CIRCULAR No CIRCULAR No. 85/2002/TT-BTC OF SEPTEMBER 26, 2002 GUIDING THE IMPLEMENTATION OF THE GOVERNMENT�S DECREE No. 69/2002/ND-CP OF JULY 12, 2002 ON MANAGEMENT AND HANDLING OF OUTSTANDING DEBTS FOR STATE ENTERPRISES In furtherance of the Government�s Decree No. 69/2002/ND-CP of July 12, 2002 on management and handling of outstanding debts for State enterprises (hereinafter called Decree No.69/2002/ND-CP for short), the Finance Ministry hereby guides a number of concrete points as follows: A. GENERAL PROVISIONS 1. Objects of application: 1.1. Independent State enterprises and independent-cost accounting member State enterprises of State corporations, which are being engaged in business activities or public-utility activities (hereinafter referred collectively to as operating enterprises). The State-run commercial banks shall be subject to specific regulations. 1.2. The State enterprises subject to equitization, assignment, sale, business contracting, lease or conversion into one-member limited liability companies under decisions of competent State bodies, which are carrying out procedures for transformation (hereinafter referred collectively to as transformed enterprises). 2. Handling scope: 2.1. For operating enterprises: The handling scope shall cover the receivable debts and payable debts, which had turned overdue by the end of December 31, 2000, which the enterprises have compared, confirmed and urged for payment, but have not yet been repaid for and remain outstanding till now. 2.2. For the transformed enterprises: The handling scope shall cover the receivable debts and payable debts, for which the payment time limits have expired and the enterprises have compared, confirmed and urged for payment but by the time of transformation they have not yet been repaid. B. SPECIFIC PROVISIONS I. HANDLING RECEIVABLE DEBTS WHICH ARE IRRECOVERABLE: 1. Bases for determining receivable debts which are irrecoverable: The bases for determining receivable debts which are irrecoverable as provided for in Clause 1, Article 5 of the Government�s Decree No.69/2002/ND-CP shall include the following documents: 1.1. Documents testifying to the outstanding debt amounts by the end of December 31, 2000 (for operating State enterprises) and by the time of debt handling or by the time of transformation (for transformed enterprises), which have not yet been recovered, including debt comparison records certified by creditors and debtors or the written liquidation of economic contracts or written certification by the agencies which have decided on the establishment of the enterprises or organizations, or other objective documents proving the outstanding debt amounts and relevant papers and documents. 1.2. The accounting books, vouchers, documents proving the irrecoverable debts provided that, by the time of debt handling, the enterprises are accounting receivable debts on their accounting books. 1.3. Documents proving that the overdue or undue receivable debts fall under one of the following cases, which are considered irrecoverable: 1.3.1. For debts of which the debtors are already dissolved or bankrupt enterprises, organizations: - The dissolution decisions or notifications of the agencies which have decided on the establishment of such enterprises or organizations or the courts� decisions on enterprise bankruptcy (the copies signed and stamped by the enterprises- hereinafter called the copies for short). In case of self-dissolution, there must be the notification of the enterprises or the certification by the agencies which have decided the establishment of such enterprises or organizations; - For operating enterprises, there must also be the documents proving that the debtors are enterprises or organizations, which have completed the dissolution or bankruptcy but have not yet paid up debts for the enterprises: the certification by the agencies which have decided on the establishment of enterprises or organizations or the courts which have processed the dossiers on enterprise bankruptcy. 1.3.2. For debtors that have ceased their operation and become insolvent: The certification by the agencies which have decided on the establishment of the enterprises or organizations of the cessation of operation or insolvency of such enterprises or organizations. 1.3.3. For debtors being individuals who have died, missed or are serving imprisonment sentences, or heirs at law, but are unable to repay their debts under the courts� rulings: - For debtors being individuals who have died: The death certificates (copies) or death certification by the local administration; - For debtors being individuals who have been missing: The missing declarations (copies) by the courts or certifications by the local administration; - For debtors being individuals who have fled from their localities: The hunt warrants (copies) of the police offices or certification by the commune or ward police; - For debtors being individuals who are serving imprisonment sentences: The imprisonment judgments (copies) of the courts; the verdicts (copies)of the courts or the local administration�s certification of insolvency of the debtors or heirs. 