Author: TNTP LAW

The statute of limitations and the subjects have the right to request the competent authority to declare the contract invalid

Written by TNTP LAW on 31 May, 2024. Posted in Dispute settlement.

A contract is declared invalid when it fails to meet the conditions for validity required by contract law or in cases where the law provides otherwise. The circumstances leading to the declaration of a contract as void are diverse, specified not only in the Civil Code of 2015 but also in discrete laws. Parties should pay attention to the statute of limitations and the subjects have the right to request competent authorities to declare a contract invalid to protect their legal rights and interests.

1. The statute of limitations for requesting competent authorities to declare a contract invalid

Depending on the specific circumstances of invalid contracts, the statute of limitations for requesting the declaration of the contract invalid may vary and can be categorized into the following three groups:

Group 1: Contracts declared invalid due to violation of statutory prohibitions, against societal ethics; contracts declared invalid due to fraud; contracts declared invalid due to having an impossible subject matter.

The statute of limitations for requesting competent authorities to declare a contract invalid is not restricted. Therefore, the parties entitled to request the declaration of a contract invalid can do so at any time.

Group 2: Contracts declared invalid due to minors, persons lack of legal capacity, persons with limited cognition or behaviour control, persons with limited legal capacity act capacity to establish or execute contracts; contracts declared invalid due to mistake; contracts declared invalid due to fraud, coercion, or duress; contracts declared invalid due to the incapacitated understanding and control of their actions by the establishing party; contracts declared invalid due to non-compliance with formal requirements.

The statute of limitations for requesting competent authorities to declare a contract invalid for cases in this group is 02 years from the date:

• For the representative of minors, persons who lack legal capacity, persons with limited cognition or behaviour control, and persons with limited legal capacity who know or should know that the person being represented can establish and execute contracts themselves;

• For individuals who are mistaken or deceived know or must know that the contract was established due to a mistake or deception;

• For individuals subjected to coercion or duress, if they cease the coercion or duress;

• For individuals who do not understand and control their actions in establishing contracts;

• For contracts established in cases where the contract does not comply with formal requirements.

If the prescribed statute of limitations passes without a request to declare the contract invalid, the contract remains valid.

Group 3: Contracts declared invalid according to discrete laws

In addition to the Civil Code of 2015 regulating cases of invalid civil contracts, discrete laws also have their provisions regarding invalid contracts. The contract governed by a discrete law will apply that law to resolve the declaration of the contract invalid.

2. The subjects have the right to request and declare the contract invalid

(a) The subjects have the right to request

Fundamentally, the subjects that have the right to request the declaration of a contract invalid are the parties involved in the contract relationship, entities with rights and interests related to the contract. In the case of a contract being declared invalid due to minors, persons lacking legal capacity, persons with limited cognition or behaviour control, persons with limited legal capacity act capacity to establish or execute contracts, the person entitled to request the declaration of the contract invalid is the representative of these individuals. However, in cases where the contract is declared invalid due to violations of prohibitions, contravention of social ethics, or fictitious, anyone with the right to request the declaration of the contract invalid.

(b) The subjects have the right to declare

The entities with the authority to declare a contract invalid are Court or Arbitration. Arbitrations have jurisdiction to settle disputes arising from: Disputes between parties arising from commercial activities; disputes arising between parties, with at least one engaged in commercial activities; and other disputes between parties that the law stipulates must be settled by Arbitration.

In practice, in some legal relationships, Arbitration has no competence to declare certain contracts invalid. For example, in labour legal relationships, only the Court has the competence to declare employment contracts or collective bargaining agreements invalid.

Therefore, for a contract to be considered invalid, it requires a judgment, decision, or arbitration award declaring the contract invalid. In the absence of such, the contract shall retain its validity.

Here is TNTP’s article titled “The statute of limitations and the subjects have the right to request the competent authority to declare the contract invalid” We believe that the article will provide valuable insights to our readers.

Best regard,

DEBT COLLECTION WHEN THE DEBTOR IS A FOREIGN ENTERPRISE – WHAT DO VIETNAMESE ENTERPRISES NEED TO DO?

Written by TNTP LAW on 29 May, 2024. Posted in Thu Hồi Nợ.

In business activities, cooperation between foreign enterprises is no longer strange in Vietnam. However, cooperation is not always smooth due to many problems that arise, including debts arising between domestic enterprises and foreign enterprises. These are debts with foreign elements, so the foreign debt collection has some differences from the domestic counterpart. In this article, TNTP will analyze issues related to debt collection by Vietnamese enterprises when the debtor is a foreign enterprise (collectively referred to as “the debtor”) so that Vietnamese enterprises can deal with similar situations.

