Why the change?There are two key arguments at the heart of the push to extend the waiting period from three to six months.
Firstly, lawmakers have suggested that it gives private firms the space to account for seasonal fluctuations in cash flow.
Secondly, they have also said that it will prevent frivolous bankruptcy suits from being lodged for illegitimate purposes — to damage a firm’s reputation, noted in particular.
On the latter, earlier this month, the Ho Chi Minh City People’s Court officially ended bankruptcy proceedings against a firm, finding it had sufficient funds to cover its debts.
It was also reported that the defendant was pursuing legal action in the US, alleging the plaintiff colluded with court administrators to fabricate evidence with the intention of damaging the reputation of the business.
That is to say, it’s not a far-fetched proposition.
This solution, however, does seem to prioritise debtor’s over creditor’s rights based on what looks likely to be more the exception than the rule.
Moreover, in addressing this one problem, in this way, it may in fact create many more.
What overdue payments cost
Firstly, unpaid wages can mean unpaid food and rent, school fees, power bills, etcetera.
In situations where single businesses employ a significant number of workers from one community, this can slow whole economic ecosystems.
Likewise, if goods are purchased on trade credit, those suppliers relying on payments from their buyers to finance their own activities can also find themselves in financial distress, with this travelling back up the supply chain.
A lack of legal recourse for overdue payments can also be a significant risk factor for foreign firms and deter investment, particularly when integrating local firms into broader multinational supply chains.
Also note that it’s 90 days (or 180 days under the current draft) from when a payment is missed that legal action can begin.
Under these conditions, payment still might not come for months or even years later — just earlier this week, it was reported that the head of a local agricultural producer had let some staff wages go up to five years unpaid.
This can also create a situation where creditors feel obligated to continue to work for or supply a company in the hopes it will return to profitability so that it can back pay missing payments.
To add to that, ending a trade relationship or leaving an organisation can make it much more difficult to pressure a debtor to complete missing payments.
That is to say, late payments can have broad implications, the prospect of which should make speedy resolutions an imperative.
Bigger picture
It’s also worth considering that development isn’t linear — it’s a process of expansion and contraction that should weed out poor performers to make way for healthier businesses to thrive.
Along this line of thought, the faster a failing business is dismantled, the better.
This is a generally accepted norm, too.
The Philippines, for example, has no fixed time frame; rather, a debtor is considered insolvent if it fails to pay a debt on time or its liabilities exceed its assets.
Indonesia has no fixed time frame either, just a requirement that there are two creditors and at least one overdue debt.
For Malaysia, it can be slightly longer, with a creditor required to issue a 21-day letter of demand to a debtor before initiating legal proceedings, but this is still well short of 90 days.
At three months, Vietnam is already outside of the norm; at six, it would be a significant outlier.
That is to say, if lawmakers are serious about building a resilient private sector and attracting higher-quality investment, they cannot afford insolvency procedures that trap capital, expose workers and destabilise supply chains. Extending the waiting period to six months, however, risks doing exactly that.
