Laws of Vietnam

1. On the scope of application of the provisions in Article 1 of Decree 165:

1.1. The Government’s Decree No. 165/1999/ND-CP of November 19, 1999 on security transactions (hereinafter called Decree 165 for short) was promulgated to specify the Civil Code’s provisions on pledge, mortgage and guaranty. Therefore, this Decree applies uniformly to the conclusion and performance of the contracts on pledge, mortgage of, and guaranty with, assets to secure the performance of civil obligations and to the disposal of the pledged, mortgaged and guaranty assets.

1.2. In cases where a specialized legislation contains provisions different from those of Decree 165 on the same matter, the provisions of the specialized legislation shall apply; if such provisions are not available, the provisions of Decree 165 and this Circular shall apply. Following are a number of specific cases:

a/ The pledge, mortgage of, and guaranty with, assets to secure the performance of obligations in economic and commercial transactions must comply with the relevant provisions of legal documents on economic and commercial transactions; if such provisions are not available, the corresponding provisions of Decree 165 and this Circular shall apply.

For example: Regarding the disposal of pledged, mortgaged and guaranty assets in order to recover debts for credit institutions, the provisions in Chapter V of the Government’s Decree No. 178/1999/ND-CP of December 29, 1999 on credit institutions’ loan security and guiding documents shall apply; if relevant provisions are not available, the corresponding provisions of Decree 165 and this Circular shall apply.

b/ The mortgage of, or guaranty with, the land use right must comply with the relevant provisions of the land legislation; if such provisions are not available, the corresponding provisions of Decree No. 165 and this Circular shall apply. The determination of the payment priority order in the disposal of the land use right which is mortgaged as security for the performance of many obligations shall comply with the provisions in Clause 3, Article 14 of Decree No. 165 and at Point 8.2, Clause 8, Section II of this Circular.

c/ The pledge or mortgage of Vietnam’s civil aircraft or sea-going ships must comply with the relevant provisions of Vietnam’s Law on Civil Aviation, Maritime Code and documents guiding the implementation thereof; if relevant provisions are not available, the provisions of Decree No. 165 and this Circular shall apply.

1.3. For the pledge, mortgage of, and guaranty with, assets to secure the performance of obligations in civil, economic and commercial transactions involving foreign elements, the provisions of international agreements which the Socialist Republic of Vietnam has signed or acceded to shall apply first; if such relevant provisions are not available, pursuant to Article 834 of the Civil Code, the application of the Vietnamese laws on security transactions shall be as follows:

a/ Where security transactions are entered into in Vietnam, the Vietnamese law provisions on the forms of security transaction must be complied with;

b/ Where security transactions are executed in Vietnam, the rights and obligations of the involved parties shall be determined in accordance with the Vietnamese laws on security transactions, unless otherwise agreed upon by the involved parties;

c/ Where security transactions are entered into and executed fully in Vietnam, or the contracts on the mortgage of or guaranty with immovable assets in Vietnam, the Vietnamese law provisions on security transaction must be complied with;

d/ For contracts on the mortgage or pledge of Vietnam’s civil aircraft or sea-going ships, if they are concluded in Vietnam, they shall be handled in accordance with the Vietnamese laws on security transactions; if they are concluded in foreign countries, they shall be handled in accordance with the laws of those countries.

1.4. Decree No. 165 and this Circular shall also apply to the entry into and execution of security transactions as well as the disposal of security assets in the cases where foreign individuals and legal persons are involved.

2. On the security for the performance of future obligations under the provisions in Clause 1, Article 4 of Decree No. 165

The parties may agree upon the pledge, mortgage of, or guaranty with, assets as security for the performance of current or future obligations. In cases where they agree upon the security for the performance of future obligations, such obligations must be described in the security transaction documents. Once the future obligations have been established, the parties must make an annex describing in detail the obligations and time limits for their performance; where the security transactions have been registered, registration must be made for changes in the secured obligations according to the law provisions on security transactions. The registration of obligation changes shall not affect the payment priority order applicable to the securees when the security assets are disposed of, if the securing of future obligations has been agreed upon by the parties when concluding security transactions.

For example: On January 1, 2001, A agreed to lend VND 100 million to B to build a plant; they also agreed that if B needed more capital to complete the plant building in the fourth quarter of 2001, A would lend more capital to B. In order to secure the repayment of the above-said VND 100 million loan, B made a contract on the mortgage of a house valued at VND 300 million to A; at the same time they agreed that apart from being a security for the performance of the current obligation (the obligation to repay the VND 100 million loan), this house was also used as security for the repayment of B’s another loan in the fourth quarter of 2001. On October 15, 2001, B additionally borrowed VND 150 million from A. In this case, B’s obligation to repay the VND 150 million loan is a future obligation and also secured under B’s contract on the mortgage of the VND 300 million house.

