Undisclosed bankruptcy is not only an unfaith act but also a serious violation of legal regulations, causing potentially severe legal consequences. In the following article, NPLaw provides an in-depth analysis of the current situation of undisclosed bankruptcy, examines relevant legal provisions, clarifies the concept, causes, and consequences of such conduct, and outlines preventive measures to help enterprises understand bankruptcy procedures, ensure legal compliance, and minimize risks, while they also assist creditors in protecting their lawful rights and interests when a business partner undergoes bankruptcy without prior notice.

I. Current situation of undisclosed bankruptcy

In practice, undisclosed bankruptcy occurs in various forms, ranging from ceasing operations and absconding from the registered place of business, to deliberately concealing financial obstacles and failing to implement statutory legal procedures. According to the General Statistics Office, more than 178,000 enterprises ceased operations or went bankrupt in 2024, many of which did not make public disclosures. These enterprises often share common characteristics such as weak financial capacity, heavy debt burdens, and signs of asset dissipation prior to disappearing.

The consequences of undisclosed bankruptcy are extremely serious, including:

  • Damage to creditors: Creditors are not informed of the enterprise’s bankruptcy status and thus lose the opportunity to participate in debt settlement procedures, facing the risk of losing the entire amount owed.
  • Adverse impact on employees: Employees may not receive salaries or severance allowances and lose opportunities to seek new employment.
  • Market disruption: Undisclosed bankruptcy creates unfair competition, undermines investor confidence, and negatively affects the business market.
  • Losses to the State budget: Enterprises evade taxes and fail to fulfill financial obligations to the State.

II. Legal provisions related to undisclosed bankruptcy

1. What is undisclosed bankruptcy?

Vietnamese law does not expressly define the definition of undisclosed bankruptcy. However, pursuant to Clause 2, Article 4 of the Law on Bankruptcy 2014, bankruptcy is the status of an enterprise or cooperative that becomes insolvent and is declared bankrupt by a People’s Court. Accordingly, undisclosed bankruptcy may be understood as a situation where an enterprise or cooperative undergoes bankruptcy  (i.e., is unable to pay due debts) but fails to fulfill the obligation to request bankruptcy proceedings as prescribed in Article 5 of the Law on Bankruptcy 2014. 

2. Causes leading to undisclosed bankruptcy

There are various causes of undisclosed bankruptcy, including:

  • Lack of legal knowledge: The legal representative is unaware of the obligation to file a petition for requesting bankruptcy proceedings when the enterprise becomes insolvent (Article 5, Law on Bankruptcy 2014).
  • Intentional concealment: The enterprise deliberately avoids disclosure to delay debt repayment, evade legal liabilities, or dissipate assets.
  • Financial difficulties: The enterprise lacks sufficient funds to make public disclosures or pay bankruptcy-related fees.
  • Poor governance: Ineffective financial management systems prevent early detection of insolvency.

3. Sanctions for failure to publicly announce the decision to initiate bankruptcy proceedings

Pursuant to Article 44 of the Law on Bankruptcy 2014, after a Judge issues a decision to initiate bankruptcy proceedings, the People’s Court must publicly announce such decision on the National Enterprise Registration Portal and in two consecutive issues of a centrally issued printed or broadcast newspaper.

Failure to publicly announce the decision to initiate bankruptcy proceedings constitutes a violation of law and may be subject to administrative sanctions under Chapter VI of Decree No. 82/2015/NĐ-CP on administrative fines in the sector of planning and investment. The specific fine depends on the nature and severity of the violation. For example, a fine ranging from 3,000,000 VND to 5,000,000 VND may be imposed for failure to publicly announce the decision on the national bankruptcy information portal or mass media (Article 71, Decree No. 82/2015/NĐ-CP).'

It should be noted that the maximum administrative fine applicable to individuals in enterprise and cooperative bankruptcy is 40,000,000 VND (Article 4, Decree No. 82/2015/NĐ-CP).

4. Legal consequences of unilateral undisclosed bankruptcy

Undisclosed bankruptcy causes a number of serious legal consequences:

  • For the enterprise: It may be subject to administrative sanctions under Chapter VI of Decree No. 82/2015/NĐ-CP. Transactions conducted during the period of non-disclosure may be declared invalid (Article 60, Law on Bankruptcy 2014). The legal representative may be liable for damages if the failure to disclose is intentional (Article 584, Civil Code 2015).
  • For creditors and employees: Their rights and interests may not be timely protected, including claims for wages, debts, or severance allowances (Article 48, Labor Code 2019), and the liquidation and distribution process may be delayed.
  • For society: Such conduct contributes to non-performing loans, waste of resources, and diminished confidence in the legal system.

