Enterprise dissolution due to Failure to Fulfill Report Obligation
April 20, 2018 Dispute Resolution
Practical adjudication and assessment – Enterprise Reporting Requirements
Judgment No.144/2017/HC-PT dated July 20, 2017 of the High-level People’s Court at Ho Chi Minh City
Summary of facts
- Plaintiff: TH Sea Food Processing Company Limited (the “Company”).
- Defendant: Business Registration Office, Department of Planning and Investment of Soc Trang Province (the “BRO”).
On June 28, 2013, the BRO issued Notice No.97/TBHD-DKKD to request the Company to review and update its registered information within 30 days from the date of the issuance of the Notice. However, the deadline expired without the BRO receiving any response from the Company. On August 21, 2013, the BRO issued Notice No.234/PDKKD which requested the Company to report on their business operations from the beginning of 2013 to the date of issuing Notice No.234/PDKKD; this notice also stated that if the BRO did not receive a report from the Company within 03 months from the date of this second notice, the Enterprise Registration Certificate (the “ERC”) of the Company would be revoked.
As a result of not receiving any report from the Company in accordance with Notice No.234/PDKKD, on December 24, 2013, the BRO issued Notice No.562 requesting the legal representative of the Company to appear in person at the BRO and provide an explanation within 30 days from the day of issuing said Notice. It was also stated that if the legal representative did not appear in order to provide an explanation prior to the deadline, the BRO would issue a decision on revoking the ERC in compliance with the law. Nevertheless, the legal representative of the Company failed to appear.
On February 25, 2014, the BRO issued Decision No.378 revoking the ERC of the Company and ordering the Company to proceed with procedures for dissolution within 06 months from the day of issuing the Decision. On June 03, 2015, the BRO issued Notice No.261 on the dissolution of the Company (and the removal of the Company’s name from the business registration records) on the grounds that its ERC had been revoked, and due to the fact that the BRO had not received the application file for dissolution nor the Company’s explanation on why the Company could not submit such application file.
On July 04, 2016, the Company filed a lawsuit in the People’s Court of Soc Trang Province requesting that the Court repeal Decision No.378 and Notice No.261. The Company claimed that it failed to fulfill its reporting obligations due to not receiving the related notices from the BRO.
Following adjudication of the matter, both the first-instance court and the appellate court concluded that the Company had the obligation to report to the BRO under the law; regardless of whether the BRO sent the notices or not. Thus, whether or not the Company did receive the notices of the BRO was irrelevant. Further, the above mentioned documents issued by the BRO, as well as the revocation of the ERC, were in compliance with the law.
Le & Tran’s assessment
The judgments of both the first-instance court and appellate court were reasonable and in compliance with the 2005 Law on Enterprise (being effective at that time) as well as the current law (i.e. the 2014 Law on Enterprise). According to Article 9.6, the 2005 Law on Enterprise (or Article 8.6, the 2014 Law on Enterprise), enterprises has the obligation to report to the BRO and the failure to fulfil such obligation could lead to revocation of the ERC under Article 165.2, the 2005 Law on Enterprise (or Article 211.1, the 2014 Law on Enterprise).
Obligation to report to the administrative authorities is very important for all enterprises in Vietnam. During business operations, enterprises are not only required to report to the business registration authority (i.e. the BRO in the above case), but also other administrative authorities relating to tax, compulsory insurance, labor and employment, etc. However, in practice, many enterprises do not pay close attention to such obligations and some are even under the misunderstanding that they are only required to report when receiving a request from the authorities. Obligation to report is required by the law and if an enterprise fails to submit its reports within the prescribed time limits, it may be subject to monetary fines and other sanctions, which may also include revocation of related business licenses.
– Written by LE & TRAN | Vietnam’s Premier Business Litigation Firm