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LAWS REGARDING BUYING AND SELLING DEBT IN VIETNAM
LAWS REGARDING BUYING AND SELLING DEBT IN VIETNAM
1.Legal Basis
- Civil Code 2015
- Investment Law 2020
- Enterprise Law 2020
- Circular No. 09/2015/TT-NHNN (amended and supplemented by Circular 18/2022/TT-NHNN)
2.Content
According to the provisions of the Investment Law 2020, debt assignment has been removed from the list of conditional business sectors. The reason for this removal is explained in detail in the Explanatory Report on the Investment Law reform 7267/BC-BKHĐT dated October 4, 2019, as follows:
Essentially, debt assignment refers to a transfer of debt (all the associated rights and obligations to that debt) from one entity to another. "Debt" – the object of this assignment – can be any debt arising from normal civil or commercial transactions (debts of a sensitive nature or belonging to a specific group of subjects are already regulated by other documents). The entities participating in assignment of debt can be any business entity (except for professional entities such as credit institutions, securities companies, etc.). Debt assignment services merely support and promote the aforementioned debt assignment. The result of debt assignment does not alter the obligation to repay the debt or the debt itself but only changes the entity responsible for fulfilling that obligation. Thus, debt assignment and debt assignment services only concern the participating entities and do not comply with the provisions of Clause 1, Article 7 of the Investment Law 2014.
Essentially, debt assignment refers to a transfer of debt (all the associated rights and obligations to that debt) from one entity to another. "Debt" – the object of this assignment – can be any debt arising from normal civil or commercial transactions (debts of a sensitive nature or belonging to a specific group of subjects are already regulated by other documents). The entities participating in assignment of debt can be any business entity (except for professional entities such as credit institutions, securities companies, etc.). Debt assignment services merely support and promote the aforementioned debt assignment. The result of debt assignment does not alter the obligation to repay the debt or the debt itself but only changes the entity responsible for fulfilling that obligation. Thus, debt assignment and debt assignment services only concern the participating entities and do not comply with the provisions of Clause 1, Article 7 of the Investment Law 2014.
2.1.Debt Assignment Definition
Article 450 of the 2015 Civil Code stipulates:
“1. In the case of purchasing and selling property rights, the seller must transfer the documents and complete the procedures for transferring ownership to the buyer, and the buyer must pay the seller.
2. If the property right is a debt claim, and the seller guarantees the debtor’s solvency, the seller is jointly liable for payment if the debtor fails to pay when due.
3. The time of transferring ownership of the property right is the time when the buyer receives the ownership documents or from the time of registration of ownership transfer, if prescribed by law.”In addition, Article 115 of the Civil Code stipulates property rights as follows: “Property rights are rights that can be valued in money, including property rights over intellectual property objects, land use rights, and other property rights.”
Thus, debt assignment is essentially the purchase and sale of a property right, which is the right to claim a debt.
According to current Vietnamese law, Clause 1, Article 3 of Circular No.
09/2015/TT-NHNN regulates the debt assignment activities of credit institutions and foreign bank branches, stating: “Debt assignment is a written agreement on the transfer of the right to claim a debt arising from lending activities or repayment obligations in a guarantee operation, whereby the debt seller transfers ownership of the debt to the debt buyer and receives payment from the buyer.”
Hence, debt assignment is the transfer of ownership over the right to claim a debt (a type of asset under the Civil Code) from the debt seller to the debt buyer, based on the principle of compensation.
In commercial banks, debt assignment can be understood as a transaction where the commercial bank sells part or all of its right to demand the borrower to fulfill their obligations and other requirements when due to a debt buyer.
Debt assignment in businesses refers to the transaction where the business sells its difficult-to-recover debt to another creditor who is more capable. This activity temporarily rescues the business's financial situation, helping it escape economic burdens in the short term.
“1. In the case of purchasing and selling property rights, the seller must transfer the documents and complete the procedures for transferring ownership to the buyer, and the buyer must pay the seller.
2. If the property right is a debt claim, and the seller guarantees the debtor’s solvency, the seller is jointly liable for payment if the debtor fails to pay when due.
