New law on rehabilitation and bankruptcy: bringing Vietnam’s bankruptcy regime closer to international practice

RBL 2025 is expected to advance two fundamental objectives: facilitating business recovery where viable and enabling swift liquidation to preserve value when recovery is not possible. This article examines key changes introduced by RBL 2025, highlights important considerations for secured creditors, and compares aspects of RBL 2025 framework with restructuring frameworks in Singapore and the United States.

Rehabilitation—a pathway to business recovery

In line with one of its fundamental principles that prioritizes business recovery over liquidation, RBL 2025 introduces a separate rehabilitation process for companies that are facing imminent insolvency. A company facing imminent insolvency is a new concept under RBL 2025, which is defined as a company that may be unable to pay its debt that will become due within the next six months or to pay debt that has become due, but the overdue period is less than six months. This concept is distinct from that of an insolvent company which is defined as a company that fails to pay its debt overdue by six months or more.

Only debtors may initiate a rehabilitation process on the grounds of imminent insolvency under RBL 2025. Specifically, the law allows the following persons of a debtor to file a petition for rehabilitation when the debtor facing imminent insolvency:

• The legal representative
• The board of directors (if the debtor is a joint stock company), members’ council (if the debtor is a multi-member limited liability company) or a partnership (if the debtor is an LLP)
• The owner (if the debtor is a sole proprietorship or a single-member limited liability company)

The rationale behind only giving debtors the right to initiate the rehabilitation process in such instance is, as explained in the proposal paper of RBL 2025, that creditors’ rights have not technically been impacted and creditors would not have adequate information to formulate a rehabilitation plan (which is required to be submitted together with a petition for rehabilitation) in such situation. Under RBL 2025, any such rehabilitation plan will eventually be voted on by creditors (detailed below).

Procedure-wise:

• A rehabilitation process starts with the filing of a petition with a competent court, which will consider the petition within a statutory timeframe of approximately 15 days.
• If the court decides to proceed with the petition, it will decide on the amount of court fee and rehabilitation expenses that need to be advanced by the applicant, and the petition shall be considered accepted once such fee and expenses are paid by the applicant.
• An administrator shall be appointed by the court within three business days from the acceptance of the petition and the administrator would initially help with verifying the list of creditors.
• The debtor will have 30 days from the acceptance of the petition to finalize the rehabilitation plan to submit the same to the court.
• Within five business days from its receipt of the rehabilitation plan, the court will consider convening a meeting of creditors to vote on the plan which, once having been approved by the creditors’ meeting, shall be sanctioned by the court within seven days from the date of the resolution of the creditors’ meeting so that the plan will then be implemented under the supervision of the administrator and the creditor committee (discussed further below).

Notable considerations regarding the rehabilitation process

Creditors’ meeting

Unlike in the bankruptcy process where only unsecured creditors are eligible to vote, both secured and unsecured creditors are eligible to vote on the rehabilitation plan submitted pursuant to a rehabilitation process. A resolution shall be passed by the creditors representing at least 65% of the total debts held by all attending creditors. Secured creditors must ensure timely proof of debt and active participation to avoid being bound by an unfavorable plan approved by the creditor’s meeting. The lower threshold in expedited procedures increases cram risk if secured creditors are under‑represented on the day of the creditor’s meeting. If the collateral assets are required for the rehabilitation plan, the enforcement of security would require an approval from the creditors’ meeting and consent from the relevant secured creditor.

Automatic stay

Within five business days after the petition is accepted, the relevant debtor will be temporarily protected by an automatic stay that suspends any enforcement action against its assets including enforcement of security. This brings a moratorium forward to a pre‑bankruptcy stage, curtailing the traditional window for out‑of‑court enforcement upon default. There is immediate execution risk on deals that depend on rapid collateral realization. The court may also impose a temporary suspension of tax collection against the debtor in accordance with relevant grace periods provided under tax laws.

