitation or bankruptcy proceedings.

Legal basis: Articles 207 and 208 of the Enterprise Law 2020.

Next step: Prepare a debt-vs-asset balance sheet to confirm the ability to pay before deciding.

Q: If the company is already insolvent, can it still dissolve?

Short answer: No.

Explanation: Article 207(2) of the Enterprise Law 2020 provides that a company may only be dissolved when it guarantees payment of all debts and other asset obligations. An insolvent company — failing to pay a debt after 06 months from the due date (Article 5(2) of the Law on Rehabilitation and Bankruptcy 2025) — does not qualify for dissolution. In that case, management is obliged to file a petition for bankruptcy proceedings (Article 38(2)); failure to file that causes damage gives rise to compensation liability (Article 38(5)).

Legal basis: Article 207 of the Enterprise Law 2020; Articles 5 and 38 of the Law on Rehabilitation and Bankruptcy 2025.

Next step: Assess the overdue-debt position immediately and prepare the filing dossier under the new law.

Q: How does the 2025 Law on Rehabilitation and Bankruptcy differ from the 2014 Law on Bankruptcy when choosing a path?

Short answer: Three key differences.

Explanation: First, the insolvency threshold changed from 03 months to 06 months from the due date (Article 5(2)). Second, the new Law prioritises rehabilitation proceedings (Article 3(1)) and allows companies to proactively file for rehabilitation as soon as there is a risk of insolvency (Article 24), instead of waiting for collapse. Third, the Law imposes a clear legal duty on management to file for bankruptcy when the company becomes insolvent, with compensation liability for breach (Article 38(2) and (5)). Important note: the 2014 Law on Bankruptcy expired on 01/03/2026.

Legal basis: Articles 3, 5, 24 and 38 of the Law on Rehabilitation and Bankruptcy 2025.

Next step: Review all internal documents still citing the old law.

Q: Will filing for bankruptcy force the business owner to pay the company's debts personally?

Short answer: Generally not, but there are important exceptions.

Explanation: LLCs and joint-stock companies are legal persons with liability limited to charter capital, so owners or shareholders do not pay company debts from personal assets. However, exceptions apply: private-enterprise owners and general partners bear unlimited liability — personal assets can also be used to pay debts (Article 54 of the 2025 Law); individuals who personally guaranteed company debts; and managers who failed to file for bankruptcy when the company became insolvent, where that failure caused damage, must compensate (Article 38(5)).

Legal basis: Articles 38 and 54 of the Law on Rehabilitation and Bankruptcy 2025.

Next step: Read FLAT's separate analysis on directors' and owners' liability in bankruptcy, or contact hotline 0988424851 to assess the liability structure of your case.

Q: Does company dissolution cost any state fees? What is the bankruptcy fee?

Short answer: Dissolution registration is fee-exempt; bankruptcy requires a fee and cost advance.

Explanation: Business dissolution registration is exempt from the business registration fee under Article 5(2) of Circular 47/2019/TT-BTC, so the state fee at the registration step is zero. For bankruptcy proceedings, the petitioner must pay the bankruptcy fee and advance the bankruptcy costs when the Court accepts the case. For the rehabilitation fee level specifically: Article 88(2) of the 2025 Law temporarily applies the bankruptcy fee level until the Standing Committee of the National Assembly sets a new one — the guidance is being finalised, so the exact amount must be checked at filing.

Legal basis: Circular 47/2019/TT-BTC, Article 5(2); Article 88(2) of the Law on Rehabilitation and Bankruptcy 2025.

Next step: Contact FLAT to be advised on the overall costs of each path based on your actual dossier.

10. When to work with a lawyer

The choice between dissolution and bankruptcy is not only a legal question but also a financial and strategic one. You should work with a lawyer as soon as any of the following signs appears:

The company has debts approaching or exceeding the 06-month overdue mark — the insolvency position and the filing duty under Article 38 of the 2025 Law need immediate assessment, because delay can trigger management's personal compensation liability.
Complex debt structure: secured bank debt alongside tax debt and employee wage arrears — a lawyer needs to sequence payment priorities and negotiate with each creditor group.
Major asset transactions in the last 06 to 18 months — the voidance risk under Article 49 needs review before filing.
The owner is a private enterprise, a general partner, or has signed personal guarantees — liability extends beyond the legal-person framework and needs separate assessment.
The company has foreign investment or cross-border obligations — the exit also involves the investment registration certificate, outward remittance and reporting obligations, which need coordinated handling.

FLAT Law Firm advises comprehensively on exit, restructuring and distressed-company options: from insolvency assessment and rehabilitation plan drafting, to filing representation and Court work, through dissolution completion, tax finalisation and tax-code termination. Contact hotline 0988424851 for advice on the path that fits your company's actual situation.

Language versions

References

Enterprise Law 2020 (59/2020/QH14), Articles 207, 208
Law on Rehabilitation and Bankruptcy 2025 (142/2025/QH15), Articles 2, 3, 5, 6, 24, 27, 28, 29, 30, 38, 39, 40, 41, 42, 46, 49, 54, 55, 88
Law on Tax Administration 2019 (38/2019/QH14), Article 39
Circular 47/2019/TT-BTC, Article 5

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