1.3.4. For debtors being the agricultural cooperatives which have already been dissolved, the agricultural cooperatives which have been transformed and have registered their business under Decree No.16/CP of February 12, 1997 of the Government, but have met with financial difficulties, suffered from business losses and become insolvent, and the agricultural cooperatives which are doing business with profits and have used such debt amounts for investment in infrastructure which however, has been damaged by natural disasters such as floods and/or storms, they shall have their debts forgiven by the State. The evidencing documents shall be the dossiers on debt handling under the guidance in Circular No.31/2002/TT-BTC of March 29, 2002 or the Finance Ministry of the decisions (copies) of the agencies competent to write off the debts for cooperatives. 1.3.5. For debts whose debtors have been entitled to debt remission according to law provisions under the decisions of competent agencies: The decisions (copies) of the agencies competent to write off the debts for debtors according to law provisions. 1.3.6. For the remaining difference of irrecoverable debts after individuals and/or collectives were already handled for their responsibilities with the material compensations: The debt-handling decisions of the Managing Boards or the debt-handling records of the enterprise debt- handling councils or the decisions of the enterprise directors to handle individuals and/or collectives for their responsibilities with material compensations (copies). 1.3.7. The damage differences resulting from the sale of receivable debts, which are accepted by competent bodies: The debt dossiers and the debt-sale and purchase contracts (copies). 1.3.8. Debts to be recovered, for which the debt-claiming expenses are estimated to be larger than the values of the to be-recovered debts: Documents urging debt repayment, debt-claiming expense estimates of the enterprises, the debt-handling records of the enterprise debt-handling council (copies). 1.3.9. For to be- recovered debts which have turned overdue for 3 years or more as from the due dates, and the debtors still exist, are operating but suffer from repeated business losses and meet with exceptional difficulties, being unable to repay their debts and though the enterprises have actively applied various measures, the debts cannot be recovered: The documents proving that the debts remain outstanding by the time of debt handling, which have become overdue for three years or more and have not yet been recovered; the debt-claiming documents of the enterprises; the debtors� financial statements which have been audited (if so) or the certifications by the agencies which have decided on the establishment of the enterprises of the financial situation of the enterprises. 2. Financial handling of receivable debts which cannot be recovered 2.1. For operating State enterprises, the receivable debts, which have been overdue or not yet overdue but are determined with enough grounds as being irrecoverable under the provisions in Clause 1, Section I above, shall be handled with various sources in the following order: 2.1.1. Using receivable bad debt reserve sources for offsetting. 2.1.2. If the receivable bad debt reserve sources are not enough for the offsetting, the enterprises are entitled to account the deficits into their business operation expenses. 2.1.3. Where the deficits are accounted into business operation expenses for two consecutive years but the enterprises still suffer from losses which cannot be made up for while they do not belong to cases of dissolution or bankruptcy, such enterprises shall compile dossiers of report to the competent agencies for considering and deciding on the reduction of the State capital at the enterprises according to the following regulations: a) The procedural dossiers include: - The enterprise�s written request for capital reduction, explaining in detail the handling of receivable debts which cannot be recovered according to Items 2.1.1 and 2.1.2 of Point 2.1 of this Clause, the enterprise�s difficulties in being unable to offset the losses due to the handling of the above-mentioned debts. - The dossiers and documents proving each receivable debt amount which cannot be recovered according to regulations in Clause 1, Section I, Part B of this Circular. - The financial reports, the record on examination of the financial reports and the record on tax settlement (if any) of the enterprise of the year of requesting the handling and the preceding year (copies). - The documents of the branch-managing ministry, the concerned provincial/municipal People�s Committee, or the corporation (hereinafter called the superior managing agencies for short) requesting capital reduction for the enterprises. b) Agencies which