No fix for Kai Yang after deadbeat owners escaped with assets

More than 2,000 employers were left hanging by the management who quietly dispersed the assets before their getaway

H&S Co., Ltd. previously had the intention to take over the shoe manufacturer after the disappearance of Kai Yang Vietnam's leaders in early August. It was known to recompense Kai Yang staff for half of their July salary. However, after a closer look at the prolonged issues at Kai Yang, the company decided to withdraw.

Working for Kai Yang Vietnam for 12 years, Tran Minh Thi, who is in her eighth month of pregnancy, is worried about her life although the authority of Hai Phong has requested relevant agencies in the area to ensure the benefits of Kai Yang employees, including their social insurance, health insurance, and unpaid salaries and wages.

However, The 100 per cent Taiwanese-invested company has been found to owe banks some VND150 billion ($6.52 million) and employees 1.5 months of salary and wages. It also announced that it did not have sufficient funds to maintain normal business operations.

Numerous dialogues have been held in August between Haiphong and Kai Yang employees in a bid to soothe the workers and stop them from gathering at the headquarters of Kien An District Party Committee to demand help.

According to Nguyen Van Tung, Chairman of Haiphong People’s Committee, to avoid any further losses to the company and its employees, Kai Yang is now required to suspend operations and only carry out a few particular tasks, including delivering goods and collecting bill payments.

The issue of investors – foreign and domestic alike – disappearing in a puff of smoke is causing great difficulties to workers, business partners, and the authorities alike. Analysts said that although most abandoned projects were small, the problem would lead to long-term social consequences as thousands of workers lost jobs while many banks, insurers, and other businesses turned reluctant creditors of absconding investors.

Workers suffer most as they not only lost jobs, got salaries and social insurance premiums unpaid, but more seriously, could not get back their social insurance cards from their former employers who owed to social insurance funds.

Due to the lack of legal grounds, functional agencies also had problems withdrawing the investment certificates of abandoned enterprises. As a result, it was impossible to liquidate these enterprises, handle their assets and debts, settle employee-related matters, and recover land for other projects, analysts said.

Associate Professor PhD Ngo Tri Long, a financial expert, commented that previously, owners of foreign-invested businesses who abandoned their company were mainly from South Korea, especially in the field of textile and leather shoes. Recently, an increasing proportion comes from Taiwan or Hong Kong, operating in mining, textile, and chemicals, which produce little added value, can easily cause environmental pollution, and work with outdated technology.

“It is necessary to carefully select FDI from China as well as other countries. In addition, it is also important to add more regulations to prevent and handle issues from business owners running away. In case suspicions arise that business owners are about to disappear, the authorities need to prevent them from leaving the country. Signs like running large tax arrears or falling heavily behind insurance payments should be the red flags alarming those in charge,” Long said.

The fact that recently many Vietnamese companies, especially foreign-invested enterprises have traded and used loan capital instead of equity (which suggests poor capital structure in manufacturing) has caused unhealthy conditions in business and has been "abetting" transfer pricing activities.

From the perspective of a tax expert, Associate Professor Dr Le Xuan Truong, head of the Tax and Customs Department of the Academy of Finance, said Vietnam can reach for several solutions that can solve the problem, such as making the capital adequacy ratio based on loan capital and equity (instead of being a number largely plucked out of thin air); regulations on interest expenses which are not deductible to calculate enterprise income tax associated with the ratio of loan capital and equity.

According to Truong, many countries have regulations on "poor capital structure", to deal with enterprises that operate mainly on borrowed capital, or where the ratio of loans against equity is too high. In these countries, the interest paid on the loan portion that exceeds a certain percentage of the loan-equity ratio is not treated as deductible expenses when calculating corporate income tax.

This is a good experience that Vietnam could apply to the fitting business sector, Le Xuan Truong proposed.

On August 20, the Politburo ­issued Resolution No.50/NQ-TW on orientations to perfect institutions and policies to enhance the quality and efficiency of foreign investment co-operation through 2030.

Under the resolution, Vietnam will attract foreign direct investment in a more selective manner, focusing on efficiency, technology, and environmental protection. Thus, the country will give priority to projects having advanced and new technology, modern governance, high added value, and wide links with global production and supply chains.