Legal regulations on liquidation of company assets

The following article analyzes the concept, legal framework, risks, and frequently asked questions regarding the liquidation of company assets, with particular emphasis on the role of legal counsel in supporting enterprises.

I. The impact of company asset liquidation in the current context

Company asset liquidation has become increasingly common amid economic fluctuations, as enterprises undergo restructuring, technological upgrades, or dissolution. Liquidation not only enables enterprises to recover capital and reduce the costs associated with maintaining obsolete or unused assets, but also facilitates the settlement of financial obligations, particularly debt repayment, while safeguarding the interests of relevant stakeholders.

However, failure to comply with legal requirements may result in disputes, loss of assets, or administrative sanctions. Thus, enterprises need to clearly understand legal matters and regulations on such liquidation. 

II. What is company asset liquidation?

Before examining the legal framework and procedures, it is essential to understand the concept and circumstances under which asset liquidation is required. It serves as a critical basis for enterprises to adopt appropriate measures, avoid legal risks, and protect the interests of relevant parties.

1. Definition of liquidation of company assets 

Liquidation of company assets refers to the process by which an enterprise sells, transfers, or disposes of assets that are no longer needed, have become obsolete or damaged, or are used to fulfill financial obligations in cases of restructuring, dissolution, or bankruptcy. Such an activity aims to recover the residual economic value of such assets and allocate it appropriately among stakeholders with legitimate interests.

2. When is asset liquidation required?

Under Clause 3.2.2, Article 35 of Circular No. 200/2014/TT-BTC, asset liquidation is conducted in the following circumstances:

• Fixed assets that are damaged beyond repair: Where assets suffer serious defects, damage, or loss that cannot be remedied for continued use, enterprises may liquidate such assets to remove them from their asset portfolio;
• Fixed assets that are technologically obsolete or unsuitable for business operations: Where assets no longer meet technological standards or operational requirements, or fail to ensure efficiency or quality in production, enterprises may liquidate them for replacement with more advanced assets.

III. Legal framework governing company asset liquidation

Asset liquidation is not merely an internal management activity but is also subject to legal regulation. Failure to comply with applicable laws may render the liquidation invalid, causing damage to the enterprise and adversely affecting the rights of creditors, shareholders, and employees. Therefore, a thorough understanding of the legal framework is essential to ensure transparency and legality.

1. Main legal provisions

Relevant legal instruments include:

• Law on Enterprise 2020 (Articles 208 and 209): Governing asset handling, financial obligations, and settlement upon enterprise dissolution;
• Circular No. 200/2014/TT-BTC: Article 35 regulating tangible fixed assets, including provisions on asset liquidation.

2. Procedures for company asset liquidation

Pursuant to Article 208 of the Law on Enterprise 2020, the procedures for asset liquidation in the context of enterprise dissolution are as follows:

- Step 1: Issuance of a liquidation decision

The liquidation decision must include:

• Timeline and procedures for contract liquidation and debt settlement;
• Plans for handling obligations arising from labor contracts;
• Full name and signature of the private enterprise owner, company owner, Chairman of the Members’ Council, or Chairman of the Board of Directors.

- Step 2: Establishment of an asset liquidation committee

The committee is responsible for:

• Reviewing and assessing the quantity and condition of assets to be liquidated;
• Valuing the assets and organizing public auction in accordance with applicable law;
• Preparing documents and reporting results to the management for approval.

- Step 3: Implementation of liquidation

• Depending on the nature and condition of the fixed assets, the committee shall propose appropriate methods of disposal, such as sale, destruction, or other forms, and submit them to the head of the enterprise for final decision.
• Based on the remaining value, the committee determines the appropriate liquidation method.

- Step 4: Handling of liquidation results

• Upon completion, a liquidation record must be prepared. The accounting department shall record the reduction of assets and their value in accordance with applicable regulations.
• For infrastructure assets of significant value funded by the State budget and assigned to enterprises for management and use, liquidation requires written approval from the State ownership representative authority. Such liquidation must also be accounted for as a reduction in the enterprise’s business capital.
• In cases involving complex asset valuation, enterprises may engage professional valuation organizations if the liquidation committee lacks the capacity or resources.

During dissolution, debts must be settled in the following order of priority:

• Salaries, severance allowances, social insurance, health insurance, unemployment insurance, and other employee entitlements;
• Tax liabilities;
• Other debts.