3. The pledge, mortgage of, and guaranty with, assets to be formed in future under the provisions in Clause 3, Article 4 of Decree 165.

The parties may agree on the pledge, mortgage of, and guaranty with, assets to be formed in future and may select assets in one of the following cases:

3.1. At the time of conclusion of security transactions, such assets do not exist; only after the time of conclusion of security transactions, shall such assets be formed and come under the ownership of the securers (for example, the pledge of an asset being a sea-going ship to be built after the capital is lent by the bank);

3.2. At the time of conclusion of security transactions, assets may be goods being produced or projects being constructed; only after the time of conclusion of security transactions, shall such assets be formed completely and come under the ownership of the securers (for example, the pledge of a production chain being assembled, the mortgage of a house being built).

3.3. At the time of conclusion of security transactions, assets do exist but the procedures for certifying the securers’ ownership have not yet been completed; only after the time of conclusion of security transactions, shall such assets come under the ownership of the securers through the completion of the procedures for transferring the ownership, such as sale and purchase, exchange, donation, lending and inheritance;

3.4. Lawful income sources specified in Article 176 of the Civil Code, which the pledgors, mortgagors or guarantors acquire after the time of conclusion of security transactions.

4. On the pledge, mortgage of, and guaranty with, assets which are assigned by the State to State enterprises for management and use under the provisions in Clause 1, Article 5 of Decree 165

State enterprises may pledge, mortgage and guaranty assets assigned by the State to them for management and use. Where the legislation on State enterprises and other related legal documents prescribe that the pledge, mortgage of, and guaranty with, such assets must be permitted by competent State authorities, State enterprises may only pledge, mortgage or guarantee them after obtaining the permission from competent State authorities.

5. On the pledged, mortgaged and guaranty assets which must be those permitted for transaction and undisputed under the provisions in Clause 2, Article 5 of Decree 165

5.1. Assets permitted for transaction are those not banned from circulation under the law provisions effective at the time of conclusion of security transactions.

5.2. Undisputed assets are those the owners or users of which at the time of conclusion of security transactions are not complained against or sued at court or at competent State authorities by the third parties about the right to own or use such assets.

II. A NUMBER OF SPECIFIC MATTERS IN THE CONCLUSION AND PERFORMANCE OF CONTRACTS ON THE PLEDGE, MORTGAGE OF, OR GUARANTY WITH, ASSETS AND IN THE DISPOSAL OF SECURITY ASSETS

1. Forms of contracts on the pledge, mortgage of, or guaranty with, assets under the provisions of Article 10 of Decree 165

1.1. Contracts on the pledge, mortgage of, or guaranty with, assets must be made in writing, either in separate documents or in principal contracts. The involved parties may agree upon requesting the Notary Office to notarize or the People’s Committees of rural or urban districts, provincial townships or cities (hereinafter called district-level People’s Committees) to authenticate the contracts. Where it is prescribed by law that contracts must be notarized or authenticated, the involved parties must comply therewith.

1.2. The notarization of contracts on the pledge, mortgage of, or guaranty with, assets shall not substitute the registration thereof. Therefore, if the involved parties wish to enjoy the payment priority order, they must register their contracts according to the law provisions on the registration of security transactions.

2. On the sale of security assets being goods circulated in the production and business processes under the provisions at Point b, Clause 1, Article 17 of Decree 165

2.1 Under the requirements of production and business activities, the securers may sell assets being goods circulated in the production and business processes and shall have to perform the following obligations:

a/ To notify in writing the securees of the sale of the security assets before it takes place. The involved parties may agree upon the notification time limit when concluding security transactions. The securers may issue notices on the sale of a particular asset or a goods lot;

b/ To account separately the proceeds from the sale of security assets strictly according to the accounting and book-keeping regime issued by the Ministry of Finance.

2.2. After selling the security assets being goods circulated in the production and business processes, the right to demand payment, the sale proceeds, assets procured from the use of such proceeds shall be security assets substituting the circulated goods volume already sold in accordance with the provisions at Point b, Clause 1, Article 17 of Decree 165. Where it is not otherwise agreed upon by the involved parties, the substitution of the sold security assets shall be as follows:

a/ Where the right to demand payment becomes a security asset substituting the circulated goods volume already sold, the securers must notify such to the parties having the payment obligations. If the obligation performance deadline has come but the securers fail to perform their obligations or perform them at variance with their agreement, the securees shall be entitled to request the parties having the payment obligations to pay the requested amount according to the provisions of Article 31 of Decree 165.

b/ Where the sale proceeds become a security asset substituting the circulated goods volume already sold, the securers must deposit them into a separate account. The securees shall be entitled to request the credit institution where such account is opened to block the account and perform the obligations with the money therein if the obligation performance deadline has come but the securers fail to perform their obligations or perform them at variance with their agreement.

c/ The securers shall be entitled to use the proceeds from the sale of security assets for investment in production and business activities as agreed upon by the involved parties and those assets formed in this process shall naturally become security assets substituting the sold assets.

