Whenever asking for credit loan is each headachy time for both enterprises and banks due to requirement of security measures as well as the lag of law in comparison with the effervescent but risky and complicated reality of capital mobilization. Therefore, after nearly half a decade of expectation following to effective date of Civil Code 2015, the adoption of Decree No. 21/2021/ND-CP (“Decree 21”) is expected to open new horizons for security agreement, satisfying aspiration of the parties involved in lending transactions.
Knot untied in respect of collateral
Decree 21 provides in details several cases in which the collaterals are “familiar faces” with the bank but their visages are still unclear for a long time:
- Property rights arising from contracts: previous regulations only mentioned this type of collateral in registration of security measures, which made the banks hesitate to take or under evaluate them. Hence, Decree 21 officially recognizes and clarifies rights to exploit, manage projects, right to enjoy incomes and profits, etc. as collaterals. Consequently, such recognition and clarification change precarious plight of the property rights in the credit institution’s eyes and avoid argument arising.
- Investment project: Decree 21 officially recognizes the investment project which is permitted to transfer as collateral. However, description of the project must be in accordance with its legal documents, for avoiding “ghost” project and situation of enterprises flying by the seat of their pants which causes burden of bad debt for the banks.
- Vehicles: the bank shall provide attestation of holding documents at the enterprises’ requests for which such enterprises use these mortgaged vehicles. Thus, an unsolved problem long since has already settled, for purpose of ensuring the enterprises’ right to exploit benefits from their properties.
- Properties newly arising from investment in mortgaged property: only be associated with realization of mortgaged property in case such new properties are inseparable to keep value of the original property. As a result, the bank shall not realize the properties newly arising that are separable (dividends, rent fee, etc.) without adversely affecting value of the collateral (shares, houses, etc.).
Realization of collateral as future property based on agreement
Rejecting inflexible realization on the ground of whether future property shall or shall not be registered in previous circular-level regulations, Decree 21 chooses a new approach which is upon to the parties’ agreement. Nevertheless, the legislator also suggested for the parties as follow:
- if the property has been formed and issued with its certificate(s), the banks may realize normally such property as foreclose or sell it;
- if the property has not been formed or issued with its certificate(s), the banks may foreclose, sell or transfer the right in respect of such property.
However, the above regulation is not binding, therefore the enterprises and the banks should agree in detail on realization in contract to avoid controversy during implementation.
Respect of agreement and recourse of collateral
It is noteworthy that the legislators vests the parties with right to agree otherwise with Decree 21, provided that (1) in accordance with the basis principles of civil law, (2) satisfying conditions for validity of civil transactions, and (3) within the limits of civil right performance. Therefore, during negotiation commonly based on contract form with unfavorable clauses given by the banks, carefulness and consultancy is the only shields protecting the enterprises.
Decree 21 also states that the banks always have the right to recourse even though the collateral has been transferred to others (save for some exceptions). The legal basis for credit institutions’ ability to recover bad debts is also a warning notice to the enterprises intended to disperse properties. This Decree is of full force and effect as from 15 May 2021.