appraise and decide on capital reduction for enterprises: - For independent-cost accounting enterprises being members of State corporations and independent-cost accounting enterprises of ministries, ministerial-level agencies or agencies attached to the Government or enterprises set up under the Prime Minister�s decisions (hereinafter called centrally-run enterprises for short), the dossiers and documents shall be addressed to the Enterprise Finance Department for appraisal, before they are submitted to the Finance Minister for decision. - For independent-cost accounting enterprises being members of State corporations and independent-cost accounting enterprises set up under decisions of the People�s Committees of the provinces or centrally-run cities (hereinafter called local enterprises for short), the dossiers and documents shall be sent to the provincial/municipal Finance-Pricing Services for appraisal before they are submitted to the provincial/municipal People�s Committees for decision. 2.1.4. In cases where enterprises suffer from losses due to the handling of receivable debts which cannot be recovered according the provisions in Items 2.1.1, 2.1.2 and 2.1.3 of Point 2.1 above but such enterprises do not belong to cases of dissolution or bankruptcy and should be retained, with 100% State capital under the overall plan on enterprise rearrangement, renovation and development in the 2002-2005 period, already approved by the Prime Minister and have efficient business plans already approved by competent authorities, they shall send their reports enclosed with dossiers and documents to the Enterprise Finance Department for consideration before they are submitted to the Finance Minister for decision on capital support for enterprises from the source of expenditures for reform of State enterprises under the Prime Minister�s Decision No.92/QD-TTg of January 29, 2002 for handling all the losses to ensure the initial capital of the enterprises. The procedural dossiers include: - The enterprise�s written request for capital support or handling for reduction of remaining losses, with detailed explanation on the handling of receivable debts which cannot be recovered according to provisions in Items 2.1.1, 2.1.2 and 2.1.3 of Point 2.1 above, the remaining loss amounts and the capital amounts requested as support. - The dossiers and documents proving each receivable debt amount which cannot be recovered according to the provisions in Clause 1, Section I, Part B of this Circular. - The financial reports, records on examination of the financial reports and records on tax settlement (if any) of the enterprise of the year of requesting for the handling and the preceding year (copies). - The competent agency�s decision on reduction of State capital at the enterprise. - The efficient business plan approved by the competent authority. - The superior managing agency�s written request for handling of the remaining losses and capital support for the enterprise. 2.2. For State enterprises being under transformation, the receivable debts which cannot be recovered shall be handled with various sources in the following order: 2.2.1. Using the receivable bad debt reserve sources for offsetting; 2.2.2. If the receivable bad debt reserve sources are not enough for offsetting, the enterprises are entitled to account the total deficit amount (one-time handling) into their business operation expenses before their transformation. 2.2.3. Where the enterprises suffer from losses after the handling of receivable debts which cannot be recovered according to provisions in Item 2.2.2 of Point 2.2 above, or the enterprises suffer from losses even before the debt handling, their cases shall be handled as follows: a) For State enterprises subject to equitization, sale, assignment to labor collectives, the documents proving the receivable debts which cannot be recovered as provided for in Clause 1, Section I, Part B of this Circular and relevant documents must be produced to the Councils for determining the value of enterprises or the auditing companies or selected organizations with valuation function for consideration and report to competent bodies for decision on reduction of State capital at the enterprises according to current regulations. b) For State enterprises subject to business contracting, lease, or transformation into one-member limited liability companies, the dossiers of report shall be compiled and submitted to the competent agencies for considering and deciding on reduction of State capital at enterprises. - Such a dossier includes: + The enterprise�s written request for capital reduction with clear explanation of the reasons therefor and the capital level asked for reduction. + The dossiers and documents proving each receivable debt which cannot be recovered as provided for in Clause 1, Section I, Part B of this Circular. + The financial reports, records on examination of the financial reports and the records on tax settlement (if