Venture North Law Firm

In cases of a de-merger of a company, the Enterprise Law 2020 does not make clear when will the de-merger of the new company from a de-merged company (or existing company) be considered as legally competed. This update discusses the issue.

In case of a de-merger of a company, the Enterprise Law 2020 does not make clear when will the de-merger of the new company from a de-merged company (or existing company) be considered as legally competed. However, it appears that a de-merger could be considered completed when (1) a new enterprise registration certificate of the new company is issued, and (2) assets and liabilities of the existing company are transferred to the new company in accordance with the de-merger decision of the owners/shareholders of the existing company. This is because the Enterprise Law 2020 provides that:

  • after registration of the enterprise, the new company and the existing company are jointly liable for the obligations and liabilities of the existing company; and

  • the new company will automatically inherit all rights and obligations allocated to it in accordance with the de-merging decision of the owners/shareholders of the existing company.

Both provisions suggest that a de-merger can only complete after the enterprise registration certificate of the new company is issued. At such time, the new company will have legal person status. Regarding the second provision, although the law provides that new company will automatically inherit all rights allocated to it, the law also refers to the de-merging decision of the owners/shareholders of the existing company. Accordingly, the de-merging decision of the owners/shareholders of the existing company should specify the timing of the transfer of assets and liabilities from the existing company to the new company.

This post is written by Nguyen Quang Vu.

 

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