Existing debts

Once the petition is accepted, the payment of debts and interest incurred before the court’s acceptance of the petition shall be suspended, save for the payment of any expenses necessary for the continued operation of the debtor. Interest on existing debts continues to be accrued, but the payment thereof shall also be suspended. A broadened stay that suspends debt and interest payments, together with court‑centred rescue tools, increases the risk that automatic termination and immediate close‑out valuation/payment provisions may be delayed or require court interaction. Market participants should not assume self‑executing termination on insolvency will be free from stay effects.

New debts

Interest on debts raised after the petition is accepted for the purpose of rehabilitation may be paid as agreed and in compliance with applicable law. This would potentially lay the foundation for rescue financings in Vietnam although it remains to be seen how it will play out in practice since the regulation remains rather generic.

Restricted transactions

After the court accepts the petition, the debtor must not engage in certain transactions, including: (i) payment of debts incurred before the court’s acceptance of the petition; (ii) conversion of unsecured debts to secured or partially secured debts (secured by its own assets); or (iii) distribution of profits or revenues, in each case, unless otherwise permitted by applicable laws or the court. These restrictions would potentially hinder “late” collateral enhancement, and thereby preventing lenders from improving collateral coverage or having covenant breaches cured in a distress situation. It may also limit sponsors in providing rescue measures such as backstopping unsecured exposures with fresh security packages.

Broader implication of local regulations

Pursuing a rehabilitation process would require attention to broader local law implications. For instance, a rehabilitation would typically involve debt restructuring of the relevant debtor, and options for such restructuring may be constrained by other applicable local regulations. Accordingly, navigating these regulatory complexities in a Vietnamese restructuring requires significant resources, careful preparation, and experienced advisory teams.

Other notable changes

Creditor committee

Under the Bankruptcy Law 2014, the creditor committee comprises three to five members appointed by a creditors’ meeting. Under RBL 2025, the competent bankruptcy court is mandated with forming the creditor committee, which has no more than five members, consisting of creditors with material debts and creditors representing groups of creditors with material debts. RBL does not elaborate on “material debt” and this would be subject to further guidance to be issued by the Supreme Court.

Avoidance

Both Bankruptcy Law 2014 and RBL 2025 contain avoidance provisions that allow the court to invalidate certain transactions entered into by a debtor within a six-month period, or within an 18-month period for related party transactions, prior to the court’s bankruptcy decision. The notable change is that RBL 2025 shifts the basis for invalidating transactions from, among other things, “transactions not for business purposes” to “transactions not for profit-seeking purposes”. Neither the new law nor the proposal paper offers any explanation for this change. Arguably, “transactions not for profit-seeking purposes” would be a narrower concept than “transactions not for business purposes” and hence, there might be more room to establish that a transaction should not be subject to avoidance.

Avoidance provisions only kick in once the court has decided to commence the bankruptcy process and hence, these provisions do not apply to a voluntary rehabilitation process discussed above.

Shorter timeframe for creditors to file debt claims

Creditors need to be mindful that under the new law, they must file debt claims within 15 days from the date on which the court decides to commence bankruptcy proceedings (rather than 30 days under the current Bankruptcy Law 2014). Crucially, the new law explicitly stipulates that if a creditor fails to serve its debt claims within that 15-day period, it will lose its right to take part in the bankruptcy proceedings. Accordingly, it is critical that creditors serve their debt claims on a timely basis to protect their rights.

Expedited processes for small companies

Under RBL 2025, expedited processes (both rehabilitation and bankruptcy processes) may be applied to certain small-sized companies (such as companies that have 20 or fewer creditors and total debts of VND10 billion (approximately USD380,000) or less. Credit institutions and insurance/reinsurance companies may also be subject to expedited bankruptcy process. Expedited process is also provided under the current Bankruptcy Law 2014, though the law does not elaborate how the process would be conducted.