any) of the enterprise of the year of requesting the handling and the preceding year (copies). + The superior managing agency�s request for capital reduction for the enterprise. - Agencies appraising and deciding on capital reduction for enterprises: + For centrally-run enterprises: Sending the dossiers and documents to the Enterprise Finance Department for appraisal before they are submitted to the Finance Minister for deciding on the reduction of State capital at the enterprises. + For local enterprises: Sending their dossiers and documents to the provincial/municipal Finance-Pricing Services for appraisal before they are submitted to the provincial/municipal People�s Committees for deciding on the reduction of State capital at the enterprises. 2.2.4. For the to be- equitized State enterprises, where the value of the State capital is not enough for handling the accumulated losses and irrecoverable debts or where after reducing the value of the State capital at the enterprises, the remaining value is not enough to ensure the State capital level necessary for participation in the joint-stock companies according to the approved plans (under the Prime Minister�s Decision No.58/2002/QD-TTg of April 25, 2002 promulgating the classification criteria and list of State enterprises and corporations), such enterprises shall send their written requests together with the dossiers to the Enterprise Finance Department for consideration and submission to the Finance Minister for deciding on the transfer (sale at designated prices) of a number of receivable debts to organizations with function of buying and selling outstanding debts and assets. The difference (if any) resulting from the sale of debts shall be handled by reducing the State capital before transformation. - Organizations with function of buying and selling outstanding debts and assets shall receive debts and make payment to the enterprises at designated prices (decided by the Finance Minister) and continue seeking ways to recover them. The difference between the debt value and the actually recovered amount of the organizations with function of buying and selling outstanding debts and assets shall be subsidized by the Finance Ministry from the source of enterprise reform fundings. Such a dossier includes: - The enterprise�s written request for handling, clearly stating the reasons therefor, the capital level requested for reduction, the receivable debts proposed for sale at designated prices (with proposal on the designated price level) to organizations with function of buying and selling outstanding debts and assets, the accumulated loss amounts, irrecoverable debts, the State capital amounts at the enterprise when not yet handled, the capital amounts for implementation of the preference policy when selling shares to laborers in the enterprise, the State capital amount needed to meet the percentage of State capital in the joint-stock company. - The dossiers and documents proving each receivable debt which cannot be recovered as provided for in Clause 1, Section I, Part B of this Circular. - The financial reports, the records on examination of the financial reports and the records on final tax settlement (if any) of the enterprise for the year of requesting the handling and the preceding year (copies). - The written handling requests of the superior managing agency and the agency which has decided on the establishment of the State enterprise. - The record of determing the pre-transformation value of the enterprise, of the Council for determination of the enterprise value. - The competent body�s decision on transformation of the State enterprise (copy). 2.3. The debt handling for transformed enterprises shall be implemented through synchronous measures together with the handling of the enterprises� pre-transformation problems as determined in the plan for transformation and rearrangement of enterprise. 2.4. The receivable debts which cannot be recovered, after being handled according to the above-mentioned contents, must be monitored and recovered by the State enterprises or the representatives of the owners of the State capital at enterprises: - For operating State enterprises, they must be monitored on the accounts of indexes outside the accounting balance sheet and recovered within five years. The recovered amount shall be accounted into the incomes of the enterprises. - For transformed enterprises, after the transformation, the representatives of the owners of the State capital at enterprises shall have to continue monitoring and recovering the receivable bad debts which have been already handled before the transformation but remain recoverable, the collected amounts, after subtracting the recovery expenses, shall be remitted into the fund for support of rearrangement and equitization of State enterprises; or transfer the dossiers and documents to organizations with function of buying and selling outstanding debts and assets under decisions

Circular 85/2002/TT-BTC