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Author: Phạm Huyền

The necessity for a debt collection law in Vietnam

In the business activities of enterprises, there is always the possibility of incurring debt – an inevitable consequence when a party borrows money or a value of the property and fails to pay on time or in full quantity to the creditor. At that time, creditors often use debt collection services to recover the debt from the debtor. However, at present, legal debt collection activities in Vietnam are not effective because of limitations in the provisions of the law. In this article, we will give our views on the necessity for a Debt Collection Law in Vietnam.

1. Practice of debt collection activities in Vietnam

Before the Investment Law 2020 took effect, the debt collection services were a conditional business line in Vietnam. However, many debt collection companies applied debt collection methods in the “gangsters style” to intimidate the mental and threaten to force the debtor to pay the creditor.

After the Investment Law 2020 took effect, putting the “Debt collection service business” on the list of prohibited investment and business activities, many companies performing debt collection activities that were established before had to be terminated. Up to the present time, only law firms can conduct lawful debt collection activities with more peaceful debt collection methods such as Negotiation and filing lawsuits in court or denouncing the competent police investigation agency if the debtor has conditions but does not pay, or it is determined that the debtor shows signs of violating the Criminal law.

Legally, it is reasonable to ban the business line of debt collection services in the form of “gangsters style” because it may ensure social order and contribute to a more civilized society. However, we cannot deny the effectiveness of these forms of intimidation on the debtor when they directly affect the psychological, even physical, and cause the debtor to be under pressure, and fear, and make debt collection become fast and efficient. Creditors are often not attracted to peaceful and law-abiding options such as negotiation or filing lawsuits in Court because these options often have complicated and time-consuming. Also, they do not bring economic value to creditors.

2. The Necessity for a Debt Collection Law in Vietnam

In some countries around the world, debt collection is still allowed by law, but all conditions must be met. For example, the Fair Debt Collection Act – FDCPA of the United States of America.

The essence of the FDCPA is to make regulations to bind the actions of third parties who perform debt collection services on behalf of creditors to ensure that they do not infringe on the civil rights and other rights of the Debtors as protected by law. Specific regulations include:

– Conditions when making a phone call

  • Information about debt collectors and creditors must be disclosed before making a request;
  • Phone calls are only allowed between 8 am and 9 pm;
  • Do not use offensive or threatening language to the debtor.

– Regulations on providing information to debt collectors

  • Before requesting the debtor to pay, the debt collector must notify the full name of the debt collector and the debt collection organization in operation;
  • Amount to be paid by the debtor;
  • Full name, and specific information of the creditor.

– Prohibited regulations

  • Prohibit the use of abusive, annoying forms or behaviors to the debtor;
  • Prohibit disclosure of information about debtors’ debts to parties other than creditors and debtors.

The above experiences of FDCPA can be fully applied in Vietnam because when debt collection activities are controlled by specific and clear regulations, debt collection activities will become civilized and protect the interests of the debtor and maintain social order and stability. At the same time, once debt collection becomes effective, it will clear the stagnant cash flow caused by bad debts and will become a driving force for the development of the economy of Vietnam, especially in the current situation when Vietnam is recovering production and business activities after Covid-19, and many debts have arisen in society due to the impact of the pandemic.

The above is the knowledge sharing of TNTP about the need for a Debt Collection Law in Vietnam. We do hope our article will be useful to you and your work.

Best regards,

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Principal contract in commercial activities

Nowadays, Principal Contract (“PC“) is one of the most common types of contracts in commercial business transactions. In establishing a transaction, the parties will base on their needs and abilities to sign an appropriate type of contract. To understand the PC better and especially in comparison with other types of Economic Contract (“EC“), kindly find the information below with us.

1. Nature of Principal Contract

As its name, PC is a contract entered into and between the participating subjects in order to uniformly stipulate the general principles that are imposed and binding on those parties for the purpose of ensuring the performance of one or many transactions that will occur in the near future.

Currently, although there is no specific definition of PC in the law but in practice, PC is considered as a memorandum of understanding (“MOU”) or an agreement between the participating parties on the purchase and sale of products or supply of services, or other civil and commercial transactions. In general, PC is a framework contract that specifies basic terms and serves as a foundation for the parties to carry out subsequent transactions.

2. Features of Principal Contract

PC is directive

PC is often used when the parties have just initially approached to learn about each other’s abilities and needs and have agreed on some collaboration content. PC can be considered as the first agreement on the transaction of the parties; it governs and directs the obligations of the parties in all subsequent transactions.

PC is general

The generality of the PC is shown in that, not all of the terms of the PC are detailed but may be referred to an EC, Sales Contract, or Purchase Orders (“PO”).

PC has precedence to apply

In the first business and commercial transaction between the parties, the PC is signed, paving the way for other contracts to be established in the future. Normally, the contracts established under the framework of the PC can not be inconsistent with the PC, if there is a provision that is contrary to the PC, that provision will be deemed invalid, unless the parties agree otherwise. Thus, the PC shall precedence to apply if there is a conflict in the same provision of the PC and subsequent contracts until the parties agree otherwise on the application of the contract or interpretation of this conflicting provision.

