Refunds to shareholders after asset liquidation constitute an important procedure to safeguard shareholders’ rights when a company ceases operations or liquidates its assets. Such a matter is clearly regulated by law, determining who is entitled to receive payments, when such payments are made, and in which cases they are not applicable.

I. The impact of refunds to shareholders after asset liquidation in the current context

Refunds to shareholders after asset liquidation play a crucial role in protecting lawful rights and maintaining investor confidence. In the current economic environment, proper implementation of payment procedures directly affects a company’s reputation, stabilizes relationships among shareholders, and minimizes legal disputes. Moreover, transparency in refunding shareholders reflects the financial governance capacity and accountability of the company’s management.

For example, a trading company undergoing dissolution liquidates all its fixed assets. After settling its debts, the remaining amount is distributed to shareholders in proportion to their capital contributions. However, if disputes arise regarding asset valuation or outstanding liabilities, the refund process may be delayed, leading to disagreements among shareholders.

II. What are refunds to shareholders after asset liquidation?

1. Concept of refunds to shareholders after asset liquidation

Pursuant to Point g, Clause 1, Article 115 of the Law on Enterprise 2020, refunds to shareholders after asset liquidation refer to the right of shareholders to receive the remaining value of the company’s assets in proportion to their shareholding when the company is dissolved or declared bankrupt.

In other words, once the company has fully settled its debts and financial obligations, shareholders are entitled to receive the remaining value of the company’s assets, thereby ensuring their lawful interests corresponding to their capital contributions.

2. Why is it necessary to refund shareholders after asset liquidation?

Refunding shareholders after asset liquidation is a critical step to ensure lawful interests and maintain financial order within the company:

  • Protection of shareholders’ rights: After full settlement of debts and obligations, shareholders are entitled to the remaining assets in proportion to their capital contributions, safeguarding their investment interests.
  • Ensuring transparency and fairness: Distribution based on shareholding ratios promotes transparency and equity, thereby reducing internal disputes.
  • Maintaining corporate reputation: Proper fulfillment of obligations enhances investor confidence and strengthens the company’s reputation in the market.
  • Legal compliance: Completing the prescribed procedures ensures compliance with the Law on Enterprise 2020 and relevant legal instruments, thereby minimizing legal risks.

III. Legal provisions governing refunds to shareholders after asset liquidation

1. Cases where refunds to shareholders apply

Refunds to shareholders apply when a company undergoes dissolution or bankruptcy. In such cases, after fully settling all financial obligations and liabilities, shareholders are entitled to receive the remaining value of the company’s assets in proportion to their shareholding, in accordance with Point g, Clause 1, Article 115 of the Law on Enterprise 2020. It represents a typical case ensuring shareholders’ lawful rights.

2. Cases where refunds to shareholders do not apply

Pursuant to Point a, Clause 5, Article 112 of the Law on Enterprise 2020, a joint-stock company may return a portion of contributed capital to shareholders in proportion to their shareholding only if both of the following conditions are satisfied:

  • The company has conducted continuous business operations for at least two (02) years from the date of establishment registration (excluding any period of business suspension); and
  • It must ensure that the company can fully settle all debts and other property obligations after the refund.

However, it is necessary to distinguish between:

  • Capital return in capital reduction procedures: It involves a change in charter capital while the company continues to operate and must be registered with the business registration authority.
  • Capital return upon dissolution: It constitutes the distribution of remaining assets after liquidation and full debt settlement, rather than a capital reduction procedure.

Accordingly, in the context of dissolution, the return of capital to shareholders is not considered a capital reduction procedure but rather a step in the liquidation and termination process.

In addition, capital refunds may lead to personal income tax liabilities on any incremental value received from capital contributions upon dissolution, restructuring, division, merger, consolidation, or capital withdrawal.

Therefore, refunds to shareholders shall not apply where the company has not fully settled its debts and financial obligations or where such refunds violate legal provisions on debt settlement and asset obligations. Compliance with these conditions is essential to ensure legality and protect the interests of all parties involved.

3. Measures for handling violations related to refunds to shareholders

Measures for handling violations concerning refunds to shareholders are provided under Article 115 of the Law on Enterprise 2020. In cases where a company is dissolved or declared bankrupt, shareholders are entitled to receive the remaining value of assets in proportion to their shareholding. Violations may be subject to the following measures:

  • Compulsory fulfillment of obligations: The company or responsible individuals must perform the refund obligations in accordance with the law (Point g, Clause 1, Article 115).
  • Civil litigation (Article 116): Shareholders or groups of shareholders holding at least 1% of ordinary shares may initiate legal action, either in their own name or on behalf of the company, against members of the Board of Directors, the Director, or the General Director for breaches of managerial duties, seeking restitution or compensation for damages.
  • Administrative sanctions or criminal liability (Article 211): Following a dissolution decision, company managers (such as the Chairperson, Director, or General Director) are prohibited from engaging in acts such as concealing or dissipating assets, transferring debts, entering into new contracts unrelated to dissolution, or pledging/leasing company assets. Violations may result in administrative sanctions or criminal liability, along with compensation obligations.