1. Common difficulties when collecting debt from the debtor

• Difficult to identify the exact address and legal status of the debtor

Because the debtor has the address and headquarters in a foreign country, it is difficult to determine whether that is the exact address of the debtor or not, even if the debtor has changed its operating address, representative, etc. Furthermore, identifying this information via the Internet is restricted because different countries and regions make accessing enterprise information more difficult.

• Language barrier

Using foreign languages to communicate with foreign debtors is very important so that enterprises can express their opinions and views, and request payment from the debtors. However, not all debtors use English or other common languages. The debtor sometimes only uses Chinese, Korean, Japanese, Russian, etc., and does not understand English. At that time, it will be difficult for the parties to convey each other’s opinions, not to mention the language barrier will lead to misunderstandings, making debt collection difficult.

• Filing a lawsuit abroad is very expensive (because the contract signed between the parties stipulates a foreign dispute settlement body).

– Normally, in a contract, if the parties have agreed to apply foreign law and settle disputes at a foreign competent authority, normally they will not be able to choose to settle disputes at competent authorities in Vietnam.

– In this case, the party whose debt needs to be collected will have to research the legal regulations of the country chosen to settle the dispute as well as send documents and dossiers to foreign agencies under the laws of that country to settle disputes. They should also consider using legal services from a law firm in the country whose law is chosen to settle the dispute.

– However, the costs of filing a lawsuit abroad are much more expensive than the costs of filing a lawsuit at a domestic competent authority. Therefore, depending on the value of the debt, Vietnamese enterprises should consider choosing whether to initiate a lawsuit abroad or not.

2. Debt collection methods that Vietnamese enterprises should apply

• Contacting the debtors by phone or email

With the development of technology, platforms, and devices such as email, phones, text messages, etc. are flexible, fast, and convenient when conveying information. Therefore, Vietnamese enterprises can prioritize using these methods to communicate and discuss with the debtor first to demonstrate a moderate, gentle but resolute attitude by setting a payment deadline or payment plan in a specific and reasonable manner to request the debtor to respond and properly perform the obligations in the contract.

• Sending Letter of Demand (LOD)

– Sending LOD is a more powerful and effective method than contacting by phone or email. Normally, the LOD will be drafted by a law firm representing the Vietnamese enterprise and sent to the debtor. LOD is not only an appropriate method to express the tough attitude of Vietnamese enterprises toward the debtors but also a basis for enterprises to initiate lawsuits, determine the statute of limitations for initiating lawsuits, etc. (according to the law in the country where the dispute settlement agency is chosen) and creates an advantage in case of settling the dispute at a foreign dispute settlement body.

– LOD will be sent via email to the debtor by the representative law firm to warn and request serious consideration of paying the debt. In case a Vietnamese enterprise wants the LOD to reach the debtor, currently, law firms can assist Clients in finding a competent unit in the debtor’s country to serve the hard copy of the LOD to the debtor’s address. This action can be seen as a strong warning measure.

• Hiring a law firm in the debtor’s country

– This is the method that Vietnamese enterprises should consider and choose. Because foreign law firms are specialized legal units, they understand the laws in their country and can offer the best, most favorable, and legal solutions to collect the debt without violating the laws of that country (because most of the laws of other countries promote and protect individuality, privacy, confidential information, honor, of individuals and organizations).

– Vietnamese enterprises can authorize law firms in Vietnam to directly discuss and work with lawyers at selected foreign law firms. According to our experience, TNTP has represented clients many times to discuss with foreign lawyers, ensuring that the debt collection work performed by the foreign law firm is always followed, supervised, urged, and has the fastest progress.

• Filing a lawsuit at a foreign dispute settlement agency

After conducting the above methods but without positive results and having considered the feasibility of the case, Vietnamese enterprises can consider deciding to proceed with the more drastic method of filing a lawsuit at a foreign dispute settlement agency. As we noted above, the cost of filing a lawsuit (including costs at foreign dispute settlement agencies and hiring foreign lawyers) is expensive. Therefore, depending on the value of the debt and wishes, Vietnamese enterprises can consider this method.

It can be seen that debt collection for debtors who are foreign enterprises has many difficulties. Vietnamese enterprises need to research carefully and prepare to minimize risks and implementation costs so that debt collection is most effective.

