Legal provisions on asset valuation of branches prior to liquidation

The below article by NPLaw provides a detailed analysis of the legal provisions regarding asset valuation of branches prior to liquidation, as well as practical considerations for enterprises to ensure effective compliance and implementation.

The below article by NPLaw provides a detailed analysis of the legal provisions regarding asset valuation of branches prior to liquidation, as well as practical considerations for enterprises to ensure effective compliance and implementation.

I. Current situation regarding asset valuation of branches prior to liquidation

During their operations, many enterprises decide to cease the activities of branches due to restructuring, cost reduction, business conversion, or ineffective operations. One of the main issues to address is determining the asset value of branches before liquidation.

Current challenges in asset valuation of branches include:

Incomplete documents and information: Many branches do not maintain complete legal dossiers or accounting records for assets, especially depreciated assets or assets financed from multiple sources, making it difficult to determine their actual value.
Differences between book value and market value: Book values often differ significantly from market selling prices, particularly for long-used or specialized assets. Depending solely on book value without revaluation may cause losses for the enterprise or stakeholders.
Lack of unified standards and methods: Enterprises sometimes perform valuations internally without hiring professional appraisal organizations, resulting in subjective results lacking legal validity in disputes.
Legal risks in liquidation at incorrect values: Underestimating asset value can trigger claims from shareholders, capital contributors, or tax authorities reviewing transfer prices. Overestimating can prolong liquidation and have difficulty in finding buyers.

II. Legal provisions on asset valuation of branches prior to liquidation

1. Definition

Asset valuation is the process of determining the value of a specific asset or group of assets at a certain time. The value is expressed in monetary terms and reflects the current market value or the utility value of the asset. Such a process is generally conducted for investment, insurance, financial, or dispute resolution purposes.

In the context of branch liquidation, asset valuation of branches prior to liquidation involves determining the total current value of the branch’s assets (fixed assets, inventory, tools, machinery, property rights, ongoing contracts, etc.) as a legal basis for allocation, debt settlement, or sale for liquidation.

2. Is asset valuation of a branch prior to liquidation mandatory under the Law?

The law does not require hiring a professional appraisal organization in every case, but the asset value during liquidation must be implemented corresponding with market value and comply with principles of transparency and disclosure.

Self-valuation is permitted, but the enterprise must demonstrate that the valuation is objective in case of disputes.

3. Procedures for asset valuation of branches prior to liquidation

The typical process includes the following steps:

Step 1: Asset inventory

Conducting a comprehensive inventory of all branch assets.
Determining the legal status of each asset (ownership, usage rights, supporting documents).

Step 2: Selection of valuation method

Comparison method: Based on the market selling price of similar assets.
Cost method: Based on the cost to replace or reproduce the asset, minus depreciation.
Income method: Based on expected cash flows or economic benefits from the asset.

Step 3: The valuation

Hiring a professional appraisal organization (if required or to ensure legal validity).
Or establishing an internal valuation committee (for private companies or limited liability companies).

Step 4: Record and approval

The valuation results are written in a formal report, signed by the responsible person and approved by the authorized party.

Step 5: Use of valuation results for liquidation

Serving as a legal basis for entering asset sale contracts, conducting debt settlement, or allocating remaining value.

III. Questions on asset valuation of branches prior to liquidation

1. Which assets should be included in the branch asset valuation prior to liquidation?

According to Clause 17, Article 4 of the Law on Price 2023, appraised assets include property, goods, and services requested for valuation by an organization, agency, or individual, or required by law. These assets should be included in the branch asset valuation list prior to liquidation.

2. How long does the asset valuation process take?

The law does not set a strict duration for branch asset valuation prior to liquidation.

Practically:

It should be conducted before the official liquidation decision and in parallel with the inventory process.
For dissolving enterprises, the liquidation procedure usually lasts 6–12 months, so valuation should be completed within 30–45 days from the preparation for a asset list to minimize value fluctuations.

3. How are disputes over branch asset valuation resolved?

Internal disputes (among members, shareholders, parent company, and branches):
+ Applying the company charter or meeting minutes to reach consensus.
+ If unresolved, an independent appraisal organization may be engaged.
Disputes with third parties (partners, creditors):
+ Resolving according to contract or valuation agreement.
+ If consensus is not reached, resolution in court or commercial arbitration under civil or commercial law is applied.

4. Is hiring an organization for branch asset valuation mandatory?

The law does not mandate hiring an organization in all cases, but it is advisable in situations where:

Assets have significant value or are specialized (e.g., land use rights, industrial machinery).
There is a risk of valuation disputes.

5. Are there sanctions for not valuing branch assets before liquidation?

The law does not prescribe specific sanctions for failing to perform asset valuation prior to liquidation. However, in practice:

Liquidating assets at abnormally low prices causing loss to creditors or shareholders may lead to claims for compensation or civil/criminal liability, depending on severity.
For State-owned enterprises or those with State capital, violations may trigger sanctions under public asset management regulations.