In March of last year, faced with mounting losses and limited revenue, APAX English, a chain of English centres that were once all over Vietnam, took to offering its creditors household appliances in lieu of cash to cover its outstanding debts.
This was after years of delayed or entirely missed lease, salary, and debt repayments on the back of a myriad of factors, not least of which was mismanagement and a failure to truly understand the market within which APAX English had intended to operate.
Indeed, Vietnam’s booming middle class and region-leading GDP growth were not guarantees of success for the ambitious leader of APAX, a man known colloquially as Shark Thuy after his stint as a judge on Vietnam’s version of Shark Tank.
That said, despite APAX’s dire situation, the firm is still in business, persevering despite being tailed by millions of dollars in outstanding debts.
And APAX is not alone. It is not unusual for Vietnamese firms to hold out for as long as possible, grasping at straws to stay afloat under the belief that the ship will right itself if they can hold out just a little longer. Furthermore, it is not unusual for them to be allowed to do so, with a firm not considered insolvent until its debts are over 90 days past due, but even then they can often continue to trade for quite a while longer.
With this in mind, this article charts the path unprofitable firms tend to follow in Vietnam and what creditors might expect before bankruptcy proceedings are initiated on a debtor, if they are in fact, initiated at all.
Delayed wages
Firstly, it’s not unusual for businesses in Vietnam to not pay their staff sometimes for months at a time. This is often the result of short-term cash flow problems and these delayed payments are sometimes caught up. That said, in many cases, they are not.
For example, pre-COVID APAX English was struggling to pay its staff on time. When the pandemic hit, this further exacerbated the problem. With classes moving online and a downturn in the number of new students enrolling, cash flow dried up leading to repeated delays in wage payments, to the point that, even now, some teachers are still owed wages from years ago.
Furthermore, Bamboo Airways was late paying its pilots at least twice last year with about 30 foreign pilots leaving the airline in June over the issue. For background, Bamboo Airways hit strife when the founder of its parent company, FLC Group, was arrested on suspicion of fraud in 2022. The airline was subsequently spun off but has been stuck in a downward spiral ever since, buried under a mountain of debt and struggling against headwinds from events both at home and abroad (See also: Vietnam’s Airline Industry Turbulence: Unpacked).
More recently, professional athletes training at the Hanoi Sports Training and Competition Center went unpaid for the first two months of this year with the Deputy Director of the centre, telling local media this was because “it was the beginning of the new year and the change of seasons” (presumably this makes it an annual occurrence).
The point being, that delayed salary payments are sometimes par for the course with working in Vietnam.
Industrial action
That said, when those delayed salary payments become too much for employees to bear, these situations can easily escalate.
Of note, the Labour Code 2019 permits strike action and it’s not all that uncommon either. In 2023 there were at least 60 cases of industrial action recorded by the Vietnam General Confederation of Labour.
In fact, just last month, a cohort of teachers at the American International School Vietnam–or AISV–, in Ho Chi Minh City, walked off the job after the school fell two months behind in salary payments.
A possibly more problematic incident, however, was back in 2020 when sanitation workers stopped collecting garbage in Hanoi. This saw piles of garbage build up in the streets as their employer scrambled to find the money to pay their workers to get them back to work.
This action can sometimes be effective in the short term. In the case of unpaid salaries, it will often result in a part payment and a payment plan to cover the rest, but at the end of the day it’s likely the company has found this money by delaying payments to other creditors–robbing Peter to pay Paul, as the old adage goes–and in this light these outcomes are often unsustainable.
Debt restructuring
When it becomes clear that a firm cannot meet its debt obligations, it will typically announce it is entering into a period of ‘debt restructuring’.
If the business has good, solid underlying fundamentals but simply cash flow problems, then it may be able to refinance its outstanding debts.
That said, debt restructuring in Vietnam can also be just about anything a business leader can dream up.
Vietnam’s second biggest real estate developer, Novaland, for example, defaulted on a series of bond and interest repayments through 2023 as a result of broad challenges in Vietnam’s real estate industry (See also: Vietnam’s Real Estate Market Recovery 2024: Unpacked). This led the firm to offer up luxury apartments in an uncompleted development in HCMC in lieu of cash. An offer that was reportedly at least partially taken up.
Furthermore, debt restructuring goes part and parcel with downsizing with firms tending to shrink their operations as part of the process.