Above is our article on “Debt collection when the debtor is a foreign enterprise – What do Vietnamese enterprises need to do?“. Hope this article is useful to readers.

Sincerely.

Distinguishing between business dissolution and bankruptcy

Written by TNTP LAW on 27 May, 2024. Posted in Kiến Thức Pháp Luật, Legal consultation services.

In business operations, the terms “dissolution” and “bankruptcy” are often mentioned as final options for enterprises that can no longer continue operating. Although both lead to the termination of business activities, there are clear differences between them that need to be distinguished. Understanding the differences between dissolution and bankruptcy is crucial for businesses, investors, and stakeholders. In this article, TNTP will help readers Distinguishing between business dissolution and bankruptcy.

1. Concepts

• Business dissolution is the process of voluntarily or mandatorily ceasing the operations of a business, based on the decision of the business owner or a competent state authority. Dissolution typically occurs when a business does not want or is unable to continue operations due to economic, legal, or personal reasons.

• Bankruptcy is the condition in which a business or cooperative loses the ability to pay its debts and must undergo bankruptcy proceedings as intervened by the court. Additionally, the concept of insolvency is clearly defined in Clause 1, Article 4 of the Bankruptcy Law 2014, which states that a business or cooperative is insolvent when it fails to meet its debt payment obligations within three months from the due date.

2. Legal Basis

• Business dissolution: Based on the Law on Enterprise 2020 and its guiding documents.

• Bankruptcy: Based on the Law on Bankruptcy 2014 and its guiding documents.

3. Causes and Mandatory Conditions

• Based on Article 207 of the Law on Enterprise 2020, there are two forms of dissolution: voluntary dissolution and dissolution by the request of the state authority. However, to carry out dissolution, the business must ensure the payment of all debts and other financial obligations and must not be in the process of dispute resolution in court or arbitration.

Thus, a business can only dissolve if it ensures the payment of all debts, other financial obligations, and is not undergoing dispute resolution in court or arbitration.

• In contrast, bankruptcy occurs when a business or cooperative cannot pay its debts on time and cannot restore its solvency over a long period, nor can it promptly or fully compensate creditors or those entitled to claim debts.

Debt repayment is only conducted once bankruptcy proceedings are initiated and payment follows the priority order as stipulated in the law, and full debt repayment is not required if the business or cooperative’s assets are insufficient to cover the debts.

4. The parties with the right to request and the entities making the decision

• In cases of voluntary dissolution, the business owner decides on the dissolution. For mandatory dissolution, the business owner must dissolve the enterprise based on the decision by a competent authority to suspend operations, revoke the business registration certificates, or a court decision. The business registration authority does not have the power to approve or reject the dissolution but only to review the validity of the dissolution documents.

Those entitled to request business dissolution include the business owner for private enterprises, the General meeting of shareholders for joint-stock companies, the board of members, the company owner for limited liability companies, and all general partners for partnerships.

• For bankruptcy, the court is the only authority with the power to declare bankruptcy and handle the entire process.

However, the right to request the initiation of bankruptcy proceedings is broader and includes not only the business owner but also various stakeholders such as unsecured creditors, partially secured creditors, employees, labor unions, the legal representative of the business, the owner of a private enterprise, the board of directors, the board of members, shareholders or groups of shareholders holding a minimum number of common shares, and members of cooperatives.

5. Order of Asset Payment

• In the case of business dissolution, the order of asset payment is as follows: (1) Unpaid salaries, severance pay, social insurance, health insurance, unemployment insurance premiums and other benefits of employees under the collective bargaining agreement and concluded employment contracts; (2) Tax debts; and (3) Other debts.

After settling all debts and the costs of dissolving the business, any remaining money or assets will be distributed to the business owner, capital-contributing members, and shareholders according to their respective ownership shares and stocks.

• In the case of bankruptcy, the order of asset payment is as follows: (1) Cost of bankruptcy; (2) The unpaid salaries, severance pay, social insurance and medical insurance to employees, other benefits according to the labor contracts and collective bargaining agreements; (3) Debts incurred after the initiation of bankruptcy; (4) Financial obligations to the Government; unsecured debts payable to the creditors on the list of creditors; secured debts which are not paid because the value of collateral is not enough to cover such debts.

6. Legal Consequences

• The legal consequences of both bankruptcy and dissolution for a business will result in the loss of legal status and the cessation of operations.