2.3. For the cases prescribed at Point 2.2 of this Clause, the involved parties must make a contract annex or amendment and/or supplement to the registered mortgage, pledge or guaranty contracts, describing the security assets that substitute the sold ones. Such substitution of security assets must be registered with the agencies where the concerned security transactions have been registered.

As from the time of transfer of the ownership under the provisions of Article 432 of the Civil Code, the buyers of security assets being goods circulated in the production and business processes shall become owners of such assets which are no longer used as security for the performance of the obligations by the securers towards the securees.

2.4. Where the right to demand payment and/or the proceeds from the sale of security assets or the assets acquired from the use of such proceeds are not enough to secure the performance of the obligations, the securers must add security assets, except otherwise agreed upon by the involved parties. The involved parties shall agree upon the types of added assets; if they fail to reach agreement thereon, the securees shall be entitled to select the securers’ assets to add to the security assets.

3. On the disposal of security transactions in cases where the securers are reorganized enterprises under the provisions in Article 21 of Decree 165

3.1. Where the securers are enterprises which are separated, split, consolidated, merged, or transformed, security transactions shall terminate, except for cases where it is otherwise agreed upon by the securees and the newly-reorganized enterprises or otherwise prescribed by law.

3.2. Where it is neither agreed upon by the involved parties nor otherwise prescribed by law, the security assets for the debt repayment obligation of the separated, split, consolidated, merged or transformed enterprises shall be dealt with as follows:

a/ For split or separated enterprises: If security assets are divisible, they shall be divided proportionately to the debt repayment obligations of the separated or split enterprises; if security assets cannot be divided proportionately to the debt repayment obligations and it is not otherwise agreed upon by the separated or split enterprises on security measures, the securees shall be entitled to request the enterprises to perform their obligations before being separated or split;

b/ For consolidated, merged and transformed enterprises: Security assets for the debts of the enterprises before they are consolidated, merged or transformed shall continue to be used as such for these debts of the new enterprises after the consolidation, merger or transformation.

3.3. In cases where the enterprises fail to apply the measures specified at Point 3.2 of this Clause, the securees shall be entitled to dispose of security assets for the performance of the obligations before the separation, splitting, consolidation, merger or transformation takes place.

3.4. In all cases of transfer of the obligations of securing with assets as prescribed at Point 3.2 of this Clause, the involved parties must agree and re-conclude security transactions.

4. On the execution of necessary measures as prescribed by law after the written notices requesting the disposal of security assets are registered under the provisions of Article 27 of Decree 165

After registering the written notices requesting the disposal of security assets at the security transaction-registering agencies, the securees shall be entitled to execute the following measures in order to protect the security assets:

4.1. Inventorying security assets;

4.2. Supervising the use and exploitation of security assets;

4.3. Requesting the securers not to use and exploit security assets if the use or exploitation would reduce or nullify the value of such assets;

4.4. Requesting the securers to transfer security assets to them for direct upkeep or to a third party authorized to keep such assets;

4.5. Seeking and re-claiming security assets if they are sold or dispersed in any form by the securers;

4.6. Requesting competent State authorities to temporarily suspend the carrying out of the procedures for transferring the right to own or use security assets to other persons, if the securers sell or transfer security assets in contravention of their agreement;

4.7. Requesting competent State authorities to support the disposal of security assets under the provisions in Clause 3, Article 23 of Decree 165; taking necessary measures to force the securers or the third party that keeps the security assets to hand over them according to the provisions in Clause 3, Article 29 of Decree 165.

5. On the mode of disposal of the mortgaged or guaranty land use right under the provisions in Article 32 of Decree 165

The disposal of the mortgaged or guaranty land use right shall be as follows:

5.1. Where farming households or individuals mortgage or guarantee with the value of their land use right, the disposal thereof shall be as agreed upon by the involved parties; if they has no agreement thereon or cannot comply with their agreement, the mortgagees or guarantees shall be entitled to select one of the following disposal modes:

a/ Requesting the asset auction center in the place where the land is located to organize an auction of the land use right;

b/ Initiating a lawsuit at court according to law provisions.

5.2. Where organizations and individuals other than farming households or individuals mortgage or guarantee with their land use right, the disposal of the mortgaged or guaranty land use right shall be as agreed upon by the involved parties; if they have no agreement or cannot comply with their agreement, the mortgagees or the guarantees shall be entitled to select one of the disposal measures prescribed at Point 5.1.a and Point 5.1.b of this Clause or transfer the mortgaged or guaranty land use right to other persons for payment of the obligations.

