Corporate bankruptcy remains 'pie in the sky' for bondholders: lawyer

Decree 08, effective on March 5, permits issuers to extend payments by a maximum two years and negotiate with bondholders on payments with assets rather than cash. However, both of the above options must be based on consensus of bondholders and issuers. What happens if no consensus is reached, and what happens if the bond issuer goes bankrupt?

The Investor talks with lawyer Pham Van Phat to seek answers to such questions. He said corporate bankruptcy is still a "pie in the sky" for bondholders since it is even more difficult than negotiating debt payment extensions with issuers.

Could you please give some comments on Decree 08 on private bond issuance placement? In case no other agreement can be reached between bondholders and issuers, can investors get their money back?

Basically, Decree 08 does not help bondholders get money back, but only provides more tools for businesses to negotiate with bondholders when they fail to pay their due debts. The decree is only enforceable when bondholders and issuers come to an agreement.

This is a transaction arising from a civil contract so the parties’ interests are based on the contract. However, the "long-lasting problem" of economic contracts lies in the solvency of the enterprise. This is the key point. When businesses do not have the conditions to execute the judgment, there is no decree to "save" investors, and in fact, there is no possible way for investors to get their money back.

Many issuers failed to meet issuance conditions when they had no collateral, while some were not eligible for bond issuance. They also used the proceeds for wrong purposes, leading to loss or solvency.

Besides, at present, management agencies play a third party role and cannot deal with the consequences. There will be no circulars or decrees to help investors get money back.

According to regulations, the borrower must pay both interest and principal to the lender as agreed, but the problem here is that the borrower has no conditions to execute the judgment, so getting the money back is very difficult. Even finding a solution for the lender to get money back is just a workaround, transferring risk from one to another.

For example, when a bank gives a business a loan to repay debt, when the debt is due, the bank will bear the debt on behalf of the business. Accordingly, the key is still controlling issuance conditions. This is the root for issuers to have the ability to repay debts.

Talking about "getting money back for bondholders", there is a recently mentioned option called "corporate bankruptcy" to sell assets and return money to investors. In protecting the interests of investors, especially small ones, should this solution be considered?

Bankruptcy is indeed an option when bondholders and issuers fail to reach an agreement on debt swaps. According to the Bankruptcy Law, a creditor has the right to file a petition to initiate bankruptcy proceedings after three months from the date the debt is due and the enterprise fails to fulfill its payment obligation.

However, in reality, bankruptcy is just a "pie in the sky". The Bankruptcy Law has been in effect for many years, but all cases remain on paper. Opening bankruptcy procedures is quite simple. Only a business that falls into a state of illiquidity can request bankruptcy. But the problem is that it can be "opened" but not "closed". In many cases, we do not know when businesses can go bankrupt. A bankruptcy case may last up to 5-10 years.

Basically, we still see a corporate bankruptcy case similarily to the bankruptcy of a bank, so we are worried about system collapse, social consequences and domino effect. Bankruptcy should be placed in a macro context, not simply protecting the interests of one party in a civil or commercial contract.

In the current context, should bondholders accompany businesses to deal with market woes?

It is not easy to solve the current bond debt default. One of the reasons for this situation is loose transaction organization and management. However, through it, investors can see that not everything under management is absolutely safe and they need to learn how to control risks in investment. They should not immediately put down money in bonds when issuers offer high interest rates.

At this time, we can determine that enterprises who fail to fulfill their debt payment obligations, whether large or small, have committed violations. Investors have the right to bring the enterprises to court to request bankruptcy. However, bankruptcy is only a temporary remedy. Waiting for bankruptcy is even more difficult than holding bilateral negotiations and direct dialogues between enterprises and bondholders.

Half a month since Decree 08 amending and supplementing Decree 65 on private placement of corporate bonds took effect, some businesses have reached deals to extend the deadlines for paying maturing real estate bonds.

On March 18, Hung Thinh Land and holders of its VND400 billion ($16.96 million) bond batch agreed to extend the payment term from 24 months to 30 months, setting the new deadline at September 19 this year. The company shall make the payments several times before the new deadline if possible. At the same time, bondholders do not need to carry out any other legal procedures.

For its other issuance worth VND500 billion ($21.2 million), whose original payment deadline is March 20, bondholders agreed to extend from 36 months to 43 months, meaning the new deadline is October 20, 2023.

This is the first optimistic signal showing that Decree 08 has started to come into life. Together with the above story is Novaland’s application for paying VND1,500 billion ($63.8 million) worth of bonds in real estate.