• However, for managers and executives of the business, there are the following differences:

– Managers and executives of a bankrupt business are prohibited from holding managerial positions for three years from the date the court declares bankruptcy (except in cases of bankruptcy due to force majeure).
– The owner of a dissolved business can immediately establish a new business and continue to hold managerial positions in the new business.

Business dissolution and bankruptcy are both measures to terminate business activities, but they differ in causes, procedures, and legal consequences. Understanding these differences helps stakeholders make accurate and appropriate decisions in specific situations. Before deciding on dissolution or bankruptcy, businesses should thoroughly understand relevant legal regulations and seek advice from lawyers and legal experts to ensure their rights are protected.

This concludes TNTP’s article on ” Distinguishing between business dissolution and bankruptcy” We hope this article is helpful to our readers.

Sincerely,

CASE LAW NO. 42/2021/AL Regarding the consumer’s right to choose the Court to settle disputes in case the standard form contracts have an arbitration agreement

Written by TNTP LAW on 24 May, 2024. Posted in Dispute Settlement, Dispute settlement, Legal newsletter.

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[et_pb_column type=”4_4″][et_pb_text admin_label=”Text”]In practice, when entering into a purchase or sale of goods or services with a supplier, consumers often meet in contracts (usually standard form contracts) a provision selecting arbitration as the method to settle disputes arising. There is even a contract that stipulates the dispute settlement body is a foreign arbitrator. Therefore, when a dispute occurs and the consumer wishes to bring the dispute to a competent Court for settlement, what is the legal basis for the Court to accept and settle the civil case when the dispute settlement clause of the standard form contracts is another agency? In this article, TNTP’s lawyers will analyze and clarify the content of Case law No. 42/2021/AL to provide solutions and apply them to other similar cases in trial practice.

1. Summary of the case

a) On February 26, 2017, Ms. Nguyen Thi Long T and Mr. Nguyen Hoang S entered into a vacation ownership Contract No. PBRC-S-064621 with V Resort Company Limited. Accordingly, the value of the vacation ownership Contract is 388,110,000 VND; Week off: Week 16; Type of apartment: Type A.

b) As of March 15, 2017, Ms. Nguyen Thi Long T and Mr. Nguyen Hoang S have deposited 300,488,000 VND.

c) At the time of signing the contract, due to time constraints, Ms. T and Mr. S did not carefully read the signed vacation ownership Contract. On April 26, 2017, after receiving an email from V Resort Company Limited, Ms. Nguyen Thi Long T and Mr. Nguyen Hoang S carefully reviewed the signed contract and found that there were unreasonable terms in the contract, so they proactively proposed to terminate the contract, but V Resort Company Limited did not accept.

d) Therefore, to protect their rights, Ms. Nguyen Thi Long T and Mr. Nguyen Hoang S filed a lawsuit in Court with the following content: Requesting the Court to declare the vacation ownership Contract No. PBRC-S- 064621 dated February 26, 2017 is invalid, and refund to Ms. Nguyen Thi Long T and Mr. Nguyen Hoang S the paid amount of 300,488,000 VND. Specific reasons are:

• V Resort Company Limited deceived customers by opening tourism seminars but not implementing the seminar program content; lying about the project investor, Israeli billionaire named Mr. I; lying on investment capital to create confidence for those who want to buy a vacation to sign a contract and make a deposit.

• V Resort Company Limited advertises products designed according to the model that won the Asia-Pacific award, but does not follow the advertised model when built it; the advertising model and the actual model are not the same; the tourist apartment is only designed for two people, but the apartment is advertised for 5 people; the project is located in Nha Trang.

• V Resort Company Limited violates the law’s prohibition that foreign-invested enterprises are not allowed to send Vietnamese people abroad; determines the deposit when it is not in their possession.

• The progress of construction and putting the project into official operation is slower than committed, causing damage to those who have purchased vacation property.

g) According to the self-declaration, conciliation minutes, and at the trial, the defendant’s authorized representative, Ms. Pham Thi Kieu H presented:

• The vacation ownership Contract No. PBRC-S-064621 has the form and content completely comply with the law. The person entering into the contract has full capacity and authority, is not forced, and has voluntarily signed this contract.