IV. Questions regarding refunds to shareholders after asset liquidation

1. Can shareholders appeal refund decisions if they disagree with asset handling?

Pursuant to Article 72 of the Law on Enterprise 2020, shareholders may initiate civil actions against company managers (such as the Chairperson, Director, or General Director) if they breach their obligations during the liquidation process.

Additionally, Article 211 provides for prohibited acts during dissolution, and violations may result in administrative or criminal sanctions. Shareholders may therefore request competent authorities to intervene and restore their lawful rights.

2. How are disputes among shareholders regarding the value of liquidated assets resolved?

When disputes arise among shareholders concerning the value of assets after liquidation, the law encourages prioritizing internal settlement mechanisms before resorting to other legal measures. Specifically:

  • Direct discussions among shareholders: Shareholders should meet, exchange views, and propose solutions to determine the remaining asset value and appropriate distribution ratios based on shareholding proportions. Such an approach facilitates prompt resolution, reduces costs, and preserves cooperative relationships.
  • Meetings of the Members’ Council or General Meeting of Shareholders: If no agreement is reached through direct discussions, the matter may be brought to a formal meeting. Decisions are adopted based on voting ratios in accordance with capital contributions and the company’s charter, ensuring transparency and legality in asset distribution.
  • Mediation or commercial arbitration: Where disputes remain unresolved, parties may seek internal mediation or refer the matter to commercial arbitration. These out-of-court mechanisms offer efficient, effective, and confidential dispute resolution.
  • Litigation before competent courts: If all prior methods fail, shareholders may initiate proceedings before a competent civil court to determine asset value and distribution in accordance with the law.

Prioritizing internal agreement not only saves time and costs but also minimizes prolonged conflicts and protects the lawful interests of all shareholders in a flexible and practical manner.

3. What factors may delay the process of refunding shareholders after asset liquidation?

Refunding shareholders after asset liquidation is a critical step in the dissolution or termination of an enterprise. However, several factors may delay such a process:

  • Difficulties in asset valuation: In certain cases, valuation of liquidated assets may be challenging due to insufficient information or the absence of a clear market value, thereby prolonging the assessment and distribution process.
  • Disputes among shareholders: Disagreements regarding asset valuation or distribution methods may lead to prolonged dispute resolution, affecting the refund timeline.
  • Unrecovered debts: Where the enterprise has outstanding receivables that have not been collected, asset liquidation proceeds may be insufficient to settle liabilities, delaying refunds to shareholders.
  • Complex legal procedures: Compliance with legal requirements relating to asset liquidation and distribution may involve time-consuming and complex procedures, particularly for enterprises with numerous assets or shareholders.

To mitigate these issues, enterprises should:

  • Conduct transparent and fair asset valuation;
  • Clearly stipulate asset distribution mechanisms in the company charter or relevant agreements;
  • Actively recover outstanding debts;
  • Strictly comply with applicable legal provisions on asset liquidation.

Proper implementation of these measures will help ensure that the refund process proceeds smoothly and efficiently.

4. What are the steps for refunding shareholders after asset liquidation?

Based on the asset liquidation procedures applicable upon enterprise dissolution under Article 208 of the Law on Enterprise 2020, the refund process generally includes the following main steps:

  • Establishment of an Asset Liquidation Committee: The Committee is responsible for assessing the condition and value of assets, and organizing the liquidation process in accordance with the law.
  • Assessment and determination of asset value: The Committee conducts inspections and valuations of remaining assets and may engage professional valuation organizations where necessary.
  • Asset liquidation: Depending on asset value, liquidation may be implemented through direct sale, public offering, or auction.
  • Settlement of debts and financial obligations: Prior to distributing assets to shareholders, the enterprise must fully settle all outstanding debts and financial obligations.
  • Distribution of remaining assets to shareholders: After fulfilling all financial obligations, the remaining assets are distributed to shareholders in proportion to their shareholding.
  • Completion of legal procedures: The enterprise must complete all legal formalities, including dissolution notification and fulfillment of obligations to competent State authorities.

Compliance with these procedures ensures not only the protection of shareholders’ lawful interests but also the lawful and transparent dissolution of the enterprise.

V. Should legal counsel be engaged for advice on shareholder refunds after asset liquidation?

Engaging legal counsel is advisable to ensure compliance with legal requirements, protect lawful interests, and conduct procedures transparently while minimizing dispute risks. Professional legal support enables both shareholders and enterprises to navigate complex procedures effectively.

Clients are encouraged to contact NPLaw for specialized legal consultation and timely assistance.