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SOME ISSUES TO NOTE FOR FOREIGN INVESTORS ON MEASURES TO ENSURE THE IMPLEMENTATION OF OBLIGATIONS UNDER DECREE 21/2021
SOME ISSUES TO NOTE FOR FOREIGN INVESTORS ON MEASURES TO ENSURE THE IMPLEMENTATION OF OBLIGATIONS UNDER DECREE 21/2021
Decree No. 21/2021/ND-CP providing for the implementation of the 2015 Civil Code on ensuring the performance of obligations (hereincen ND 21/2021) has completed the shortcomings and limitations of the previous decree, as well as created a more favorable legal framework for the parties to the transaction to ensure the proper implementation of the basic principles of civil law. In order to promote the maximum exploitation of the economic value of collateral and fair loan market, foreign investors should note some issues in the spirit of Decree 21/2021 as follows:
1. Regulations on an obligation to be secured shall be performed by multiple properties
Fulfillment of an obligation can be secured by multiple properties. Scope of security for obligation fulfillment of each property among collateral is determined according to agreement between securing parties and secured parties. In case no agreement is available, any property can be used to secure fulfillment of all obligations.
(Article 5.2 Decree 21/2021)
2. Retention and use of certificates
In case collateral is used to secure fulfillment of other obligations or implement other civil transactions while secured parties are retaining master registers of certificates, the secured parties shall transfer master registers of the certificates to entities in charge of relevant transactions or exercise other obligations according to agreements to enable entities in charge of relevant transactions to adopt procedures as per the law.
In case secured parties transfer master registers of certificates to entities in charge of relevant transactions, entities that receive the master registers must return the master registers as soon as they finish procedures. Failure to return master registers of certificates in a timely fashion will result in compensation incurred by secured parties.
Securing parties may use copies of certificates and master registers of valid written confirmation of secured parties regarding retention of master registers of certificates for use or circulation of properties.
(Article 6 Decree 21/2021)
3. Investment project and affiliated properties
Project developers may utilize investment projects that are not prohibited by Law on Investment and other relevant laws from transfer as security for obligation fulfillment.
Project developers may use all investment projects their property rights regarding extraction, management of investment projects and other property rights or other properties affiliated to investment projects as security for obligation fulfillment.
In case investment projects used as security for obligation fulfillment are construction projects for houses, construction projects for structures other than houses or other projects that are required by relevant law provisions to obtain certificates, decisions of competent authorities or other legal basis, description under security contracts must be able to display this legal basis.
(Article 18 Decree 21/2021)
4. Effectiveness of security contracts
The majority of security contracts in the investment sector must be notified, authenticed and arise from the time of noticing and authentication. In case collateral is withdrawn under agreement, sections of security contracts that relate to the withdrawn collateral shall no longer be effective; in case collateral is added or replaced, revision of security contracts relating to this collateral shall be implemented according to the Civil Code and other relevant law provisions.
(Article 22 Decree 21/2021)
Decree No. 21/2021/ND-CP providing for the implementation of the 2015 Civil Code on ensuring the performance of obligations (hereincen ND 21/2021) has completed the shortcomings and limitations of the previous decree, as well as created a more favorable legal framework for the parties to the transaction to ensure the proper implementation of the basic principles of civil law. In order to promote the maximum exploitation of the economic value of collateral and fair loan market, foreign investors should note some issues in the spirit of Decree 21/2021 as follows:
1. Regulations on an obligation to be secured shall be performed by multiple properties
Fulfillment of an obligation can be secured by multiple properties. Scope of security for obligation fulfillment of each property among collateral is determined according to agreement between securing parties and secured parties. In case no agreement is available, any property can be used to secure fulfillment of all obligations.
(Article 5.2 Decree 21/2021)
2. Retention and use of certificates
In case collateral is used to secure fulfillment of other obligations or implement other civil transactions while secured parties are retaining master registers of certificates, the secured parties shall transfer master registers of the certificates to entities in charge of relevant transactions or exercise other obligations according to agreements to enable entities in charge of relevant transactions to adopt procedures as per the law.
In case secured parties transfer master registers of certificates to entities in charge of relevant transactions, entities that receive the master registers must return the master registers as soon as they finish procedures. Failure to return master registers of certificates in a timely fashion will result in compensation incurred by secured parties.
Securing parties may use copies of certificates and master registers of valid written confirmation of secured parties regarding retention of master registers of certificates for use or circulation of properties.
(Article 6 Decree 21/2021)
3. Investment project and affiliated properties
Project developers may utilize investment projects that are not prohibited by Law on Investment and other relevant laws from transfer as security for obligation fulfillment.
Project developers may use all investment projects their property rights regarding extraction, management of investment projects and other property rights or other properties affiliated to investment projects as security for obligation fulfillment.
In case investment projects used as security for obligation fulfillment are construction projects for houses, construction projects for structures other than houses or other projects that are required by relevant law provisions to obtain certificates, decisions of competent authorities or other legal basis, description under security contracts must be able to display this legal basis.
(Article 18 Decree 21/2021)
4. Effectiveness of security contracts
The majority of security contracts in the investment sector must be notified, authenticed and arise from the time of noticing and authentication. In case collateral is withdrawn under agreement, sections of security contracts that relate to the withdrawn collateral shall no longer be effective; in case collateral is added or replaced, revision of security contracts relating to this collateral shall be implemented according to the Civil Code and other relevant law provisions.
(Article 22 Decree 21/2021)
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