• V Resort Company Limited does not agree to the reasons given by the plaintiff as a basis to believe that vacation ownership Contract No. PBRC-S-064621 is null and void. The reasons are as follows:

– Firstly, the plaintiff’s claim that the Company deceived consumers is a false assessment based on subjective opinions. The Company affirmed that it did not fabricate or provide false information to consumers. V Resort Company Limited has 02 capital contributing members including Mr. Duong Tuan A and Company E. In which Company E is among the businesses controlled and owned by Mr. I and his businesses. Thus, Mr. I is an investor of the Company, making investments through companies under his control.

– Secondly, at the introduction meeting, the Company clearly explained that this was a vacation purchase, not a real estate purchase, so there was no confusion about the contract; When working with customers, the Company explains and clearly states in the contract the ordinal number of vacation to buy and what type of hotel.

– Thirdly, the Company does not take customers abroad, which means that if the customer does not like staying in the country, they can exchange vacations with other customers to go abroad for vacation. This is just a customer activity, the Company does not do business in taking Vietnamese people abroad to travel but only provides customer support.

– Fourthly, regarding the deposit, the law does not limit the agreement on the use of the deposit. The Company’s purpose of using the deposit does not violate the prohibition of law.

– Fifth, the construction progress and official opening date are clearly specified in Article 8 of the Contract, which is 36 months from the date of issuance of the project’s final construction permit and has the right to extend for 6 months. Currently, the final License was issued in October 2018.

– If the plaintiff continues to perform the concluded vacation ownership contract, the defendant may consider reducing the price or supporting some other benefits.

2. Opinion of the Court

2.1. In Article 12.3 of the Vacation Ownership Contract No. PBRC-S-064621 dated February 26, 2017, the parties agreed to choose the body and method of dispute settlement, which is the Singapore International Arbitration Center (SIAC) under SIAC’s arbitration rules are in force at the time of dispute resolution.

2.2. However, Article 17 of the Commercial Arbitration Law and instructions in Clause 5, Article 4 of Resolution No. 01/2014/NQ-HDTP dated March 20, 2014 of the Council of Judges of the Supreme People’s Court prescribes for the Arbitration agreement is not possible:

“The goods/service seller and consumers have an overall agreement on provision of goods/services that contain arbitration terms drafted by the seller as prescribed in Article 17 of LCA, but the consumers refuse to have the dispute that arises resolved by an arbitral tribunal.”

2.3. Content of Case Law: Vacation ownership contract No. PBRC-S-064621 is a type of pre-written contract issued by a service provider, with a pre-written arbitration agreement, now the plaintiff is a consumer who disagrees to choose arbitration and requests the People’s Court of Nha Trang City to resolve it is consistent under Article 38 of the Law on Protection of Consumers’ Rights, Article 17 of the Law on Commercial Arbitration and instructions in Clause 5, Article 4 of the Resolution. No. 01/2014/NQ-HDTP dated March 20, 2014 of the Council of Judges of the Supreme People’s Court. Therefore, the People’s Court of Nha Trang City accepts and resolves the dispute within its jurisdiction according to Clause 3, Article 26, Clause 1, Article 35 of the Civil Procedure Code and is still within the statute of limitations for initiating a lawsuit prescribed in Article 429. Civil Code 2015, Article 184 of the Civil Procedure Code.

2.4. According to the Vacation Ownership Contract No. PBRC-S-064621 dated February 26, 2017, the plaintiff registered to buy the 16th-week vacation, the resort apartment type is A; The period starts from the year of the official opening date until the end of the Project term. Mr. Nguyen Hoang S and Ms. Nguyen Thi Long T can sell or transfer to others or exchange vacations in some places around the world (Optional vacation rights). Buyers must pay in installments according to project construction progress. Specifically, Ms. Nguyen Thi Long T and Mr. Nguyen Hoang S have paid 3 installments of deposit with the amount of 310,488,000 VND (preferential of 10,000,000 VND).

2.5. The official opening date is determined according to Article 8 of the Contract, which is within 36 months from the date of issuance of the final construction permit and can be extended for 6 months, the Company will send a completion notice to the customer.

2.6. In addition, every year from the official opening date, customers must pay maintenance or management fees according to Article 3 of Appendix C attached to the contract stipulating the rights and obligations of the parties, terms of payment, deposit, transfer, and obligations arising from the contract.

2.7. The Trial Council found that:

• During the investment and implementation process of the project, V Resort Company Limited organized introduction sessions about the resort model in several localities, including Ho Chi Minh City.

• The plaintiff is one of many customers invited by V Resort Company Limited to attend the event on February 26, 2017.

