When it comes to debt management, we often think of debt management of private enterprises. However, the debt management activities of state-owned enterprises are specifically regulated by law in many legal documents. In this article, TNTP’s lawyer will provide the main points of Decree No. 206/2013/ND-CP of the Government on debt management of enterprises with 100% state-owned charter capital (Hereinafter referred to as Decree 206/2013).
1. Classification of debts
According to Article 3 of Decree 206/2013, debts of state-owned enterprises are classified into 4 following main groups:
(i) Outstanding debts means overdue receivables which an enterprise cannot recover after having applied such handling measures as comparison, confirmation and urging of payment, and overdue payables an enterprise is unable to pay.
(ii) Bad debts mean receivables that are overdue for over 6 months (counted according to the initial payment deadline, excluding the extended payment time) and an enterprise cannot recover after having applied such handling measures as comparison, confirmation and urging of payment; or receivables which are not yet due but the debtors, who are economic institutions have fallen bankrupt, carrying out procedures for dissolution or individual debtors that are missing, have absconded, being prosecuted, held in custody or adjudicated by law agencies, enforcing the Judgement or have died.
(iii) Irrecoverable debts mean receivables that are overdue or are not yet due but fall into one of the following cases:
– Debtors are enterprises or institutions that have been completely dissolved or gone bankrupt in accordance with law.
– Debtors are enterprises or institutions that have terminated operations and are unable to pay debts and have nobody taking over their debt payment obligation.
– Individuals debtors have died, are missing or are still alive but have lost working capacity or civil act capacity, or their heirs under law have no payment capability.
– Debtors have obtained debt write-off decisions from competent agencies in accordance with law.
– They are remaining amounts of irrecoverable debts after handling the responsibilities of individuals and collectives liable to pay material compensations.
– The debt is overdue for 1 year or more, and the debtors still exist or operate but have run the business at a loss for 3 or more consecutive years, meet extreme difficulties, have no payment capability, and the enterprise cannot recover such debts after having actively applied various measures.
(iv) Unpayable debts mean due or overdue debts an enterprise is unable to pay to their creditors according to committed contracts.
2. Principles of debt management and settlement
According to Article 4 of Decree 206/2013, state-owned enterprises shall draft and issue Regulations on debt management (applicable to both receivables and payables), clearly identifying the responsibilities of competent collectives and individuals in monitoring, collecting and paying debts; comparing, confirming and classifying debts, urging the collection thereof and proactively handling outstanding debts.
In addition, for bad debts or unpayable debts, enterprises shall, first of all, make provisions according to regulations and apply every measure to recover debts and share difficulties with creditors and debtors in the handling of debts through freezing, rescheduling, write-off, purchase and sale. Enterprises shall report on cases beyond their handling capacity and competence to competent agencies for settlement support measures.
In the case of the debt receivables and payables in foreign currencies must be converted into Vietnam dong at the time of accounting and making financial statements in accordance with the law. Exchange rate differences arising in the period and resulting from the revaluation of the balances of receivables and payables in foreign currencies at the end of a fiscal year must be handled under the regulations of the Ministry of Finance.
Finally, once every six months and at the end of the fiscal year, when making and submitting financial reports and supervision reports, enterprises shall report to the owners on the management and collection of debts, handling of outstanding debts, the debt payment capability and situation according to this Decree.
3. Order of handling of irrecoverable debts
According to Article 7 of Decree 206/2013, the debt handling order is applied according to 03 main groups including:
(i) For irrecoverable debts, it must be handled in the following sequence:
– Enterprises identify the causes and liabilities of collectives and individuals and request such collectives and individuals to pay compensations under law.
– Using the provisions for bad debts to offset.
– Accounting them into business expenses or incomes of enterprises on a case-by-case basis.
(ii) For enterprises that are transforming, if they suffer losses after handling once irrecoverable debts under Clause (i), they may continue handling them under state regulations applicable to transformed enterprises.
(iii) For irrecoverable debts that have been handled (excluding sale of debts) but debtors still exist, enterprises shall continue monitoring them off the balance sheet and in the notes to financial statement for at least 10 years from the date of handling and take measures to recover these debts. If recovering these debts, enterprises can account for the recovered amounts minus related expenses into their incomes.
In addition, agencies receiving these debts shall continue monitoring and collecting irrecoverable debts that have been handled but the debtors still exist. During the handover pending time, enterprises must still monitor and collect these debts.
From the above analysis, it is evident that the sequences and procedures of debt management in state-owned enterprises share some similarities with those of private enterprises. These include management by Regulations, debt classification, and the method of handling debts from the easiest to the most difficult to collect. However, due to the unique characteristics of state-owned enterprises with 100% charter capital, which is directly regulated by administrative organization regulations and has an organizational structure similar to state agencies — these enterprises must adhere to specific state-issued debt management regulations. This requirement significantly limits their flexibility in conducting debt management and collection activities compared to private enterprises.
Above is TNTP’s lawyer article about Decree No. 206/2013/ND-CP of the Government on debt management of enterprises with 100% state-owned charter capital. Hope this article is useful to readers.
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