Is a Company Liable to Repay Funds Advanced by a Third Party?
In business practice, it is not uncommon for a third party—be it a shareholder, employee, or partner—to advance funds to help a company settle its debts during financial hardship. But what happens if the company later refuses to repay? Does the third party have the right to demand reimbursement? And how does the law interpret the company’s responsibility?
A recent judgment by the People’s Court of Ho Chi Minh City sheds light on this issue. It serves as a prime example that such financial advances can constitute a legally binding debt if certain legal conditions are met.
In the case at hand, an individual (Mr. M) transferred over VND 7 billion from his personal account to pay wages, bonuses, and contractors on behalf of the company—at the request of a corporate legal representative. Notably, Mr. M had no formal authorization from the company. So how did the court handle this?
Key Legal Factors That Empower Individuals to Demand Repayment from a Company
Not every instance of a third-party advance is automatically protected under the law. Courts only uphold repayment claims when sufficient legal evidence shows a direct link between the money spent and the company's benefit. In this case, Mr. M’s success was not by chance, but the result of solid evidence and lawful actions. So what are the decisive legal factors?
Transactions Based on Actual Requests and Corporate Benefit
The court focused on the practical relationship between the parties. It went beyond formality to substance: Mr. M advanced the funds solely for the company’s benefit, not personal gain. His actions were based on a specific request from a company representative who was authorized to manage financial transactions.
This demonstrated that the transaction was not a private loan, but a legitimate corporate payment to maintain operations.
Transparent Transfers and Full Documentation
A crucial factor for Mr. M’s victory was that all transfers were made via bank with clear records, including payment purposes explicitly stated as on behalf of the company. Contractors and employees also confirmed receipt of the funds from Mr. M.
These documents proved transparency and substantiated that the company was the direct beneficiary, thus unable to deny its obligation to repay.
Company's Silence and Non-Cooperation Does Not Void Responsibility
A common argument from companies is that the third party lacked formal authorization. However, as this ruling shows, when the third party acts in the company’s interest upon request from an authorized representative, the company must bear the repayment responsibility—even if leadership later changes or refuses to cooperate.
What Should Businesses Do to Avoid Similar Legal Risks?
This case serves not only as a lesson for individuals who front funds, but also a wake-up call for companies on internal governance and financial accountability. Losing such lawsuits is not only a financial loss but also damages reputation and cash flow control.
Establish Clear Financial Processes
A major pitfall for the company was the lack of internal clarity on financial authority. Companies should implement clear financial policies, register them appropriately, and ensure consistency to prevent internal “loopholes.”
Manage Third-Party Advances Responsibly
In emergencies, third-party advances may be necessary. However, a written agreement with repayment terms should be secured from the outset. At minimum, an acknowledgment record should be drafted detailing parties involved, reasons, and repayment plans.
Prevent Unclear Legal Changes
This case shows the danger when shareholders or management alter legal representation and deny past obligations. Clear internal governance and compliance with shareholder resolutions are essential.
This ruling is a reminder that any financial benefit accepted by a company—even informally—can become a legal obligation. For individuals, it's proof that transparent, well-documented actions are legally defensible.
If your company is facing internal disputes, financial conflicts, or needs help restructuring management processes, DEDICA is ready to assist. With extensive litigation experience and a dedicated legal team, we provide strategic and sustainable legal solutions.
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