• At the event, the plaintiff directly entered into the Vacation Ownership Contract No. PBRC-S-064621 dated February 26, 2017 with V Resort Company Limited. As of March 15, 2017, the plaintiff has paid a deposit of 310,488,000 VND, of which the preferential policy is 10,000,000 VND, the actual amount deposited was 300,488,000 VND.

• While waiting for the official opening date, the plaintiff believes that the vacation ownership contract No. PBRC-S-064621 dated February 26, 2017 has many inappropriate provisions, causing damage to the rights of the plaintiff so they met V Resort Company Limited many times to negotiate to terminate the contract, but received no response from V Resort Company Limited. Therefore, the plaintiff sued and requested the Court to consider declaring Vacation Ownership Contract No. PBRC-S-064621 dated February 26, 2017 null and void due to deception, confusion, violation of legal prohibitions, and delay in putting the project into use.

2.8. Considering that:

• First of all, it is necessary to realize that this is a new ownership concept in Vietnam, in which the owner can exercise his or her rights within a certain period (07 days) at the place where the vacation was purchased. It is not, by any means, real estate ownership. Ownership of the real estate remains with the investor, V Resort Company Limited, during the period of valid license.

Thus, owning the vacation that Mr. Nguyen Hoang S and Ms. Nguyen Thi Long T made a deposit to reserve is considered a type of asset (right) to be formed in the future. But after the contract is signed, when the tourist area is officially used, it will be owned by Mr. Nguyen Hoang S and Ms. Nguyen Thi Long T. The parties’ deposit and reservation to own the vacation (performance of the contract) are consistent with the provisions of Clause 2, Article 108, Article 328 of the 2015 Civil Code.

• V Resort Company Limited has 02 capital contributing members including Company E and Mr. Duong Tuan A. In which, Company E is among the businesses controlled and owned by Mr. I and his businesses. Thus, it is true that Mr. I is an investor (not the owner) of the Company, making investments through companies under his control.

• The model design issue has been approved for change by the People’s Committee of Khanh Hoa province in Official Letter No. 3590/UBND-XDND dated May 27, 2016 and has been notified to vacation owners.

• When participating in an event and officially signing a contract, participants must know what event they are participating in, what contract they are signing, and where they are investing? The location where the tourist area will be built is publicly announced by V Resort Company Limited ; The documents and transaction papers also show the location of the ALMA Nha Trang area. It cannot be said that V Resort Company Limited using the name ALMA Nha Trang or the conference invitation to switch to introducing models and products is a deception to customers.

From there, there is no evidence that one of the contracting parties was deceived as stipulated in Article 127 of the Civil Code 2015. Therefore, Vacation Ownership Contract No. PBRC-S-064621 dated 26 /02/2017 and the appendices attached to the contract has the legal effect.

• Prescribed in Clause 4.4, Article 4 of the Contract on Optional Resort Rights, Section 2 Appendix B terms and conditions of vacation rights are essentially exchanges for ownership of vacations at other Resorts around the world, operating in the same manner as the Resort, participating exchange network together.

• In fact, if a resort guest does not stay at the resort they purchased their vacation from, they can exchange the vacation with another resort guest, including vacations abroad. This is the activity of a resort guest selecting an alternative vacation opportunity from a range of vacation opportunities that the exchange Company can offer. V Resort Company Limited is not in the business of taking Vietnamese people abroad for tourism but only supports resort guests in connecting tourist destinations.

The plaintiff also could not provide evidence to prove that V Resort Company Limited had illegally sent people abroad.

• According to the provisions of Clause 5.2, Article 5, Vacation Ownership Contract No. PBRC-S-064621 dated February 26, 2017, Clause 2.2, Article 2, Appendix C attached to Vacation Ownership Contract No. PBRC-S-064621 days February 26, 2017 regulations on deposits and payment schedule, the amount that Mr. Nguyen Hoang S and Ms. Nguyen Thi Long T paid is a deposit. When and only after the official opening date will the paid amount become part of the payment.

Thus, the deposit of Mr. Nguyen Hoang S and Ms. Nguyen Thi Long T is to perform the contract according to the provisions of Article 328 of the Civil Code 2015.

• Right on the cover page of the Contract, “vacation ownership” is identified, Article 3 of Vacation Ownership Contract No. PBRC-S-064621 dated February 26, 2017 reads “Resort guests, according to this contract, agree to rent a room from the Company…” and in Appendix A part III, IV the plaintiff also confirmed the reservation of the resort apartment, the vacation week, and the payment of room rental without ownership of the real estate, or payment of real estate. Such clear provisions in the contract cannot be confused with real estate ownership. The plaintiff’s reason for mistaken ownership of the real estate is unacceptable.

