Options for handling inactive companies: Dissolution, Bankruptcy or Transfer?

In the structure of many Vietnamese conglomerates today, it is not difficult to identify the existence of subsidiary companies that have ceased operations long ago – perhaps remnants of failed investment projects, business lines that have been phased out, or simply the result of incomplete restructuring processes. These legal entities continue to exist on paper, consuming annual maintenance costs, and in many cases, accumulating tax or social insurance debts that go unnoticed until the problem becomes serious. 

The question arises: how should these legal ‘zombies’ be handled? Vietnamese law provides three main pathways – voluntary dissolution, recovery/bankruptcy proceedings, and transfer of capital contributions or shares. Each option has different conditions for application, implementation procedures, and legal consequences. Choosing the wrong option not only wastes resources but may also lead to legal liability for the legal representative. This article analyzes each option from both legal and practical perspectives to help businesses make appropriate decisions. 

1. Determining legal status 

Before discussing solutions, it is essential to accurately determine the current legal status of the company. This is not merely a technical issue but has decisive significance for which option is legal and feasible. A common mistake in practice is that businesses attempt to dissolve when they have actually fallen into insolvency – this not only violates the law but may also cause the legal representative to bear liability for damages. 

The Law on Recovery and Bankruptcy 2025 has established a clearer classification framework compared to the Bankruptcy Law 2014. According to Article 5, two states need to be distinguished: ‘at risk of losing payment capacity’ and ‘loss of payment capacity.’ The difference lies in the time threshold: if the debt is overdue but has not exceeded 6 months, the enterprise is considered ‘at risk’ and can proactively file an application for recovery procedures. Conversely, if the debt has been overdue for more than 6 months and the enterprise has no ability to pay, it has fallen into a state of ‘loss of payment capacity.’ 

This 6-month threshold is a significant adjustment compared to the Bankruptcy Law 2014 (previously 3 months). The change reflects legislators’ recognition that businesses need more time to seek restructuring solutions before being pushed into bankruptcy proceedings. However, this also means that businesses have greater responsibility in actively monitoring their debt status and taking timely action when necessary. 

To properly determine the status, businesses need to conduct an internal legal audit including: compiling all debts by maturity date, verifying tax and social insurance obligations with state agencies, checking ongoing or potential disputes, and evaluating the remaining value of the company (if considering transfer). The result of this audit will indicate the appropriate path: if the company is ‘debt-free’ – dissolution; if it still has value and someone wants to take over – transfer; if at risk or has lost payment capacity – recovery or bankruptcy. 

2. Voluntary dissolution: the path for debt-free enterprises 

Voluntary dissolution is the simplest option in terms of procedures and the least costly in terms of expenses. However, the prerequisite condition according to Article 207, Clause 2 of the Enterprise Law 2020 is that the enterprise must have paid all debts and other property obligations, and is not in the process of resolving disputes at Court or Arbitration. In other words, dissolution is for enterprises that are no longer legally ‘encumbered.’ 

2.1. Implementation process 

The dissolution process according to Articles 208 and 209 of the Enterprise Law 2020 begins with the competent authority of the company (General Meeting of Shareholders, Members’ Council, or owner depending on the type) approving the dissolution decision. This decision must be sent to the Business Registration Agency, notified to creditors and employees, and published on the National Enterprise Registration Portal. Within 180 days from the date of publication, the enterprise must complete the liquidation of assets, payment of debts, and submit the cessation of operation dossier to the Department of Finance. 

2.2. Practical bottleneck: tax and social insurance knot 

In practice, the biggest bottleneck in the dissolution process is not in administrative procedures but in tax obligations. According to regulations, enterprises must complete tax finalization and receive confirmation from the tax authority that they have fulfilled their obligations before they can cease operations. If the company is subject to tax enforcement measures, the dissolution process will be stalled until tax obligations are fully paid. 

This is why many inactive business entities still exist year after year without being able to dissolve. Incomplete accounting records make tax finalization complex; accumulated tax debts from many years ago exceed the payment capacity of the owner. 

In terms of advantages and disadvantages, dissolution has low costs (mainly administrative and accounting costs), clear procedures, and more importantly, does not carry negative implications like bankruptcy—the legal representative and owner are not affected in terms of business reputation. However, if the enterprise has actually lost payment capacity but deliberately proceeds with dissolution, this is a violation of the law and may result in compensation liability. 

3. Recovery and Bankruptcy 

The Law on Recovery and Bankruptcy 2025 marks an important shift in legislative thinking about handling enterprises that have lost payment capacity. Unlike the Bankruptcy Law 2014 – when recovery procedures were only an optional stage in the bankruptcy process – the new Law separates recovery procedures as an independent pathway. 

3.1. Recovery procedure: opportunity for enterprises with potential 

According to Article 3, Clause 1 and Article 24, Clause 1 of the Law on Recovery and Bankruptcy 2025, enterprises ‘at risk of losing payment capacity’ – that is, having debts that will mature within 6 months or are overdue but not exceeding 6 months – can proactively file an application for recovery procedures. The application must be accompanied by a business recovery plan, which presents the causes leading to difficulties, remedial measures, debt payment roadmap, and commitments from related parties. 

Notably, when the Court accepts the recovery application, the enterprise enjoys certain important benefits according to Article 30, Clause 3. Specifically, outstanding tax debts are frozen (late payment interest is not calculated during the implementation of the recovery plan), and the enterprise is temporarily suspended from contributing to retirement and death benefit funds. These measures allow the enterprise to concentrate resources on recovering business operations instead of having to deal with debt collection pressure from multiple sides. 

