Draft Law on Bankruptcy (amended) is currently under review by the National Assembly to amend and supplement provisions that were inadequate in practice, remove bottlenecks in the bankruptcy process, and pave the way for entities to recover their business operations. To facilitate the recovery and bankruptcy process, Draft Law on Bankruptcy (amended) strengthens the dispute resolution mechanism in the bankruptcy process. Notably, a mediation mechanism is suggested to supplement the bankruptcy process.

There is a practical need for the participation of a competent intermediary (such as a Judge, an asset management officer, or a professional commercial mediator) to resolve disputes arising before and during the bankruptcy process. Law on Bankruptcy 2014 only regulates negotiation between creditors who make written requests for initiation of the bankruptcy process and an insolvent entity (Article 37, Law on Bankruptcy 2014), without establishing a mediation mechanism between the parties. Hence, even where Judges or asset management officers mediate successfully between parties in the dispute, there is no legal basis for Judges or asset management officers to make a record of successful conciliation and recognise the parties’ agreement. From the practice of applying recovery in business operations or bankruptcy process of insolvent entities in some countries, banks (creditors of secured debts) have agreements on collective negotiation and mediation to restructure debts, thereby enabling enterprises to restructure debts, and also ensure optimal outcomes for enterprises, creditors, and related parties. To create similar conditions for Vietnamese banks and enterprises, Draft Law on Bankruptcy (amended) needs to have a mechanism that recognises dispute resolution options built on the good faith of the parties.

Draft Law on Bankruptcy (amended) revises regulations on negotiation and supplements the mediation mechanism during the process of bankruptcy settlement. Specifically, enterprises, cooperatives, creditors, and entities involved in recovery or bankruptcy process are encouraged to negotiate and mediate during recovery and bankruptcy proceedings (Article 22.1 of the Draft). Asset management officers, asset management enterprises have the responsibility to conduct mediation procedures between parties based on the requests of enterprises, cooperatives, creditors, and entities involved in the recovery and bankruptcy process  (Article 22.2 of the Draft). Judges are responsible for conducting mediation in the bankruptcy process (Article 22.3 of the Draft). If the parties reach an agreement on dispute resolution, judges shall prepare the minutes of mediation to record the outcome (Article 22.4 of the Draft). Draft Law on Bankruptcy (amended) authorises the Supreme People’s Court to issue guidance on conducting mediation under this Law.

Draft Law on Bankruptcy (amended) does not require that disputes involving enterprises, cooperatives undergoing the recovery process, have to be transferred to the competent People’s Court for centralised resolution, as are required during the bankruptcy process. Hence, parties can use commercial mediation or mediation conducted by asset management officers, asset management enterprises in the recovery stage. At the bankruptcy stage, Draft Law on Bankruptcy (amended) requires People’s Courts, arbitrators resolving disputes, to decide on suspending the bankruptcy process, then transfer dossiers to the People’s Court conducting the bankruptcy process to resolve them instead. Thus, this regulation ensures dispute resolution is centralised during the bankruptcy process, thereby enhancing efficiency and protecting the rights of the involved parties, when the People’s Court that is handling the bankruptcy process will conduct mediation or initiate procedural procedures to resolve the disputes.

One important point that mediators have to take into account is that the content of mediation settlement does not violate prohibitions under the law, for example, such agreements are not aimed at the transaction is meant for concealment of assets, the transaction is meant for dispersing the entity’s assets, the asset transfer does not apply market prices; unsecured debts are converted into debts secured wholly or partly against assets of the debtor; the payment or offsetting is beneficial for a creditor whose debt is undue, or the amount offset against is larger than the due debt, unless otherwise prescribed by law; assets are given to other entities; the transaction does not serve the business operation of the entity; renouncing the right over debt claim; the transaction is meant for redistributing the profits, allocating the income of the insolvent entities, etc., unless otherwise prescribed by law or permitted by the Judges.

It is hoped that Draft Law on Bankruptcy (amended) will be adopted with the abovementioned content in order to ensure the recovery of enterprises (including debt restructuring, enterprise restructuring, business reorganisation, etc.) and the bankruptcy process is efficiently implemented for the benefit of enterprises as well as the business environment.