In 2019, for example, APAX boasted over 100 centres around Vietnam. But by March of 2023, that number had come down to 41 centres and it has continued to fall ever since.
Likewise, Bamboo Airways at its peak was operating flights to North America, Europe, and Australia, however, as the firm sank deeper into debt and embarked on its own period of ‘debt restructuring’ it slowly reduced the number of aircraft it had and the number of routes it serviced. By the start of 2024, it had just seven routes left all within Vietnam.
Asset sales
All of that said, when debt restructuring doesn’t work, firms generally start selling assets.
Textile and apparel producer, Garmex Saigon, had just 35 staff left at the end of last year after laying off about 2,000 workers. This was from a workforce that had totalled 4,000 in 2019. Still in operation, but with no orders, the 20-year-old firm announced in February that it would sell two parcels of land it has on its books along with equipment and machinery to cover a shortfall of about VND 30 billion or US$1.19 million.
Similarly, the owner of a gold plated hotel in Hanoi’s Ba Dinh district put the establishment up for sale in March of last year after the construction firm he also owned had failed to pay its staff for nearly four months.
That said, whereas selling assets may provide firms a brief reprieve, this is often only temporary.
Unpaid taxes
All of that said, if a company is not paying its employees or suppliers and has sold off most of its assets, then it’s more than likely it has not kept up to date with its taxes either. This is generally taken a little more seriously, with the tax authorities commanding acute powers to cause havoc on businesses that fail to meet their tax obligations.
For example, Bamboo Airways had its bank accounts frozen over unpaid taxes in December; earlier this year a HCMC based construction firm was prevented from importing and exporting goods over an outstanding tax debt of US$8.6 million; and in January the Ho Chi Minh City Tax Department stopped at least 30 businesses from being able to issue invoices, essentially removing the ability for said firms to conduct any business at all, until their taxes were brought up to date.
These powers are essentially a death knell for many insolvent firms. That is not to say that this is necessarily the end of the line.
Government intervention
In August of last year, Vietnam’s Prime Minister stepped in to offer support to Bamboo Airways. Specifically, he requested: the Ministry of Transport to ensure the airline was meeting safety and security requirements, the Ministry of Finance to make it easier for the firm to transfer shares to new owners, and the Ministry of Planning and Investment to speed up approval of a plan to expand the airline’s fleet.
Similarly, the HCMC Department of Education stepped in to arbitrate the AISV dispute essentially working to balance the interests of the key stakeholders: the striking teachers, the school, and the students.
These sorts of low-risk, low-cost interventions are common.
As far as financial support goes, the Vietnamese government is generally more reluctant to chip in. That said, it did contribute US$345 million to prop up Vietnam Airlines in 2021, however, it is also worth noting that it is the airline’s majority shareholder.
It has also reportedly contributed US$24 billion, through the State Bank of Vietnam, to keep the bank at the heart of Vietnam’s biggest financial fraud ever, Saigon Commercial Bank, in business. This, however, appears to be an exception to the norm with little evidence of other cases where the government has stepped in to support a private enterprise financially.
Bankruptcy proceedings
Finally, when all other avenues have been exhausted bankruptcy proceedings may commence. However, it’s worth noting at this point there is generally very little if anything left to salvage.
Of note, the World Bank’s Ease of Doing Business Guide 2020 found that in insolvency proceedings in Vietnam creditors typically only received 21.3 US cents per dollar. Furthermore, on average, this took five years to recover.
Particularly with respect to a few thousand dollars in wages, of which an employee may only get 20 percent, this can be more hassle than it’s worth. Nevertheless, the Law on Bankruptcy does provide a framework for the process and this law is utilised from time to time just not that often. Only 137 decisions have been entered by Vietnamese courts in relation to bankruptcy proceedings in Vietnam since 2017.
What’s next?
For whatever reason, unprofitable businesses in Vietnam have a tendency to try to hold on as long as possible even with the odds stacked against them.
And they are usually able to continue trading for quite some time even when they are technically insolvent. This often sees wages unpaid, assets sold off and debts sky-high by the time bankruptcy proceedings commence, at which point there is little left to recover.
That’s not to say that is the case every time and as Vietnam’s economy develops and its institutions become stronger, this process may fall more in line with the rest of the world. Until then, foreign firms and investors can best keep track of how bankruptcy laws and the institutions that enforce them in Vietnam are developing, by subscribing to the-shiv.