Insolvency and Winding Up: Vietnam vs Australia — Which Is Tougher for FDI Firms

In short: both Vietnam and Australia offer two exits — voluntary (winding up while solvent) and compulsory (bankruptcy while insolvent) — but the procedural logic differs fundamentally. In Vietnam, the Law on Recovery and Bankruptcy 142/2025/QH15 (effective 1 March 2026) replaces the Bankruptcy Law 51/2014/QH13, emphasising business recovery before liquidation. In Australia, the Corporations Act 2001 (Cth), Chapter 5, builds a pragmatic “voluntary administration” system: a distressed company gets its debts frozen while negotiating a rescue deal (DOCA) with creditors. For FDI firms the question is not “which country is easier” but “where does the director face greater personal risk”.

Vietnam: recovery first, liquidation after

Under Law 142/2025, when an enterprise becomes insolvent, bankruptcy proceedings are handled by the People’s Court. The new law’s emphasis is the recovery mechanism: the enterprise draws up a business recovery plan, creditors vote, and only if recovery fails does the process move to liquidating assets for distribution in the statutory priority order (employee wages, taxes, secured debts, unsecured debts…). For an FDI company that remains solvent but wants to exit, the route is voluntary dissolution under the Enterprise Law — tax finalisation, asset liquidation, full debt repayment, then deregistration; in practice this often drags because of the tax-finalisation stage.

Australia: voluntary administration — freeze to negotiate

In Australia, when directors see insolvency looming, they may appoint a voluntary administrator — an independent professional who takes over management. Immediately, most creditor claims and legal actions against the company are frozen (moratorium), creating breathing room for the administrator to assess and recommend one of three paths: return the company to directors, sign a deed of company arrangement (DOCA) with creditors, or liquidate. The DOCA is flexible: creditors may agree to reschedule, reduce or convert debt to equity so the company survives — far more practical than pushing everything into court.

The biggest difference: directors’ personal liability

This is where FDI firms must be most alert. In Australia, section 588G of the Corporations Act requires directors to prevent the company trading while insolvent — breach can bring personal compensation liability and even criminal exposure. A subsidiary director in Australia must not “trade through” once the company is exhausted. In Vietnam, the law also punishes asset-stripping and bankruptcy fraud, but there is no Australian-style “freeze plus fast negotiation” mechanism — everything runs through the courts with tighter, usually slower, procedures.

A checklist for FDI firms closing a subsidiary

Still solvent: choose voluntary dissolution and prioritise early tax finalisation (the time bottleneck in Vietnam). Insolvent in Australia: consider voluntary administration at the first warning signs — delay increases the director’s insolvent-trading risk. Insolvent in Vietnam: prepare a complete court file and consider the recovery plan, since the new law prioritises that route. In all cases, do not move assets out of the company before closure — that conduct is punished in both countries.

This article has been quality-reviewed by the FLAW AI Legal Council