Debt trading plans for enterprise restructuring must ensure feasibility

The Debt Trading Company has the right to actively negotiate debt purchase with creditors of the restructuring enterprise. Photo: collected

Compensation for causing loss of capital and assets

According to Circular 05/2022/TT-BTC of the Ministry of Finance regulating the restructuring of enterprises that are not eligible for equitization and transfer of shares with receivables of enterprises, in which 100% of charter capital is held by the State. In the function of buying, selling, handling debts, the enterprise restructuring plan is made on the principle of consensus between the agency representing the owner of the restructured enterprise and Vietnam Debt Trading One Member Limited Liability Company and/or creditors participating in the restructuring (making minutes of agreement between the parties). Vietnam Debt Trading Company has the right to actively negotiate debt purchase with creditors and propose a plan to restructure the enterprise in accordance with the provisions of the law. At the same time, the Vietnam Debt Trading Company decides to buy debt after reaching an agreement with the owner's representative agency and negotiating results on debt purchase with the creditors of the restructuring enterprise.

Debt purchase and sale plans for enterprise restructuring must ensure feasibility, effective capital recovery and sufficient source of the difference between the cost of debt purchase and the book value of the debt for financial handling and transfer, successfully changing the enterprise into a joint-stock company according to regulations. In case the debt purchase plan for enterprise restructuring is not feasible and effective, the Equitization/Restructuring Steering Committee shall report to the owner's representative agency for consideration and decision on another form of conversion according to regulations of the law.

Regarding financial handling of restructured enterprises, the Circular clearly states that restructured enterprises shall carry out financial handling when determining the value of enterprises according to the provisions of Decree No. 126/2017/ND-CP, Decree No. 140/2020/ND-CP and Circular No. 46/2021/TT-BTC of the Ministry of Finance and amendments and supplements (if any).

Circular 05 stipulates that the financial handling under the restructuring plan must ensure the principles of financial handling, including the financial handling of restructured enterprises, must be associated with the restructuring plan, and approved by the owner's representative agency. Debt repayment obligation reduction must be attached to the fact that Vietnam Debt Trading Company converts debts and assets into contributed capital at the enterprise and does not change the liability of organizations and individuals that have caused financial losses before this.

At the same time, the financial handling under the restructuring plan must ensure publicity, transparency and compliance with the provisions of the law. In case relevant organizations and individuals, when carrying out financial handling, fail to comply with the prescribed regime, causing loss of capital and assets, that organization or individual shall be responsible for compensation and handling of liability responsibilities in accordance with the law.

At the time, based on the restructuring plan approved by the owner's representative agency, Vietnam Debt Trading Company considers and reduces the debt repayment obligation up to a negative amount of the owner according to the decision of the owner's representative agency on determining the enterprise's value, minus the deduction for debt repayment obligations of other creditors (if any) and does not exceed the difference between the book value purchased debt and debt purchase cost up to the time of the decision to reduce debt repayment obligation. Other creditors decide to reduce debt repayment obligations for the restructured enterprise as agreed between the parties.

From the time of determining the enterprise's value to the time it is officially transformed into a joint stock company, the restructured enterprise shall continue to handle finance according to regulations. In which, generated profits are distributed according to current regulations for enterprises in which 100% of charter capital is held by the State. At the same time, enterprises perform obligations with the state budget, according to current regulations (if any). In case of loss, the owner's representative agency shall direct the restructuring enterprise to clarify the causes and responsibilities of relevant collectives and individuals in order to take remedial measures and compensate according to regulations and the number of losses. The remaining balance will be considered by the Vietnam Debt Trading Company and the creditors participating in the restructuring, further reducing a part of the debt repayment obligation if there is a source of difference between the cost of debt purchase and the book value of the debt.

Convert debt into equity capital

Regulations on converting debt into contributed capital and selling shares for the first time, Circular 05 clearly states: Vietnam Debt Trading Company and creditors participating in enterprise restructuring may convert debt into share capital according to the principle agreed upon and approved by the owner's representative agency in the restructuring plan.

Restructuring enterprises shall carry out the order, procedures, methods of selling shares and selling price for the first time in accordance with the provisions of Decree No. 126/2017/ND-CP, Decree No. 140/2020/ND-CP and Circular No. 32/2021/TT-BTC dated May 17, 2021 of the Ministry of Finance guiding the initial sale of shares and the management and use of proceeds from the equitization of state-owned enterprises and one-way limited liability companies. Members with 100% charter capital invested by state enterprises converted into joint stock companies (hereinafter referred to as Circular No. 32/2021/TT-BTC) and amendments and supplements (if any). The owner's representative agency shall decide the selling price of shares to employees in the restructured enterprise not less than 60% of the par value of the shares as prescribed in Clause 3, Article 42 of Decree No. 126/2017/ND-CP.

In case of failure to sell all shares to investors by agreement method after an unsuccessful public auction, or failure to sell all offered shares of the public auction as prescribed in Clause 3, Clause 4, Article 8 of Circular No. 32/2021/TT-BTC, the Equitization/Restructuring Steering Committee will consider and decide to offer to sell to Vietnam Debt Trading Company and creditors on the principle of agreement and share price is not lower than par value. In case the Vietnam Debt Trading Company and its creditors do not buy all the above-mentioned shares, the Equitization/Restructuring Steering Committee shall report to the owner's representative agency to adjust the scale and basis. Structure of charter capital to convert the restructured enterprise into a joint stock company before holding the first General Meeting of Shareholders.