Difficulties caused by Covid-19 pandemic: Should enterprises be suspended or dissolved?
Question: DTD Associates LLP let me ask: Our company is a multi-member limited liability company. Currently, due to the resurgence of Covid-19, our company's business is extremely difficult, and it is likely to stop working. Although we still hope that businesses can recover from the pandemic, however if the situation worsens, we have also considered the case of dissolving to minimize the deficit. Therefore, we hope DTD will consult us to help us choose the appropriate solution in this case, suspend business or dissolve the business? I sincerely thank you!
Answer: Hello. Thank you for your trust and sending your question to the Law Department of DTD Associates LLP. The content of your question has been researched and advised by our team of lawyers as follows:
Legal grounds:
- Law No. 68/2014/QH13 issued by the National Assembly dated November 26th, 2014 on Enterprises (“the Enterprise Law 2014”)
- Decree No. 78/2015/ND-CP issued by the Government dated September 14th, 2015 on Enterprise Registration (“Decree No. 78/2015/ND-CP”)
According to the information you provided, your company is currently in a very difficult situation due to the negative effects of the Covid-19 pandemic, which is more likely to cause your company to be shut down. And you are wondering whether to decide to suspend a business or dissolve the business to minimize the growing deficit due to the prolonged pandemic. Based on your wishes, DTD would like to consult the following advice:
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Enterprise suspension |
Dissolution |
Reviews |
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Definition |
Business suspension is an enterprise that suspends production and business activities for a certain period of time due to possible financial or labor difficulties ..., and after a period of suspension, the enterprise will return to work normally. |
Dissolution is an enterprise that ceases completely its existence in the market. |
Although the Enterprise Law 2014 as well as relevant laws do not stipulate, it can be understood that business suspension and dissolution of enterprises according to the stated definition. |
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Cases of business suspension and dissolution |
1. An enterprise may suspend its business as long as a written notification of the time and duration of suspension and time of resumption is sent to the business registration authority at least 15 days before the date of suspension or resumption. This regulation still applies in case the enterprise resumes its business before the notified date. 2. The business registration authority or competent authority shall request an enterprise to suspend the business lines subject to conditions if such conditions are not satisfied by the enterprise. (Clause 1, 2 Article 200 of the Enterprise Law 2014)
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1. An enterprise shall be dissolved in the following cases: a) The operation period written in the company’s charter expires without a decision on extension; b) The dissolution is decided by the owner of the sole proprietorship, by all general partners of the partnership, by the Board of members or owner of the limited liability company, or insurance the General Meeting of Shareholders of the joint-stock company; c) The company fails to maintain the minimum number of members prescribed by this Law for 06 consecutive months without following procedures for business conversion; d) The Certificate of Business registration is revoked. (Clause 1 Article 201 of the Enterprise Law 2014) |
An enterprise has the right to suspend the business or dissolve the enterprise in case it decides to suspend the business by itself or voluntarily dissolve it. In some cases, an enterprise may be required to suspend conditional business lines when it is discovered that the enterprise does not meet the conditions prescribed by law. In the case of dissolution, an enterprise may be compelled to dissolve if the term of operation specified in the company's charter has ended without the decision to extend; or the business violates the law; or the business registration certificate has been revoked.
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Legal consequences |
- Suspension of business will only terminate the operation of the enterprise for a certain period of time. After the period of suspension, the enterprise will return to normal operation. - During the suspension period, the enterprise shall pay outstanding tax, keep paying its debts, executing contracts with customers and employers, unless otherwise agreed among the enterprise, its creditors, customers, and employees. (Clause 3 Article of the Enterprise Law 2014) |
- Dissolution of an enterprise leads to cessation of business existence. - The enterprise shall only be dissolved if all debts and liabilities can be settled and the enterprise is involved in any dispute at a court or arbitral tribunal. (Clause 2 Article 201 of the Enterprise Law 2014) |
Suspension of business does not lead to legal consequences that cease the existence of the enterprise such as dissolution, instead, suspension of business only terminates the operation of the enterprise for a certain period of time, after which business will return to normal activities. |
From the above analysis, DTD recommends that your business should previously proceed with the temporary business suspension registration procedure. Under the law: “No business can be suspended more than one year. After the notice period expires, if the enterprise, branch, representative office or place of business continues to suspend its business, it must notify the Business Registration Office. The total consecutive period of business cessation must not exceed two years. " (Clause 2, Article 57 of Decree 78/2015 / ND-CP), therefore, facing the current difficult situation due to the Covid-19 pandemic, your business may be suspended for 2 years. Then, if the situation is still not satisfactory you can choose to dissolve your business.
