Handling debts when dissolving a business: How is it done?

Handling debts when dissolving the business is an important step to ensure businesses comply with legal regulations, avoid legal disputes and protect the rights of related parties. Correctly implementing the debt payment process helps businesses complete dissolution procedures legally, limiting risks for legal representatives and shareholders. Understanding the debt handling process will help businesses dissolve smoothly, transparently and legally.

Cases and conditions for dissolution of enterprises

According to the provisions of Clause 1, Article 207 of the Law on Enterprise 2020, enterprises are dissolved in the following cases:

• End of the operating term stated in the company charter without a decision to extend;
• According to the resolutions and decisions of the business owner for private enterprises, of the Board of Members for partnerships, of the Board of Members and company owner for limited liability companies, and of the General Meeting of Shareholders for joint stock companies;
• The company no longer has the minimum number of members as prescribed by the Law on Enterprise 2020 for a period of 06 consecutive months without carrying out procedures for converting the business type;
• The Certificate of Business Registration has been revoked, unless the Law on Tax Administration has other provisions.

Enterprises can only be dissolved when they ensure payment of all debts and other property obligations and are not in the process of resolving disputes at Court or Arbitration. The relevant manager and the enterprise whose Business Registration Certificate is revoked are jointly responsible for the debts of the enterprise.

Priority order for handling debts when dissolving an enterprise

Enterprises must settle all debts when dissolving the enterprise. Enterprise debts are paid in the following order of priority:

1. Salary arrears, severance pay, social insurance, health insurance, unemployment insurance as prescribed by law and other benefits of employees according to the collective labor agreement and signed labor contract;
2. Tax debt;
3. Other debts;
4. After paying the costs of dissolution of the enterprise and debts, the remaining amount is divided to the private enterprise owner, members, shareholders or company owners according to the ratio of ownership of contributed capital and shares.

Note: Tax finalization procedures include the following tasks:

• Handle all debts, including debt collection and debt repayment when there is a dissolution plan;
• Liquidate fixed assets, labor contracts, close bank accounts in the business’s name;
• Reporting labor reduction and closing social insurance books;
• Cancel invoices (if any) and close the accounting books;
• Send a document to the tax authority to request an inspection of tax settlement for your unit at the tax administration authority;
• Carry out finalization of taxes arising during operations and during the tax finalization process;
• Proceed to pay taxes, close tax code to complete settlement procedures;
• Close tax code and tax finalization.

Compliance with the correct order of priority in handling debts when dissolving a business not only ensures legal dissolution but also protects the rights of employees, tax authorities and creditors. After completing financial obligations, the remaining assets will be divided transparently, ensuring the rights of members, shareholders or company owners according to the law.

Legal basis: Clause 5, Clause 6 of the Law on Enterprise 2020.

Activities are prohibited from the date of dissolution decision

Since the decision to dissolve the business, enterprise, or the enterprise manager is strictly prohibited from performing the following activities:

• Hiding and dispersing assets;
• Waiver or reduction of debt collection rights;
• Convert unsecured debts into debts secured by the business’s assets;
• Sign a new contract, except in cases of dissolution of the enterprise;
• Pledging, mortgaging, donating, leasing property;
• Terminate the performance of an effective contract;
• Mobilize capital in all forms.

Depending on the nature and severity of the violation, the individual committing the violation may be subject to administrative sanctions or criminal prosecution; If damage is caused, compensation must be made.

Complying with prohibitions during the business dissolution process helps ensure transparency, protect the interests of stakeholders and prevent illegal profiteering. Violating individuals or organizations may be subject to administrative, civil or criminal liability, depending on the severity of the violation. Therefore, businesses need to carry out dissolution in the correct legal order to avoid legal risks and unwanted consequences.

Legal basis: Article 211 of the Law on Enterprise 2020.

Consulting services for handling debts when dissolving a business

Consulting services for handling debts when dissolving a business at Long Phan help businesses carry out debt payment procedures in accordance with regulations, limit risks and ensure the rights of related parties. We provide comprehensive solutions for businesses to complete their financial obligations in a transparent and legal manner.

Our services include:

• Guide the process of handling debts in the correct order of priority specified in the Law on Enterprise.
• Consulting on financial obligations to employees, tax authorities, banks and other creditors.
• Analyze the responsibilities of the legal representative and shareholders and capital contributing members.
• Check and synthesize all debts of the business, determine the legality of each debt to have an appropriate handling plan.
• Support negotiations with creditors to agree on a reasonable payment plan.
• Instructions for preparing debt payment contracts and debt reconciliation records to ensure compliance with the law.
• Propose a debt restructuring plan or debt rescheduling if the business encounters financial difficulties.
• Check and settle taxes with tax authorities before dissolution.
• Support businesses in fulfilling social insurance obligations for employees.
• Representatives work with tax authorities, social insurance, and business registration agencies to handle debts and other financial obligations.
• Guide businesses to pay debts in the correct order of priority.
• Establish debt liquidation records and documents proving completion of financial obligations.
• Support the distribution of remaining assets to shareholders and capital contributing members according to regulations.

Handling debts when dissolving a business in accordance with regulations helps businesses complete procedures transparently, limit risks and protect the rights of related parties. Implementing the correct debt payment priority order will help avoid disputes and ensure the dissolution process goes smoothly. Long Phan provides in-depth consulting services, supporting businesses to effectively handle debt. Contact the hotline 0906735386 immediately for detailed advice!