However, the recovery plan must be approved by the Creditors’ Meeting according to Article 33. If creditors do not agree with the plan (because they believe the enterprise does not have real capacity to recover, or the plan does not ensure their rights), the Court will proceed to bankruptcy procedures according to Article 33, Clause 7, Point c. Thus, recovery procedures require the enterprise to have a feasible plan and the ability to convince creditors – not just simply a delaying tactic. 

3.2. Obligation to file for bankruptcy 

One of the most important provisions that legal representatives need to understand clearly is the obligation to file an application to initiate bankruptcy proceedings. According to Article 38, Clause 2 of the Law on Recovery and Bankruptcy 2025, when an enterprise has lost payment capacity (debts overdue for more than 6 months and no ability to pay), the legal representative, Board of Directors or Members’ Council, and the owner of private enterprises have the obligation – not the right – to file an application to initiate bankruptcy proceedings. 

The consequence of not fulfilling this obligation is clearly stated in Article 38, Clause 5: the person obligated to file must bear responsibility for damages arising after the time the enterprise lost payment capacity. This is not a theoretical provision – in practice, creditors can cite this clause to request that the legal representative compensate for damages if the delay in filing for bankruptcy causes the enterprise’s financial situation to deteriorate further and reduces their ability to recover debts. 

4. Transfer of capital contributions and shares: retaining the legal entity, changing ownership 

Unlike the two options above, transferring capital contributions or shares does not terminate the existence of the legal entity. The company continues to operate with full legal capacity, only changing its ownership structure. This is a suitable choice when the company still has value – whether tangible assets such as land, factories, machinery; intangible assets such as special licenses, trademarks, customer base, or simply a ‘clean operating history’ that buyers want to utilize instead of establishing a new enterprise. 

The essential point that any buyer must understand clearly is: when purchasing capital contributions or shares, they are taking over the entire legal history of the company, including obligations that have not yet surfaced. Unlike purchasing assets (when the buyer only receives what is specifically transferred), purchasing capital contributions or shares is ‘buying the whole company’ with all rights and obligations attached. 

These ‘hidden debts’ may include: accumulated tax debts from previous years that have not yet been discovered by tax authorities; unfulfilled social insurance obligations; ongoing or potential labor disputes; environmental, construction, and fire prevention violations that have not been handled; unfavorable contractual commitments with partners; or even potential litigation from third parties. All these risks will ‘follow’ the company and become problems for the new owner after the transaction is completed. 

This is why legal due diligence is a mandatory step before signing the transfer agreement. The due diligence process needs to include: reviewing tax records, verifying social insurance obligation status with insurance agencies, checking the list of valid contracts and potential commitments, collecting information about ongoing or potential disputes, and verifying the status of subsidiary licenses, among others. 

5. General comparison and option selection 

To assist businesses in making decisions, the table below summarizes the main characteristics of each option: 

Criteria	Dissolution	Recovery / Bankruptcy	Transfer
Conditions	All debts paid, no disputes	At risk or lost payment capacity (6-month threshold)	Company has value, interested buyer
Legal Entity Fate	Ceases to exist	Ceases (bankruptcy) or continues (recovery)	Continues with new owner
Expected Timeline	6–24 months	2–4 years (simplified: ~6–18 months)	1–3 months
Main Risks	Bottleneck in tax finalization, social insurance	Representative liability if filing delayed	Hidden debts transfer to buyer
Costs	Low (administrative, accounting)	Medium (Trustee, litigation)	Medium – High (due diligence, legal, tax)
Legal Basis	Enterprise Law 2020	Law on Recovery and Bankruptcy 2025	Enterprise Law 2020

There is no ‘best’ option for all cases. The appropriate choice depends on the company’s actual financial situation (whether in debt or debt-free, how much asset value remains), the owner’s objectives (wanting to divest or completely cease), and the ability to find potential buyers (if the company still has value). What is important is to correctly determine the legal status before making a decision, to avoid choosing an inappropriate option and incurring unnecessary legal liability. 

6. Conclusion 

Handling inactive companies is not merely an administrative matter but a legal decision with long-term consequences. Before deciding on a handling option, businesses should conduct a comprehensive internal legal audit, focusing on: accurately determining total debts and the maturity date of each item; verifying tax and social insurance obligation status with state agencies; checking ongoing or potential disputes; and evaluating the company’s remaining value (if considering transfer). The result of the audit will be the basis for selecting the appropriate approach and developing a detailed implementation plan.

Submission date: 20/04/2026

Related posts

1. Enterprise dissolution under prevailing regulations
2. Procedure for organizing a General Meeting of Shareholders under the Law on Enterprises 2020
3. Share transfer to foreign investors: conditions and procedures to know

Disclaimers:

This article is for general information purposes only and is not intended to provide any legal advice for any particular case. The legal provisions referenced in the content are in effect at the time of publication but may have expired at the time you read the content. We therefore advise that you always consult a professional consultant before applying any content.

For issues related to the content or intellectual property rights of the article, please email cs@apolatlegal.vn.

Apolat Legal is a law firm in Vietnam with experience and capacity to provide consulting services related to Business and Investment and contact our team of lawyers in Vietnam via email info@apolatlegal.com.

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