Expedited processes, including both the rehabilitation process and bankruptcy process, will have a timeline that is 50% shorter than the standard process. In the expedited rehabilitation process, the resolutions of creditors’ meeting can be passed by the creditors representing 51% or more of the total debts held by all voting creditors. In the expedited bankruptcy process, the resolution of the creditor’s meeting can be passed by the unsecured creditors representing 51% or more of the total unsecured debts held by all voting creditors.

Cross-border bankruptcy

RBL 2025 introduces provisions dealing with both inward and outward-bound requests when it comes to cross-border bankruptcy. Specifically, the new law mandates local courts to (i) request foreign courts in dealing with matters pertaining to a bankruptcy proceeding such as verification and enforcement of offshore assets; and conversely (ii) deal with requests from a foreign court in dealing with similar bankruptcy matters. The introduction of this set of provisions would make Vietnam a more friendly jurisdiction for bankruptcy proceedings.

Comparative analysis: Vietnam RBL 2025, Singapore Scheme of Arrangement and U.S. Chapter 11

To place Vietnam's new rehabilitation framework in context, it is helpful to compare the key features of RBL 2025 with the Singapore scheme of arrangement and the U.S. Chapter 11 restructuring process—two widely used restructuring mechanisms that are perceived as templates of modern insolvency practice globally.

Key observations

The Vietnam rehabilitation process under RBL 2025 is a sui generis model, which integrates elements of a court-supervised process such as judicial management in Singapore or administration in the UK through the appointment of an administrator, whilst incorporating features of a debtor-in-possession style restructuring such as schemes of arrangement in Singapore or U.S. Chapter 11 proceedings as the debtor retains carriage of preparing and submitting the rehabilitation plan to the court. It also represents a meaningful step towards international standards, though differences remain.

Unlike U.S. Chapter 11, which permits both voluntary (debtor) and involuntary (creditor) filings, Vietnam's framework requires court appointment of an administrator and reserves the right to initiate rehabilitation exclusively to debtors when the company is merely facing imminent insolvency.

The voting threshold of 65% by value under RBL 2025 is more demanding than the Singapore scheme's 75% requirement when one considers that Singapore requires only a majority in number and 75% in value of those present and voting, whereas Vietnam requires 65% of all voting creditors. However, Vietnam does not employ the class-based voting structure used in both Singapore and the U.S., which allows for more nuanced treatment of different creditor constituencies and, in the U.S. context, enables cramdown of dissenting classes where certain fairness and feasibility requirements are met.

The automatic stay provisions under RBL 2025 are comparable in effect to the Singapore and U.S. automatic stay, though the scope of protection and exceptions may differ in practice. Singapore's moratorium application (after the initial 30-day automatic moratorium) must be heard separately, representing a procedural distinction that parties should consider when selecting a restructuring forum.

A notable gap in RBL 2025 compared to the Singapore scheme and U.S. Chapter 11 is the absence of a developed super-priority regime for debtor-in-possession financing. The Singapore and U.S. frameworks provide significant protections for rescue lenders, which has contributed to the availability of restructuring capital in Singapore and in Chapter 11 cases. Vietnam's provision that interest on new rehabilitation debts may be paid as agreed provides some flexibility but falls short of the comprehensive DIP financing framework available in the U.S.

On cross-border matters, RBL 2025's new provisions for cooperation with foreign courts are a welcome development, though Vietnam has not adopted the UNCITRAL Model Law on Cross-border Insolvency framework that underpins both Singapore's and the U.S.'s cross-border insolvency regimes. Stakeholders with multi-jurisdictional exposures should consider how Vietnam proceedings may interact with parallel processes in Model Law jurisdictions.

Conclusion

RBL 2025 represents a significant modernization of Vietnam's insolvency framework, introducing, among other things, a new pathway for business recovery and providing greater flexibility in addressing distressed situations. It also represents a meaningful step towards international standards. As the reforms come into effect, it will be important to observe how they are implemented in practice and evolve over time, with further guidance likely required to support smooth and effective application.