Do Corporate Mergers and Acquisitions Extinguish Obligations Owed to Creditors?

I. INTRODUCTION

Corporate consolidation activities—such as mergers, acquisitions (absorptions), and other forms of corporate reorganization (division, separation, conversion)—serve as important tools for business restructuring, resource optimization, and expansion of scale. A fundamental and highly practical legal question arises: when a company is merged or acquired, do the debts and obligations of the merged or acquired company continue to exist, or do creditors lose their right to claim repayment?

This article provides an in-depth analysis of the current Vietnamese legal framework—namely the Law on Enterprises 2020 and relevant implementing instruments, the Civil Code 2015, and the Law on Civil Judgment Enforcement—to clarify the principles governing the transfer of rights and obligations, the rights of creditors, applicable exceptions, and practical risks. It further proposes solutions to strengthen creditor protection and enhance transparency in corporate reorganization.

II. PRIMARY LEGAL FRAMEWORK

1. Law on Enterprises 2020 — Regulation of Mergers, Acquisitions, Divisions, and Separations

• Merger of enterprises (Article 200):
  Upon registration of the merged company, the merged entities cease to exist. The merged company succeeds to all lawful rights and interests and assumes responsibility for all obligations, outstanding debts, labor contracts, and other property-related obligations of the merged companies. The merger agreement must be sent to creditors and notified to employees within 15 days from the date of approval.
• Acquisition (absorption) of enterprises (Article 201):
  Upon registration of the acquiring company, the acquired company ceases to exist. The acquiring company automatically inherits all rights, obligations, and lawful interests of the acquired company. The acquisition agreement must likewise be sent to all creditors and notified to employees within 15 days from the date of approval.

2. Civil Code 2015 — Transfer of Obligations (Article 370)

Under general civil law principles, an obligor may transfer its obligation to a substitute obligor only with the consent of the obligee (creditor), unless the obligation is strictly personal or otherwise prohibited by law. However, this rule applies to ordinary civil transactions, whereas the Law on Enterprises provides specialized and mandatory rules on automatic succession of rights and obligations in cases of corporate reorganization.

3. Law on Civil Judgment Enforcement and Implementing Instruments

In the context of enforcement proceedings, Vietnamese law recognizes the transfer of enforcement rights and obligations in cases of mergers, acquisitions, divisions, and separations, ensuring continuity of enforcement against the successor legal entity. This mechanism aims to protect judgment creditors and beneficiaries of enforcement.

III. LEGAL ANALYSIS — DOES THE SUCCESSOR COMPANY “ASSUME” THE DEBTS?

1. General Principle: Obligations Do Not “Disappear” — The Successor Bears Liability

The Law on Enterprises 2020 clearly establishes that after a merger or acquisition, the merged or acquiring company automatically succeeds to all rights, obligations, and lawful interests of the merged or acquired company. Upon completion of enterprise registration, the merged/acquired company ceases to exist as a legal entity.

Accordingly, corporate merger or acquisition does not extinguish creditor claims. On the contrary, all obligations are transferred in full to the successor legal entity.

2. Relationship Between Specialized Law (Law on Enterprises) and General Law (Civil Code)

• Article 370 of the Civil Code requires creditor consent for the transfer of obligations in ordinary civil transactions.
• However, the Law on Enterprises is lex specialis, specifically governing corporate reorganization and mandating automatic succession of obligations in mergers and acquisitions.

Under the principle of specialized law prevailing over general law, obligations transfer to the successor entity without requiring individual creditor consent, unless otherwise provided by specialized legislation or contractual agreement. Notably, the Law on Enterprises requires notification to creditors but does not condition effectiveness on creditor approval.

3. Division and Separation: Joint and Several Liability or Alternative Arrangements

Unlike mergers and acquisitions, in cases of division or separation, the Law on Enterprises provides that after enterprise registration, the divided company and the newly formed entities are jointly and severally liable for outstanding obligations and debts, unless otherwise agreed with the creditors. This reflects a higher level of creditor protection in asset-fragmentation scenarios.

4. Rights of Creditors and Protective Procedures

• Mandatory notification:
  Merger or acquisition agreements must be sent to all creditors and notified to employees within 15 days of approval. This enables creditors to proactively exercise their rights (e.g., demand repayment, seek security, renegotiate terms).
• Judicial remedies:
  If creditors suffer damage due to reorganization conducted for the purpose of evading obligations, they may initiate legal proceedings requesting judicial review and protection.

5. Exceptions and Practical Risks

• Personal obligations:
  Obligations strictly attached to the person of the obligor are non-transferable under the Civil Code.
• Fraudulent transactions to evade debts:
  If corporate reorganization is used as a means to conceal assets or evade creditor claims (e.g., sham transactions or fraudulent transfers), creditors may seek annulment of such transactions, recovery of assets, or liability under provisions on fraudulent conveyance, bankruptcy, or asset claw-back.
• Enforcement stage:
  Where a judgment or decision is already enforceable, rules on the transfer of enforcement rights and obligations apply to ensure continued enforcement against the successor entity.

IV. CONCISE LEGAL CONCLUSIONS

1. No — mergers and acquisitions do not extinguish obligations owed to creditors.
   Under Articles 200 and 201 of the Law on Enterprises 2020, the merged or acquiring company automatically inherits all rights, interests, and obligations (including outstanding debts) of the merged or acquired company, which ceases to exist upon enterprise registration.
2. This automatic succession differs from the general regime under Article 370 of the Civil Code. In corporate reorganization, specialized legislation mandates mandatory succession without requiring individual creditor consent, while still protecting creditors through mandatory notification.
3. In cases of division or separation, successor entities are generally subject to joint and several liability for existing obligations, unless otherwise agreed with creditors—providing enhanced creditor protection.
4. In practice, if reorganization is abused to evade debts, creditors retain legal mechanisms to challenge fraudulent transactions, restore their rights, or pursue civil, administrative, or even criminal liability. Enforcement law further ensures continuity of enforcement against successor entities.

V. POLICY RECOMMENDATIONS AND BEST PRACTICES

1. Enhanced disclosure and transparency in corporate reorganization
   Expand creditor notification obligations to include public disclosure on the National Enterprise Registration Portal, with clear debt settlement plans and updated debt status in enterprise records.
2. Creditor protection in distress or insolvency-risk reorganizations
   Introduce early-warning mechanisms enabling authorities or creditors to request interim measures (e.g., asset transfer freezes) to prevent asset stripping.
3. Standardization of creditor agreements in division/separation cases
   Encourage or require formalized agreements between creditors and successor entities, with clear form, content, and response timelines.
4. Clearer procedural guidance for courts and enforcement agencies
   Issue uniform judicial and enforcement guidelines on disputes involving debt succession, asset recovery, and sham transactions arising from corporate reorganization.

FINAL CONCLUSION

Corporate mergers and acquisitions do not eliminate obligations owed to creditors. The Law on Enterprises 2020 unequivocally provides that successor entities automatically inherit all rights, interests, and obligations of the merged or acquired companies, preserving creditors’ rights to claim repayment. In certain reorganizations such as division or separation, the law imposes joint and several liability to further protect creditors. Nevertheless, effective creditor protection in practice requires enhanced transparency, robust anti-evasion mechanisms, and clearer judicial and enforcement guidance.

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1. Lawyer Vu Thi Phuong Thanh, Ha Noi Bar Association

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Khuong Ngoc Lan