How to collect debts for “abscond enterprises “

Debts are inevitable in business. However, some debtors – particularly companies – deliberately abscond or cease operations without fulfilling their payment obligations. This causes significant financial loss to creditors and raises an important question: How can debts be recovered when the debtor enterprise has “disappeared”? This article by TNTP analyzes the legal framework, possible recovery approaches and practical recommendations to help creditors navigate debt collection against absconding enterprises.

1. Legal provisions governing absconded enterprises

Current legal framework

Vietnamese law does not currently define or directly regulate an “absconding enterprise”. However, the term is commonly understood to describe a situation where an enterprise ceases operations, fails to fulfill its financial obligations or abandons its business location without completing the required legal termination procedures.

The situation of an absconding enterprise is often identified through certain indicators, such as: the enterprise no longer operating at its registered address, failure to notify competent authorities of its suspension, failure to file tax declarations and finalize tax reports or instances where the legal representative or business owner intentionally evades financial and legal responsibilities.

Legal gaps and practical implications

Without specific guidelines or a unified legal mechanism, the management, identification and resolution of obligations related to absconding enterprises remain unclear. State authorities lack a clear procedure to handle these enterprises’ assets and financial obligations. This legal gap creates significant challenges in debt recovery, including:

• The absence of a standardized legal process for creditors to request state authorities to handle assets belonging to absconding enterprises.
• No clear legal provisions on the distribution and settlement of outstanding obligations, including unpaid wages, social insurance, health insurance, tax debts and commercial liabilities.
• Difficulties in identifying the person legally responsible when the legal representative or owner has left their residence or cannot be located.

2. Debt recovery through litigation and enforcement

When the debtor enterprise absconds or deliberately avoids contact, negotiation or mediation becomes virtually impossible. In such cases, the creditor may initiate a lawsuit at the Court or file a claim with an Arbitration Center (if the contract contains an arbitration clause).

• Under Article 39 of the Civil Procedure Code 2015, civil and commercial disputes fall under the jurisdiction of the People’s Court where the defendant resides, works or has its head office. If the debtor’s current address cannot be identified, the creditor may submit the petition to the Court at the debtor’s last registered business address or where any remaining assets are located (pursuant to Article 40 of the Civil Procedure Code 2015).
• Regarding arbitration proceedings, under Articles 5 and 6 of the Law on Commercial Arbitration 2010, only disputes with a valid arbitration agreement between the parties may be resolved by an Arbitration Center. If the contract contains a valid arbitration clause, the creditor is entitled to submit a request for dispute resolution to the designated Arbitration Center or any center mutually agreed upon by the parties. Conversely, if there is no arbitration agreement or if the clause is invalid or unclear, the dispute will fall under the jurisdiction of the People’s Court in accordance with the Civil Procedure Code.

Litigation against an absconding enterprise remains a legitimate and effective legal method to pursue debt recovery. However, to ensure success, creditors should take the following steps:

• Prepare complete documentation and evidence: including contracts, invoices, debt reconciliation minutes, correspondence and all documents proving the debtor’s payment obligation.
• Monitor legal and operational information of the debtor through official channels to detect any signs of absconding or relocation.
• Actively verify and collect information on the debtor’s assets, such as real estate, vehicles or bank accounts, to facilitate enforcement proceedings.
• Strictly comply with all procedural and documentary requirements and maintain effective communication with competent authorities.
• Authorize an experienced debt recovery lawyer or law firm to assist with document preparation, case filing and representation during litigation.

Once a enforceable court judgment or arbitral award takes effect and is not annulled, the creditor must file a petition for enforcement with the Civil Judgment Enforcement Department having jurisdiction (as per Article 30 of the Law on Civil Judgment Enforcement 2008, amended in 2014). The enforcement authority may take measures such as: (i) Verifying the debtor’s assets; (ii) Seizing, confiscating and auctioning assets to satisfy the debt; (iii) Applying coercive measures if the debtor or its representative refuses to cooperate – ensuring the debtor fulfills its payment obligation.

3. Filing a petition for bankruptcy proceedings to recover the debt from absconding enterprises

Conditions and purpose of bankruptcy proceedings

Under Articles 5 and 26 of the Law on Bankruptcy 2014, an unsecured or partially secured creditor may file a petition to initiate bankruptcy proceedings if the enterprise fails to pay its debts within three months of the due date. The purpose of such proceedings is for the Court to determine insolvency, appoint an Asset Manager or Liquidation Enterprise, liquidate the remaining assets and distribute proceeds to creditors in accordance with the law.

Nature of bankruptcy proceedings

The essence of bankruptcy proceedings is a legal process conducted by the Court to resolve an enterprise’s insolvency, protect the rights and interests of creditors and related parties and determine a plan for disposing of the enterprise’s assets in a fair manner, in accordance with the order of priority established by law.

Upon receiving a valid bankruptcy petition, the Court will review the dossier and issue a decision to either open or reject the proceedings. If opened, the Court will conduct asset inventory, prepare a list of creditors and convene a creditors’ meeting to discuss available options – including rehabilitation or declaration of bankruptcy. Once bankruptcy is declared, the debtor’s assets will be liquidated and distributed according to the statutory priority order.

Order of debt repayment after bankruptcy declaration

According to Article 54 of the Law on Bankruptcy 2014, the debtor’s assets shall be distributed in the following order:

• Bankruptcy expenses;
• Unpaid wages, severance allowances, social and health insurance and other benefits owed to employees;
• Debts incurred after the commencement of bankruptcy proceedings for the purpose of business recovery;
• Tax obligations and other financial duties owed to the State;
• Unsecured debts payable to creditors on the creditors’ list; secured debts that remain unpaid because the value of the collateral is insufficient to repay the debt.

If the remaining assets are insufficient, creditors of the same priority level will be repaid proportionally to the amount of their claims.

Bankruptcy is regarded as the final legal remedy, suitable only when the debtor enterprise is genuinely insolvent. The execution of the bankruptcy declaration decision is carried out by the competent Civil Judgment Enforcement Department. Although full recovery may not be possible, this remains an effective legal avenue for debt collection.

4. Practical notes for creditors

In the process of recovering debts from absconding enterprises, understanding and complying with the law is necessary but not sufficient. To maximize recovery efficiency, creditors should pay attention to the following key practical points:

• Collect evidence early: As soon as signs of absconding are detected, promptly gather and preserve all relevant documents such as contracts, invoices, payment records and debt reconciliation reports. These materials are crucial for filing lawsuits or bankruptcy petitions.
• Monitor debtor’s assets: Proactively track and verify information on the debtor’s assets, real estate, bank accounts or receivables to prevent concealment or dissipation of assets.
• Seek professional legal support: Given the complexity of these cases, creditors should engage a law firm or lawyer specializing in debt recovery to assist in determining the appropriate legal approach, preparing documents, liaising with authorities and overseeing enforcement.

The above analysis by TNTP outlines the procedures for recovering debts from absconding enterprises. This is clearly a complex legal process that requires in-depth legal knowledge, procedural expertise and practical experience. Having a professional lawyer guide the process helps creditors choose the correct legal course, minimize risks, save time and fully protect their lawful financial interests.