III. Questions regarding undisclosed bankruptcy

1. Does undisclosed bankruptcy violate the procedure for initiating bankruptcy proceedings?

Undisclosed bankruptcy violates the statutory procedure for initiating bankruptcy proceedings. Under Article 6 of the Law on Bankruptcy 2014, individuals, agencies, or organizations that detect an enterprise’s insolvency must notify in writing those entitled to file a bankruptcy petition (creditors, employees, shareholders). Failure to provide such notice disrupts the filing and acceptance process and violates regulations on the duration for issuing decisions on whether to initiate bankruptcy proceedings (30 days from the date of acceptance, Article 42, Law on Bankruptcy 2014).

2. Is it necessary to notify creditors of the decision on initiating bankruptcy proceedings?

Decisions to initiate or refuse to initiate bankruptcy proceedings must be notified to relevant parties, including:

  • Creditors: Decisions to initiate bankruptcy proceedings must be sent to unsecured creditors and partially secured creditors so that they may declare their claims (Article 42, Law on Bankruptcy 2014).
  • The enterprise subject to bankruptcy: The enterprise is notified to fulfill asset-related obligations.
  • The People’s Procuracy at the same level: The People’s Procuracy is entitled to receive a notice to ensure supervision of the bankruptcy process (Article 43, Law on Bankruptcy 2014).

Such decisions must also be publicly announced on the national bankruptcy information portal or mass media within three working days from the date of issuance.

3. What is the bankruptcy procedure?

The bankruptcy procedure is comprehensively regulated in Chapter III of the Law on Bankruptcy 2014 and generally includes the following steps:

  • Filing a petition for initiation of bankruptcy proceedings: Creditors, employees, shareholders, or the legal representative file a petition together with documents evidencing insolvency (Article 26).
  • Acceptance of the petition: The Court assigns a Judge or a Panel of Judges within three days from receipt of the petition (Article 42).
  • Issuance of a decision to initiate or refuse to initiate bankruptcy proceedings: Within 30 days from acceptance (Article 42).
  • Public announcement: The decision is publicly announced and sent to relevant parties.
  • Creditors’ meeting: If proceedings are initiated, a creditors’ meeting is convened to discuss restructuring or liquidation plans (Article 83).
  • Business recovery (if feasible): The enterprise implements a recovery plan under court and creditor supervision (Chapter V).
  • Asset liquidation: If recovery is not feasible, the Court declares bankruptcy and liquidates the enterprise’s assets to repay creditors in the statutory order of priority (Chapter VI).

4. Measures to prevent undisclosed bankruptcy

To avoid undisclosed bankruptcy and ensure compliance with legal requirements, enterprises may consider the following measures:

  • Strengthening financial management: Establishing effective cash flow monitoring systems to promptly detect insolvency risks.
  • Early legal consultation: Regularly consulting legal counsel to understand disclosure obligations and bankruptcy procedures (Article 6, Law on Bankruptcy 2014).
  • Recovery measures: Proactively mobilizing capital, restructuring debts, or seeking mergers and acquisitions to avoid bankruptcy (Article 88, Law on Bankruptcy 2014).
  • Personnel training: Enhancing awareness of bankruptcy law among legal representatives and financial staff.
  • Information disclosure: Ensuring timely and proper public disclosure of decisions to initiate bankruptcy proceedings through the prescribed channels.

IV. Legal advisory services related to undisclosed bankruptcy

NPLaw provides professional legal advisory services relating to undisclosed bankruptcy, assisting enterprises with:

  • Assessing financial conditions and bankruptcy risks;
  • Advising on bankruptcy procedures in accordance with law;
  • Preparing petitions and related legal documents for the initiation of bankruptcy proceedings;
  • Representing enterprises in dealings with Courts and competent authorities;
  • Advising on the protection of enterprises’ rights and interests during bankruptcy proceedings;
  • Appointing lawyers to participate in litigation to safeguard clients’ lawful interests.

Please contact NPLaw today for professional legal consultation and assistance regarding undisclosed bankruptcy. We are committed to accompanying you in effectively resolving legal issues and maximizing the protection of your legitimate rights and interests.