What Happens On The Restructuring Path
By Tam Dan
The screening process has begun to prevail as the economic restructuring is under way
According to the Vietnam Business Annual Report 2011 lately released by the Vietnam Chamber of Commerce and Industry, newly registered enterprises amounted to 77,548 last year, with the total registered capital being VND513 trillion.
Meanwhile, the number of dissolved, bankrupted and suspended businesses reached over 79,000. This could be incomplete statistics. However, it may indicate that the market has begun to accept the screening process as the economy is restructuring.
In 2011 and early 2012, given the macro-economic instability and the impact of fiscal and monetary tightening, and due to improper business orientation, many enterprises have run into severe difficulties with losses, lack of liquidity, and rising bad debts. Under the Bankruptcy Law, enterprises and cooperatives that are unable to pay mature debts upon request of the creditors shall be considered bankrupted. It can be said that the recent situation of bankruptcy is serious and widespread.
Still, few cases have gone through the court procedures for formal declaration of bankruptcy. In fact, the delayed bad debts at large debtors such as Vinashin, EVN or Bianfishco are a variant form of bankruptcy. The longer this situation lasts, the more confused analyses and assessments will become, which may trigger a domino effect of bankruptcy at numerous enterprises and individuals, adversely affecting the reputation and the business environment of the country.
The current mindset of bankruptcy should be changed as soon as possible, as bankruptcy is a very common phenomenon in a market-driven economy. Bankruptcy does not mean an end, and does not necessarily mean fear or pessimism. Articles 68-69 of the Bankruptcy Law 2004 clearly stipulate the procedures for business recovery of enterprises under conditions of bankruptcy: mobilizing new capital, revising business scope, innovating production technology, reorganizing managerial apparatus, merging or splitting divisions in order to improve productivity and product quality, selling shares to creditors, selling or leasing unnecessary assets, and other remedies that do not go against the laws.
Unfortunately, businesses did not seize the opportunity offered by this important law to revive as well as effectively utilize all the resources of the economy and safeguard their employees. The main reason comes from the capability of the court judges responsible for handling the bankruptcy process.
On the other hand, most of State-owned enterprises seem to be allergic to bankruptcy declaration, making the restructuring process fall into delay. If Vietnam really wants her economic restructuring policy to go in the right direction, the mindset of bankruptcy process transparency must be changed first. It will be more practical than wasting time and efforts organizing heavily formalistic events such as the “conference on thrift practice” recently initiated by the Ministry of Finance.
The banking system is now one step ahead in the restructuring process. However, banking restructuring only stops at mergers and acquisitions among weak banks that lack liquidity. Specific and long-term measures for restructuring have yet to be identified, especially the strategies for operational models, to strengthen business administration and risk management capacity from width to depth.
Legally speaking, it should be made known which banks have the right and the capability to operate at home and/or abroad. The safety criteria on capital, assets and human resources of the credit institutions should be announced quarterly, biannually, or annually, creating foundations for rating and giving warnings or orientations for appropriate adjustment, including bankruptcy declaration in case of necessity.