• The plaintiff assumed that, when signing the contract, the marketing staff of V Resort Company Limited did not give the plaintiff reasonable time to study the contract, thus constituted a violation of Article 17 of the Law on Protection of Consumers’ Rights. However, spending time studying the contract is the consumer’s right, and the plaintiff’s failure to use this right is considered a waiver of his or her rights. Therefore, the fact that the plaintiff voluntarily signed the contract is true and at trial, the plaintiff’s representative still affirmed that entering into the contract was completely voluntary. Therefore, the contract becomes valid.

• Regarding project implementation progress: The official opening date, determined according to Article 8 of the Contract, is within 36 months from the date of issuance of the final construction permit and can be extended for another 6 months (if any), the Company will send a completion notice to the customer. Currently, the dossiers show 2 construction permits:

– Construction permit No. 67/GPXD-SXD dated April 28, 2017.
– Construction permit No. 133/GPXD-SXD dated October 24, 2018.

Thus, as of the date of trial, if based on the Construction Permit dated April 28, 2017, it has not been more than 36 months from the date of issuance of the construction permit. Meanwhile, on October 24, 2018, V Resort Company Limited continued to be granted a construction permit. Therefore, there is no basis to believe that V Resort Company Limited violated the construction schedule, delayed putting the project into operation, and violated the deadline for handing over the vacation to the owners.

2.9. For requests to return the deposit amount:

• The nature of the booking confirmation is a deposit contract. According to the agreement, the above deposit amount will be converted into the first installment payment upon the official opening date. Thus, at the time of establishing the Booking Confirmation, the above amount is the deposit for booking to ensure the performance of the service contract.

• In section 4.1 of the Contract, it is also prescribed: “The Resort Guest, under this Contract, undertakes to not irrevocalbly terminate and agrees to make a reservation to enjoy the Resort Rights in accordance with the terms and conditions of this Contract. To make a reservation, the resort guest will pay a deposit to the Company under Article 5.2 Appendix C”. The defendant did not violate the contract, nor did the plaintiff have evidence to prove that the defendant breached the deposit contract, and the parties have agreed that the Contract is irrevocable; The “vacation ownership contract” was not void as requested by the plaintiff, therefore, the plaintiff’s request to refund the deposit of 300,488,000 VND is unfounded.

3. Comment on Case law

• First, we need to understand what type of contract a vacation ownership contract is. According to Clause 1, Article 405 of the Civil Code 2015 prescribes “Standard form contract means a contract containing terms and conditions which are prepared by a party based on a standard form requiring the other party to reply within a reasonable period of time. If the offeree accepts, it shall be deemed to have accepted the entire contract provided by the offeror.”

According to Clause 5, Article 3 of the Law on Protection of Consumers’ Rights 2010 prescribes “Form-based contract is a contract composed by organizations or individuals trading goods and/or services to do business with consumers.”

Based on the case, it can be seen that Vacation Ownership Contract No. PBRC-S-064621 is a standard form Contract prepared by V Resort Company Limited to enter into with the buyer. Typically, this type of contract contains terms pre-written by the supplier and is rarely adjusted according to the requirements of the provided party. Therefore, this type of contract will have legal risks or disadvantages or bind the provided party (in this case, Ms. T and Mr. S) to perform according to the signed contract, which means that Ms. T and Mr. S have completely agreed with the terms and conditions in the standard form contract (specifically, Vacation Ownership Contract No. PBRC-S-064621).

• In Vacation Ownership Contract No. PBRC-S-064621, there is a clause expressing the content of the parties’ agreement to resolve disputes in arbitration. Therefore, if one of the parties brings the case to the Court for settlement, the Court will refuse to accept the case because the parties have an arbitration agreement.

However, Article 38 of the Law on Protection of Consumers’ Rights 2010 prescribes “Organizations or individuals trading goods and/or services must notify of the arbitration terms and condition before concluding the contract and the notification must be accepted by consumers. Where the arbitration term and condition is incorporated into the form-based contract or the general transaction condition by organizations or individuals trading goods and/or services, if any disputes happen, consumers as individual have the right to select other modes to resolve the dispute.”