3. The time of transferring ownership of the property right is the time when the buyer receives the ownership documents or from the time of registration of ownership transfer, if prescribed by law.”In addition, Article 115 of the Civil Code stipulates property rights as follows: “Property rights are rights that can be valued in money, including property rights over intellectual property objects, land use rights, and other property rights.”
Thus, debt assignment is essentially the purchase and sale of a property right, which is the right to claim a debt.
According to current Vietnamese law, Clause 1, Article 3 of Circular No.
09/2015/TT-NHNN regulates the debt assignment activities of credit institutions and foreign bank branches, stating: “Debt assignment is a written agreement on the transfer of the right to claim a debt arising from lending activities or repayment obligations in a guarantee operation, whereby the debt seller transfers ownership of the debt to the debt buyer and receives payment from the buyer.”
Hence, debt assignment is the transfer of ownership over the right to claim a debt (a type of asset under the Civil Code) from the debt seller to the debt buyer, based on the principle of compensation.
In commercial banks, debt assignment can be understood as a transaction where the commercial bank sells part or all of its right to demand the borrower to fulfill their obligations and other requirements when due to a debt buyer.
Debt assignment in businesses refers to the transaction where the business sells its difficult-to-recover debt to another creditor who is more capable. This activity temporarily rescues the business's financial situation, helping it escape economic burdens in the short term.
2.2.Objects and Parties Involved in Debt Assignment
Object: The debts, with bad debts being the most common. These debts arise when businesses provide loans, and commercial banks disburse capital to customers, who are obligated to repay according to the signed contract.
The object of the debt sale contract is the right to claim a debt arising from lending operations, where the debt seller transfers ownership of the debt to the debt buyer and receives payment from the buyer, according to Clause 1, Article 3 of Circular 09/2015/TT-NHNN. A debt can be sold in part or in full; sold to one or multiple debt buyers and can be bought and sold multiple times in the primary and secondary debt markets.
Parties: There are always two parties involved: the debt buyer and the debt seller. The debt seller is the lending business or the commercial bank where the customer borrows. The debt buyer is the entity legally allowed to engage in debt purchasing, typically including credit institutions, foreign banks approved to engage in debt purchasing, and debt assignment services that meet legal requirements. By purchasing debts from businesses or commercial banks, the debt buyer becomes the new owner of the debt and has numerous opportunities to make significant profits by reselling the debt in the secondary market or directly collecting the debt from the debtor.
The object of the debt sale contract is the right to claim a debt arising from lending operations, where the debt seller transfers ownership of the debt to the debt buyer and receives payment from the buyer, according to Clause 1, Article 3 of Circular 09/2015/TT-NHNN. A debt can be sold in part or in full; sold to one or multiple debt buyers and can be bought and sold multiple times in the primary and secondary debt markets.
Parties: There are always two parties involved: the debt buyer and the debt seller. The debt seller is the lending business or the commercial bank where the customer borrows. The debt buyer is the entity legally allowed to engage in debt purchasing, typically including credit institutions, foreign banks approved to engage in debt purchasing, and debt assignment services that meet legal requirements. By purchasing debts from businesses or commercial banks, the debt buyer becomes the new owner of the debt and has numerous opportunities to make significant profits by reselling the debt in the secondary market or directly collecting the debt from the debtor.
2.3.Conditions for Debt Assignment
Article 4 of Circular No. 09/2015/TT-NHNN outlines specific conditions as follows:
- The records, documents, and related materials of the debt being bought or sold, and any collateral agreements (if applicable) provided by the debt seller must accurately reflect the debt's current status as required by law.
- There must be no written agreement prohibiting the purchase or sale of the debt.
- The debt must not be used to secure the performance of a civil obligation at the time of the purchase or sale unless the secured party agrees in writing to the sale of the debt.
In addition to the general conditions for a debt to be eligible for purchasing, debts purchased by the Vietnam Asset Management Company (VAMC) must meet additional conditions, such as being assessed by VAMC as having the potential to recover the full purchase amount, with collateral for the bad debt capable of being liquidated, or where the borrower has the potential to restore their ability to repay.
