Order of Distribution of Assets of Enterprises and Cooperatives under the Law

When an enterprise is declared bankrupt, its assets are distributed in the following order: (1) bankruptcy costs; (2) salary debts, severance allowances, social insurance and health insurance of employees; (3) debts arising after the opening of bankruptcy proceedings for the purpose of restoring business operations; (4) financial obligations to the State, unsecured debts and secured debts not fully paid. Thus, employees’ salaries are paid with second priority.

1. Who has the right or obligation to file a petition to open bankruptcy proceedings?

Article 5 of the Law on Recovery and Bankruptcy 2025 provides for persons having the right or obligation to file a petition to open bankruptcy proceedings as follows:

Article 5. Persons having the right or obligation to file a petition to open bankruptcy proceedings

1. Unsecured creditors and partially secured creditors have the right to file a petition to open bankruptcy proceedings when 03 months have elapsed from the due date of the debt and the enterprise or cooperative has not performed the payment obligation.

2. Employees, grassroots trade unions, and the immediate higher-level trade union at places where a grassroots trade union has not been established have the right to file a petition to open bankruptcy proceedings when 03 months have elapsed from the date on which the obligation to pay salaries and other debts due to employees must be performed and the enterprise or cooperative has not performed the payment obligation.

3. The legal representative of the enterprise or cooperative is obliged to file a petition to open bankruptcy proceedings when the enterprise or cooperative is insolvent.

4. The owner of a private enterprise, the Chairperson of the Board of Directors of a joint-stock company, the Chairperson of the Members’ Council of a limited liability company with two or more members, the owner of a single-member limited liability company, and general partners of a partnership company are obliged to file a petition to open bankruptcy proceedings when the enterprise is insolvent.

5. Shareholders or groups of shareholders holding 20% or more of the total number of ordinary shares continuously for at least 06 months have the right to file a petition to open bankruptcy proceedings when the joint-stock company is insolvent.

2. In what order are the assets of a bankrupt enterprise distributed?

Article 54 of the Law on Recovery and Bankruptcy 2025 provides for the order of asset distribution as follows:

Article 54. Order of asset distribution

1. Where the Judge issues a decision declaring bankruptcy, the assets of the enterprise or cooperative shall be distributed in the following order:

a) Bankruptcy costs;

b) Salary debts, severance allowances, social insurance and health insurance for employees, and other benefits under signed labor contracts and collective labor agreements;

c) Debts arising after the opening of bankruptcy proceedings for the purpose of restoring the business operations of the enterprise or cooperative;

d) Financial obligations to the State; unsecured debts payable to creditors on the list of creditors; secured debts not fully paid because the value of the collateral is insufficient to pay the debts.

2. Where the value of the assets of the enterprise or cooperative, after full payment of the amounts specified in Clause 1 of this Article, still remains, the remaining part belongs to:

a) Members of cooperatives, member cooperatives;

b) Owners of private enterprises;

c) Owners of single-member limited liability companies;

d) Members of limited liability companies with two or more members, shareholders of joint-stock companies;

dd) Partners of partnership companies.

3. If the value of the assets is insufficient for payment as prescribed in Clause 1 of this Article, each subject of the same priority order shall be paid pro rata in proportion to the debts.

Thus, employees’ salaries, severance allowances, social insurance and health insurance enjoy second-priority payment, immediately after bankruptcy costs. If the assets are insufficient to pay all within the same priority order, the subjects in that order shall be paid in proportion to their debts.

3. Which Court has jurisdiction over a bankrupt enterprise?

Jurisdiction over bankruptcy belongs to People’s Courts under the hierarchy provided in the Law on Recovery and Bankruptcy 2025 (No. 142/2025/QH15, effective from 01/3/2026, replacing the Law on Bankruptcy 2014).

Important note: From 01/7/2025, the whole country implements the two-tier local government model (34 centrally-run provinces and cities; no district-level administrative units) and the People’s Court system has been reorganized under the new model. Therefore, the provisions on “district-level People’s Court” jurisdiction in the Law on Bankruptcy 2014 are no longer applicable. Petitioners need to correctly identify the competent Court based on where the enterprise is headquartered at the time of filing and should consult a lawyer or contact the Court directly for guidance.

Notes on applying current legal regulations

This article belongs to the Enterprise Knowledge group and is presented for reference purposes, helping readers understand the legal issue at an overview level before preparing dossiers or conducting transactions. Legal regulations may vary depending on time, locality, dossier type and specific circumstances. Where it is necessary to determine the exact legal basis applicable to your dossier, please contact an ANT Legal lawyer at 0966.475.966 for review and advice before proceeding.

Common risks to note

• Applying a legal document that has been amended, supplemented or replaced (the Law on Bankruptcy 2014 expired on 01/3/2026).
• Applying the district-level Court jurisdiction provisions of the old law while the court system has been reorganized.
• Misunderstanding the priority order of payment, overlooking employees’ priority rights.
• Filing with the wrong competent Court, leading to the petition being returned and time lost.

How can ANT Legal help?

ANT Legal helps review specific situations, check dossiers, identify applicable legal bases, advise on handling options, and represent clients in dealings with individuals, organizations or competent authorities when necessary. For quick advice, please contact our lawyers at 0966.475.966.

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