The restructuring of state-owned enterprises (SOEs) has slowed to a snail’s pace in the past decade due to fundamental flaws in laws and regulations.

 Inadequate regulations have prolonged the restructuring of SOEs

Between 2001 and 2010, during the implementation of a wide-scale policy to restructure SOEs, only 91 enterprises were declared bankrupt and 227 others dissolved, despite the large numbers of unprofitable businesses.

Sluggish restructuring

Over the past ten years, the Government had reduced its domination of enterprises from a previous 60 industries to just 19. However, according to the Ministry of Planning and Investment, restructuring has been plagued by flawed mechanisms and policies.

From 2001 to 2010, a total of 1,189 SOEs were reorganised through mergers, dissolution or bankruptcy.

Mergers topped the list with 599 cases; followed by dissolutions with 227 cases. Just 91 SOEs filed for bankruptcy during the period.

The majority of dissolved and bankrupted SOEs were under the management of grass-root governments and most of these were small and micro-sized firms.

Over the past decade, 68 SOEs under the management of grass-root government were declared bankrupt, accounting for 74% of the total figure, while 191 SOEs of this kind were dissolved during the period, representing 84% of the total figure.

Several experts have stated that the number of dissolved and bankrupt enterprises was extremely modest compared to the large number of unprofitable enterprises.

The latest statistics from the General Statistics Office of Vietnam (GSO) indicated that about 12% of SOEs report annual losses, and that they are 12 times less profitable compared to other enterprises in their sectors.

Flaws

The Ministry of Planning and Investment attributed the stagnant restructuring of SOEs to complicated and cumbersome administrative procedures. Many difficulties have arisen from inadequate provisions laid out in the Bankruptcy Law.

The ministry said the law requires that during the process of filing for bankruptcy, enterprises with assets such as factories, headquarters and stores that haven’t been liquidated, and debts that haven’t been recovered, cannot complete their bankruptcy procedures. This means that these unprofitable enterprises cannot resettle outstanding salaries for their employees, let alone declare bankruptcy.

The law also fails to stipulate a deadline for debt repayments, further adding to the torturously slow pace of reform.

Worse still, current legislation fails to cover the writing off of bad debts and what to do with owed social welfare payments upon their bankruptcy.

Another issue is the lack of legal sanctions that can be applied to executives and officials responsible for the bankruptcy of their enterprises, prolonging the bankruptcy process.

The paralysis affecting SOE restructuring policies has also added to the stagnation, the ministry noted.

Over the past decade, almost all regulations and policies on SOE rearrangement and restructuring have had to be amended or replaced, impeding the process that should have been completed by July 2010.

In order to improve the situation, the ministry has proposed that the Government complete and clarify policies related to the merger, dissolution and bankruptcy of SOEs.