2.4.Transfer of Rights and Obligations Attached to the Debt
As analyzed above, since the right to claim a debt is a property right, the time of transfer of ownership for this right is subject to the same rules as the transfer of ownership for other property rights, as stipulated in Clause 3, Article 450 of the 2015 Civil Code, specify "the time of transfer of ownership of a property right is when the buyer receives the documents regarding ownership of that property right or from the time of registration of ownership transfer, if prescribed by law."
Because current laws do not have any specific regulations regarding the registration when transferring debt claims/rights to demand, in principle, the time when the buyer establishes ownership over the debt claim is when they receive documents proving ownership of that debt claim. For example, if the debt is a loan, the document acknowledging the right to claim the debt could be a loan contract or loan agreement. The time of establishing ownership of the debt claim is when the buyer receives these documents.
However, this principle has an exception for debt purchase and sale contracts under the scope of Circular No. 09/2015/TT-NHNN (amended and supplemented by Circular 18/2022/TT-NHNN). In these cases, the time of transfer of ownership of the debt claim can be agreed upon by the parties in the contract, independent of the time the documents acknowledging ownership are transferred. Specifically: "Transfer of rights and obligations attached to the debt
1. The debt buyer becomes the holder of the rights and obligations attached to the debt being bought and sold from the debt seller from the time the debt buyer receives the transfer of ownership of the debt from the debt seller as agreed in the debt purchase and sale contract."
Thus, in the debt purchasing activities of credit institutions, the debt buyer becomes the holder of the rights and obligations attached to the purchased debt from the time the debt buyer receives the transfer of ownership of the debt from the debt seller, as agreed in the debt purchase and sale contract. The parties can agree on transferring ownership before completing the payment, or the debt buyer and debt seller can agree that the debt buyer will pay (partially or fully) after the transfer of ownership.
Because current laws do not have any specific regulations regarding the registration when transferring debt claims/rights to demand, in principle, the time when the buyer establishes ownership over the debt claim is when they receive documents proving ownership of that debt claim. For example, if the debt is a loan, the document acknowledging the right to claim the debt could be a loan contract or loan agreement. The time of establishing ownership of the debt claim is when the buyer receives these documents.
However, this principle has an exception for debt purchase and sale contracts under the scope of Circular No. 09/2015/TT-NHNN (amended and supplemented by Circular 18/2022/TT-NHNN). In these cases, the time of transfer of ownership of the debt claim can be agreed upon by the parties in the contract, independent of the time the documents acknowledging ownership are transferred. Specifically: "Transfer of rights and obligations attached to the debt
1. The debt buyer becomes the holder of the rights and obligations attached to the debt being bought and sold from the debt seller from the time the debt buyer receives the transfer of ownership of the debt from the debt seller as agreed in the debt purchase and sale contract."
Thus, in the debt purchasing activities of credit institutions, the debt buyer becomes the holder of the rights and obligations attached to the purchased debt from the time the debt buyer receives the transfer of ownership of the debt from the debt seller, as agreed in the debt purchase and sale contract. The parties can agree on transferring ownership before completing the payment, or the debt buyer and debt seller can agree that the debt buyer will pay (partially or fully) after the transfer of ownership.
2.5. Form of Contract
According to Clause 1, Article 3 of Circular 09/2015/TT-NHNN, the required form of the debt purchase and sale contract must be in writing. Two common forms are electronic documents and traditional paper documents. According to Article 119 of the 2015 Civil Code, when a contract is concluded via digital means in the form of data messages, the parties must comply with the legal provisions on electronic transactions to be considered as a written transaction. Since notarization is not legally required, it is up to the parties to decide whether to notarize the contract.
2.6.Enforcing an Assigned Debt
The transfer of debt claims is governed by the rules for the transfer of rights to demand, as specified in Article 365 of the Civil Code, particularly:
- When the party with the right to demand transfers that right to a substitute, the substitute becomes the party with the right to demand. The transfer does not require the consent of the obligor.
- The party transferring the right must notify the obligor unless otherwise agreed.
- The transferring party must provide necessary information and documents.
- After the transfer of the right, the original right holder is not responsible for the obligor’s ability to perform the obligation unless otherwise agreed.
- If the obligor is not notified of the transfer and the substitute cannot prove the validity of the transfer, the obligor has the right to refuse to fulfill the obligation to the substitute.
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