3. Main differences between Principal Contract and Economic Contract

Criteria Principal Contract Economic Contract
Purpose It only stipulates general issues, so it is often considered as a framework contract or a MOU or an Agreement between the parties. It stipulates issues in more specific and detailed.
Name Principle Agreement; Contract of Sale Principle; Contract of Agent Principle… Real Estate Purchase and Sale Agreement, Sales and Purchase Agreement, Services Agreement, Loan Agreement, …
Agreement in the contract The signing of the PC is directional, other detailed issues will be agreed by the parties later. Therefore, PC is the basis for the signing of an official EC or an Appendix or a PO. However, PC is still valid and enforceable. The signing of an EC is mandatory, binding. The interests of the parties are also clearer.
Signing time Usually fixed at the beginning of each year. Over the years, if there is a change, the parties only need to sign an Appendix. PC is valid over time, so it does not depend on the number of deals/orders arising during the validity period of the PC. The EC will terminate for each transaction/order after the parties fulfill their responsibilities and/or sign a Contract Liquidation Minute.
Subjects of application Enterprises are geographically located far from each other; enterprises who have regular and continuous trading relationships. Enterprises who do not trade with each other regularly; Large value transactions; Specific transactions need detailed requirements on the responsibilities of the parties, Unexpected Orders.

The above is our overview knowledge of Principle Contract that we have synthesized in the study of the law and based on current practice. We do hope that the article is useful for you and your work.

Best regards,

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Legal ways to collect debts in the United States of America

Disputes in enterprises occur regularly; the most typical of these are disputes over debts between enterprises. In particular, the dispute over debt with foreign elements is complicated due to geographical distances and differences in the laws of countries, such as disputes involving debt owed by a debtor with United States citizenship. Therefore, the debt collection procedure overseas, in general, especially in the US is more complex than the debt collection procedure in Vietnam. In this article, we will offer advice to Vietnamese enterprises to understanding legal debt collection in the US.

1. Legal debt collection methods in the US

Similar to the Vietnamese law, the US law also allows debt collection within its territory, including the following procedures:

– Make direct contact with the debtor;

– Authorize a third party to collect the debt, and/or;

– Initiate a lawsuit at a competent Court or Commercial Arbitration if the parties are unable to reach an agreement on debt settlement.

2. Applicable law in debt collection

Vietnam has the only one legal system that applies throughout the nation. Meanwhile, the US permits each state to establish its own legal system, known as The State Law. State governments in the US have the legislative, executive, and judicial authorities as a nation but they must follow the provisions of Federal Law and the US Constitution. Because of many states have different regulations for debt collection, enterprises intending to perform debt collection in any state need to thoroughly research its legislation because debt collection which is allowed in one state may be restricted in another.

Accordingly, before proceeding debt collection, the creditor needs to be understanding the applicable law to prevent legal risks, save time and effort.

3. The Fair Debt Collection Practices Act – FDCPA

The Fair Debt Collection Practices Act (FDCPA) belongs to Federal Law. The FDCPA was first enacted on September 20th, 1977 and was last amended in 2017. It specifies the legal debt collection procedures that creditors must follow, contains provisions to limit third parties – authorized or acting on behalf of an individual or organization to collect the debt.

According to FDCPA, popular debt collection methods in Vietnam such as calling and sending payment requests may be illegal in the US if certain requirements are not satisfied.

Under FDCPA regulations, the debt collection procedure in the US is complicated because of legal diversity. Creditors must be understanding of US law and the divisions of the US judicial system to collect a debt properly and lawfully. In the following articles, we will analyse more clearly the benefits and inadequacies of the FDCPA, as well as the solutions those Vietnamese enterprises can choose to efficiently perform debt collection in the US.

The above is our legal share about How to legally collect debt in the US. Hope this article is useful to you.

Best regard,

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Five risks for the investor when choosing the design – construction contract (EC) form in project construction

Currently, in the field of construction, the Investors instead of choosing to sign an Engineering Procurement and Construction Contract (“EPC Contract“) with the Contractor, one of the best options of the main Investor is to sign a Design – Construction Contract (“EC Contract”) in which, the Investors sign an only contract with the Contractor who is responsible for all the work including Project’s construction and design. This form of contract currently brings many advantages to the participants and can limit some disadvantages compared to the EPC contract. However, the use of EC contract still has certain risks, accordingly, in this article, TNTP will mention 05 risks that the Investors may encounter for the Project in this case.

