Enterprise dissolution is a mechanism for businesses to withdraw from the market while still ensuring solvency. The nature of dissolution is to terminate the operation of the enterprise and terminate all relations between the enterprise and the entities that are having relations with the enterprise. Therefore, in order to protect these subjects and preventing enterprises from evading responsibility, enterprises must comply with the provisions of the law on enterprise dissolution. In this article, TNTP’s lawyers will present the regulations on enterprise dissolution according to the current enterprise law, specifically the Law on Enterprises 2020.
1. What is enterprise dissolution?
Currently, the Law on Enterprises 2020 and its detailing documents do not stipulate the concept of enterprise dissolution. However, it can be understood that enterprise dissolution is the process of terminating the existence of an enterprise on the condition that the enterprise is able to pay or ensure the ability to pay the property obligations that enterprises created in the course of operation. Enterprise dissolution differs from the termination of operation through enterprise bankruptcy procedures in that the dissolved enterprise is still solvent and not in the state of debt insolvency as for enterprises that have to carry out bankruptcy procedures.
2. Cases of and conditions for enterprise dissolution
Pursuant to Clause 1 Article 207 of the Law on Enterprises 2020, the cases in which an enterprise shall be dissolved include:
– The operation duration stated in the company charter expires and no decision to extend such operation duration is issued;
– According to the resolution or decision of the enterprise owner, for a sole proprietorship, of the Members’ Council, for a partnership, of the Members’ Council or the company owner, for a limited liability company, or of the General Meeting of Shareholders, for a joint stock company;
– The company no longer satisfies the requirement on the minimum number of members prescribed in Law on Enterprises for 6 consecutive months without carrying out enterprise transformation procedures.
– The enterprise has its Enterprise Registration Certificate revoked unless otherwise prescribed in the Law on Tax Administration.
In the above cases, the enterprise can only choose and proceed with the dissolution when the following conditions are met:
– The enterprise shall ensure the payment of all debts and other property obligations; and
– he enterprise is not in the process of resolving the dispute at the Court or Arbitration.
In case the enterprise has its Enterprise Registration Certificate revoked, the related managers and the enterprise must be jointly responsible for the enterprise’s debts.
3. Enterprise dissolution documents
Pursuant to Article 210 of the Law on Enterprises 2020, an enterprise dissolution dossier includes:
– Notice of the enterprise’s dissolution;
– Report on liquidation of enterprise assets;
– List of creditors and amounts of paid debts, including the paid outstanding tax amounts and social insurance, health insurance and unemployment insurance premiums for employees, if any, after the dissolution of the enterprise is decided.
Regarding the responsibilities of members, shareholders, owners of private enterprises, and company managers for the truthfulness and accuracy of the dissolution dossier:
– Responsible entities include: Members of the Board of Directors, for a joint stock company, members of the Members’ Council, for a limited liability company, company owner, or the owner, for a sole proprietorship, the Chief Executive Officer, general partners, and at-law representative of the enterprise.
– In case the dissolution dossier is inaccurate or fraud, the above-mentioned persons must be jointly liable for settlement of the unsettled interests of employees, payment of outstanding tax amounts and other debts, and personally responsible for the consequences arising within 5 years from the date of submission of the enterprise dissolution dossier to the Business Registration Agency.
According to the above provisions, it can be seen that in order to dissolve, the enterprise must fulfill all debts and obligations to partners; obligations to pay salaries to employees; pay taxes and other expenses to state agencies, because the termination of the operation of enterprises without completing their civil obligations to other partners and obligations to state agencies will likely infringe upon the legitimate rights and interests of these subjects. The Law also stipulates the responsibilities of members, shareholders, owners of private enterprises, and managers of the dissolved companies within 05 years if the dissolution dossier is inaccurate or forged to minimize the case of taking advantage of the dissolution of the enterprise in order to evade the performance of obligations to employees, partners and state agencies.
4. Prohibited activities from the date of issuance of dissolution decisions
Pursuant to Article 211 of the Law on Enterprises 2020, from the issuance of the decision to dissolve the enterprise, the enterprise and its managers are prohibited from carrying out the following activities:
(i) Concealing or dispersing assets;
(ii) Waiving or lessening the right to claim debts;
(iii) Converting unsecured debts into debts secured with assets of the enterprise;
(iv) Signing new contracts, except contracts for the purpose of dissolution of the enterprise;
(v) Pledging, mortgaging, giving or leasing assets;
(vi) Terminating the performance of any contract which has taken effect;
(vii) Raising capital in any form.
In case the manager commits the above-mentioned prohibited acts, depending on the nature and severity of the violation, the manager shall be administratively sanctioned or examined for penal liability and pay compensation if causing damage.
Above is the article “Dissolution of enterprises according to the Law on Enterprises 2020” that TNTP sends to readers. TNTP hopes that the article will bring useful value to readers.
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