6. On the disposal of guaranty assets under the provisions of Article 35 of Decree 165

6.1. Guaranty assets shall be disposed of in the following cases:

a/ When the obligation performance deadline has come but the guaranteed fail to perform or perform improperly their obligations;

b/ The guaranteed are unable to perform their obligations in cases where the involved parties have agreed that the guarantors shall have to perform their obligations only when the guaranteed are unable to perform their obligations.

6.2. The disposal of guaranty assets shall comply with the provisions on the disposal of security assets in Chapter III of Decree 165 and this Circular.

6.3. Where the involved parties have agreed upon the guaranty with assets but have not yet specified which types of asset, they must reach concrete agreement on the types of asset to be disposed of; if they cannot reach agreement thereon, the guarantees shall be entitled to select the guarantors’ assets for disposal.

7. On the exploitation and use of security assets under the provisions of Article 36 of Decree 165

Where security assets must be disposed of to pay for the obligations but they cannot be disposed of yet, they shall be exploited and used as follows:

7.1. The securees may directly exploit and/or use, or authorize a third party to exploit and/or use security assets or permit the securers to exploit and/or use such assets.

7.2. Yields and profits gathered from the exploitation and use of security assets must be separately accounted and used to pay for the obligations, after subtracting the following necessary and reasonable expenses for the exploitation and use of the assets by the securees or third party:

a/ Management of security assets;

b/ Maintenance and repair of security assets;

c/ Financial obligations towards the State (taxes and fees) related to the exploitation and use of the assets;

d/ Other necessary and reasonable expenses for the exploitation and use of security assets.

Where the securers exploit and use security assets, yields and profits earned shall be used to pay for their obligations without subtracting expenses incurred by the securers, except otherwise agreed upon by the involved parties.

7.3. The payment of the obligations with the earned yields and profits shall comply with the provisions in Clause 8 of this Section.

8. On the payment of the proceeds from the sale of security assets under the provisions of Article 37 of Decree 165

The proceeds from the sale of security assets shall be used for payment as follows:

8.1. Where an asset is used to secure the performance of a single obligation, after subtracting the following expenses, the remaining proceeds from the sale of the assets shall be used to pay for the obligations towards the securees:

a/ Expenses for the preservation and sale of the assets;

b/ The financial obligation towards the State (taxes and fees) related to the disposal of security assets;

c/ Other necessary, reasonable expenses related to the disposal of security assets.

Where the secured obligation is a loan, payment shall be made to the securees in the order of principal, interest, fines, damage compensation (if any); where the proceeds from the sale of assets are more than enough, the remainder shall be returned to the securers; if they are not enough, the securers must pay for the deficit.

8.2. Where an asset is used to secure the performance of many obligations, after paying the expenses specified at Point 8.1.a, 8.1.b and 8.1.c of this Clause, the remaining proceeds from the sale of the asset shall be used to pay for the obligations towards the joint securees of such asset in the following priority order:

a/ Where an asset is used to secure the performance of many obligations and the security transactions related to such asset have been all registered at the security transaction-registering agencies, the payment priority order applicable to the securees shall be determined on the basis of the time of security transaction registration. The securee in the security transaction which is registered first shall get paid first, then followed in turn by the next parties; if one of the registered security transactions is invalidated, the securee in this transaction shall not enjoy the payment priority order.

For security transactions registered simultaneously (on the same minute, hour, day, month and year), the securees shall have the same payment priority. Where the proceeds earned from the disposal of security assets are not enough for payment to the securees having the same payment priority, they shall be distributed to them in a percentage proportionate to their debts, except otherwise agreed upon by the involved parties.

b/ Where security transactions sharing a single asset to secure many obligations but one of such transactions has not been registered, the securees in the registered security transactions shall get paid first. The remaining proceeds shall be used to pay to the securee in the unregistered security transaction;

c/ After payment has been made to the joint securees of a single asset in the priority order stipulated at Point 8.2.a and 8.2.b above, if the proceeds from the sale of the asset are more than enough, the remainder must be returned to the securers; if they are not enough, the securers must pay for the deficit.

8.3. Where the securers are bankrupt enterprises, the jurors who handle the bankruptcy declaration requests shall issue decisions to keep intact security assets and organize the valuation thereof. If the value of security assets is not enough to pay the debts to the securees, the securees may participate in the distribution of the value of remaining assets of the enterprises like other unsecured creditors. If the value of security assets is larger than the debts, the difference shall be included in the value of the remaining assets of the bankrupt enterprises.

III. IMPLEMENTATION PROVISIONS

1. This Circular takes implementation effect 15 days after its signing.

2. Any problems arising in the course of implementation should be reported by individuals and organizations to the Ministry of Justice for study and settlement.

Minister of Justice
NGUYEN DINH LOC