The first: It is difficult for the Investor to make a specific assessment of the Contractor’s ability

For Design – Construction Contract, the Investor will not be able to assess whether the Contractor with whom the Investor signs the Contract will meet the Investor’s design needs for the Project, because the Contractor only provides Project’s detailed design after signing the Contract with the Investor on the implementation of the Project, accordingly, if the Contractor’s design does not meet the Investor’s requirements, The Investor and the Contractor will have to discuss to reach an agreement on the design for the Project, which may prolong the construction process of the Project because the Project can only be implemented if the Design phase has been completed. In addition, in the current market mechanism, many constructions and installation companies, which already have the capacity to carry out construction activities, have carried out the expansion of design activities, so it may arise the case that the Contractor is unable to ensure the capacity for both Design and Construction, resulting in the Contractor not being able to meet the conditions for the EC Contract, which requires the Contractor to be qualified to perform both activities Design and Construction.

Solution: In order for the Investor to be able to limit this risk, the Investor should consider using this Form of Design – Construction Contract when: The Contractor has technological secret that it can be provided with the Contract; or Projects whose Design is greatly influenced by construction technology; or for an uncomplicated Project which the Design and Construction work together without affecting the quality of the Project, for other Projects, the Investor should choose to sign an EPC Contract with the Contractor to avoid risks.

The second: The Investor must accept the higher standby expenses offered by the Contractor

For Design – Construction Contract, the cost of the Project is difficult to predict accurately because the detailed design document is only completed after the Investor has completed the selection of the Design – Construction Contractor. Accordingly, the Contractor, in this case, will face a great risk in meeting the Investor’s requirements because it has not yet been accurately estimated the amount of work to be performed and in this case, to share the risk to the Contractor, the Investor often has to accept a number of reasonable standby expenses to deal with the risks brought out by the Contractor, thereby it leads to a higher cost for the Project;

Solution: In this case, in order to minimize risks for the Investor, in the Contract signed between the Investor and the Contractor, the terms of the Fixed Unit Price must be specified in the Design – Construction Contract, this unit price will not change during the execution of the Project, and at the same time, the Investor must work with the supplier of building materials to be able to accurately determine the actual unit price, avoiding the situation of the estimated number is much larger than the original estimate. However, in the event that at the time of construction of the Project, the price of materials fluctuates greatly, the Contractor, in this case, will face difficulties in construction, leading to the Contractor’s unilateral termination of the Construction Contract.

The third: The quality of the Project is not guaranteed because during the implementation process, the Contractor reduces the quality and function of the product to save the construction cost of the Project.

Because the design and construction units are both conducted by one party, accordingly, during the implementation process of the Project, it will arise the case that the Contractors join hands together to find ways to reduce product quality and performance in order to save costs Construction of the Project which leads to the quality of the Project can difficultly be guaranteed as original plan. Assigning all the work to an implementation unit will happen that the designer often sided with the construction contractor to protect itself, so this is also one of the risks that occur quite popular with Investors.

Solution: In this case, in order to minimize the risk for the Investor, the Construction Supervision unit must be carefully selected by the Investor and must have high construction expertise as well as certain prestige in Project Supervision. Thus, the Investor needs to consider selecting from the Supervision units that the Investor previously cooperated with other Projects and these Projects do not have any problems with the quality of the works of the Project.

In addition, in the Contract signed between the Investor and the Contractor, the Investor needs to ask the Contractor to clarify the materials (including: brand, place of production, technical characteristics, types, uses, regulations,…) will be used to carry out the construction of the Project and at the same time provide sanctions in case the materials are not as committed in the signed Contract.

The fourth: The Investor may lose control in the process of Project implementation

Stemming from the requirement to create the right to be proactive and flexible for the Contractor in organizing the Project implementation, the acceptance and payment in this case is in principle done according to the contract implementation stage or the completed work item. With this principle, the Contractor is proactive in coordinating and inspecting the work on the scene according to the contract performance schedule without being heavily dependent on the regular inspection and supervision of the Investor as well as the time of conducting the acceptance work, thereby reducing the interruption time in the performance of the work. As a result, the Investor may lose control over the process of Project implementation.

Solution: In order to minimize this risk for the Investor, the Investor needs to specify the terms of specific report on the progress of the Project as well as report on the progress of problems arising during the execution of the Project in the Contract so that the Investor can understand the construction progress of the Project as well as have a backup plan in case problems lead to delay in construction progress.

The fifth: The Investor is limited in Termination of the Contract between the Investor and the Contractor

Pursuant to the provisions of Clauses 2 and Clause 7, Article 41 of Decree No. 37/2015/ND-CP dated April 22th 2015 Regulations on construction Contracts, which is amended in Decree No. 50/2021/ND-CP dated April 1st 2021, the Contractor’s violation of regulations on quality and type of construction materials or the Contractor’s failure to meet the Investor’s requirements,… is not one of the cases that the Investor has the right to terminate the Contract. However, ensuring the quality of the Project’s works as well as ensuring the right type of construction materials is one of the most important factors to avoid future risks for the Investor.

Solution: In order to limit this risk, the Investor can add a clause to the Investor ‘s right to terminate the Contract in case the Contractor violates the Contract signed between the Investor and the Contractor to use another Contractor to ensure the quality and duration of the Project.

Above are the contents and legal sharing about the five risks of the Investor for choosing the Design – Construction Contract (EC) form in Project construction. Hope this article was useful to you.

Best regards.

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