After all dissolution costs and debts are settled, the remaining assets shall be distributed to the private enterprise owner, members, shareholders, or company owner in proportion to their ownership interests.

3. Legal consequences of unlawful asset liquidation

Depending on the nature and severity of the violation, unlawful liquidation may result in administrative sanctions under Decree No. 82/2020/ND-CP:

• Article 77: Fines ranging from 1,000,000 VND to 3,000,000 VND for failure to submit reports on implementation of business recovery plans within the prescribed timeframe;
• Article 79: Fines ranging from 3,000,000 VND to 7,000,000 VND for conducting asset management or liquidation in conflict of interest situations or in violation of professional standards;
• Article 80: Fines ranging from 10,000,000 VND to 20,000,000 VND for collusion or asset misappropriation, including falsification of information relating to asset management and liquidation activities.

Where criminal elements are present, liability may arise under the Criminal Code 2015 (as amended in 2017), for example, Article 175 on abuse of trust to appropriate property.

IV. Questions on company asset liquidation

Enterprises often encounter issues relating to decision-making authority, scope of assets subject to liquidation, procedures in cases involving outstanding debts, or unsold assets. Non-compliance may expose enterprises to significant legal risks.

1. Who has authority to decide on asset liquidation?

Pursuant to Clause 2, Article 208 of the Law on Enterprise 2020, the private enterprise owner, Members’ Council, company owner, or Board of Directors has authority to organize asset liquidation, unless otherwise provided in the company’s charter.

2. How does asset liquidation affect debt repayment?

Under Clauses 5 and 6, Article 208 of the Law on Enterprise 2020, company assets must be prioritized for debt settlement in the following order: Dissolution costs → employee-related payments → tax liabilities → other debts.

If assets are insufficient to cover debts, bankruptcy procedures must be initiated in accordance with the Law on Bankruptcy 2014.

3. Can intangible assets such as copyrights and trademarks be liquidated?

Under Article 34 of the Law on Enterprise 2020, contributed assets include intellectual property rights. Therefore, intangible assets such as copyrights, trademarks, and patents may be liquidated.

Forms of liquidation include:

• Transfer of ownership (sale or assignment);
• Licensing or leasing of usage rights.

Due to the complexity of valuation and potential disputes, professional valuation services are recommended to ensure transparency.

4. In cases where assets cannot be successfully liquidated, how should the company proceed?

If the assets cannot be sold through auction or public offering, the company may:

• Continue seeking alternative liquidation measures: Reducing the price or revalue the assets to make them more attractive to potential buyers; changing the method of sale, for instance, instead of auctioning, the company may choose negotiated sales, transfer to partners, or conduct transactions through trading platforms, etc.
• Transfer assets to creditors for debt offset: Where liquidation in cash is not feasible, the company may negotiate with creditors to accept assets as payment obligations (e.g., transferring vehicles, machinery, or land use rights to banks or suppliers). Such an approach is typically applied where the value of the assets is equivalent or approximately equivalent to the outstanding debt.
• Include the assets in bankruptcy proceedings (if the company becomes insolvent): If the company is unable to pay due debts and the assets cannot be liquidated, creditors or the company itself may file for the initiation of bankruptcy proceedings. In such cases, the Court shall appoint an asset management officer or an asset management and liquidation enterprise to handle the assets. During bankruptcy proceedings, if the assets still cannot be sold, they may be transferred to secured creditors or handled in accordance with the mechanism for distribution of the remaining value.

The overarching principle is that assets must be fully resolved, avoiding prolonged stagnation that may hinder the termination of the company’s legal entity status.

5. What legal risks arise from improper asset liquidation?

Improper liquidation may invalidate the transaction, lead to disputes with creditors and employees, and expose company managers and shareholders to personal or even criminal liability. Strict compliance with payment priorities, procedures, and transparency is therefore essential.

V. Why enterprises should seek legal counsel for asset liquidation

Asset liquidation is a complex process directly affecting the rights of enterprises, shareholders, creditors, and partners. Without proper legal understanding, enterprises may face disputes, administrative penalties, or even criminal liability.

Legal counsel provides support in advising on procedures, drafting documentation, participating in valuation and negotiations, and mitigating legal risks. This ensures that the liquidation process is conducted transparently, lawfully, and efficiently, saving both time and costs.

Clients requiring advisory services on company asset liquidation are encouraged to contact NPLaw for direct consultation and guidance.