At the same time, Article 17 of the Commercial Arbitration Law 2010 prescribes: “For disputes between goods or service providers and customers, though an arbitral clause has been included in general conditions on goods and service provision drafted by goods or service providers, consumers may select arbitration or a court to settle these disputes. Goods or service providers may initiate lawsuits at arbitration only if so consented by consumers.”

Accordingly, the law has regulations that prioritize and comply with the spirit of protecting consumers’ rights by allowing consumers to freely choose dispute settlement methods, even when the standard form contract has regulations on selecting a dispute settlement agency. If the supplier wants to sue at Arbitration according to the standard form contract, it must obtain the consumer’s consent.

However, in reality, due to different views among the Courts, many cases are refused to accept consumers’ requests by the Court because the signed contract contained an arbitration agreement. Therefore, Case law No. 42 was created to contribute to better protecting the consumers’ rights when they have the right to sue at the Court even where the model contract has an arbitration agreement clause. This has helped consumers be given priority, their legal rights and interests protected, and also made it more convenient and easier for them to choose a dispute settlement agency to protect their rights.

Above is an article by TNTP’s lawyer about “Case law No. 42/2021/AL regarding the consumer’s right to choose the Court to settle disputes in case the standard form contracts have an arbitration agreement“. We hope this article will be helpful to our readers.

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Penalties for breaches and compensation for damages in commercial contracts

Written by TNTP LAW on 23 May, 2024. Posted in Contract Law, Legal consultation services, Legal newsletter.

In commercial contracts, the parties involved often apply sanctions to ensure the implementation of contractual obligations and ensure the legitimate rights and interests of the aggrieved party in case of a breach by the other party. In this article, TNTP’s lawyers will provide an analysis of penalty for breaches and compensation for damages in commercial contracts.

1. Penalties for breaches

According to the provisions of Article 300 of the Commercial Law 2005, Penalty for breach is a remedy whereby the aggrieved party requires the breaching party to pay a penalty sum for the breach of contract where this is so agreed in the contract, except for cases of liability exemption as prescribed by law.

Therefore, a prerequisite for this remedy to be effective is there is a penalty agreement in the contract between the parties. In that case, the breaching party will have to pay the aggrieved party a penalty as agreed upon by the parties. However, penalties for breaches will not apply in cases of exemption from liability as prescribed by law, including:

– Cases of liability exemption agreed upon by the parties occurs;
– Cases of force majeure events;
– Breaches by one party are entirely attributable to the other party’s fault;
– Breaches are committed by one party as a result of the execution of a decision by a competent state management agency which the parties could not have known at the time the contract was concluded.

According to the provisions of Article 301 of the Commercial Law 2005, the level of penalty for the breach of a contractual obligation or the total amount of penalties for multiple breaches agreed upon in the contract by the parties shall not exceed 8% of the value of the breached contractual obligations portion, except for cases of incorrect assessment results.

Thus, although the agreement on penalties for breaches is mutually agreed upon by the parties, the penalty amount is limited to only 8% of the value of the breached contractual obligations portion. This is to ensure that penalties for breaches are not exploited in cases where one party to the contract in a weaker position has to accept an excessively large due to the other party’s upper hand.

Furthermore, according to the provisions of Article 301 of the Commercial Law 2005, the penalty value shall not apply when there is evidence proving that the assessment result of the value of the breached contractual obligations portion provided by the assessment service provider is false. This is to ensure fairness and protect the rights and interests of the party responsible for paying the penalty, based on the true value of the breached contractual obligations portion.

2. Compensation for damages

• According to the provisions of Clause 1 Article 302 of the Commercial Law 2005, Compensation for damages means a remedy whereby the breaching party compensates for the loss caused by a contract-breaching act to the aggrieved party.

Unlike penalties for breaches, compensation for damages is a remedy applicable without requiring an agreement in the contract, as long as there is actual damage caused by the breaching party’s actions to the aggrieved party, the breaching party is obligated to compensate for the damages.

• According to the provisions of Clause 2 Article 302 of the Commercial Law 2005, the value of compensation for damages covers the value of the material and direct loss suffered by the aggrieved party due to the breach of the breaching party and the direct benefits which the aggrieved party would have received if such breach had not been committed.

Therefore, it can be seen that, unlike the penalties for breaches, which are limited to 8% of the value of the breached contractual obligation portion, the compensation value will be calculated as the entire value of the actual, direct losses suffered by the aggrieved party if there are sufficient grounds to prove these losses. In addition to the actual losses, compensation for damages also applies to the direct benefits that the aggrieved party would have received if there had been no breach. These benefits are the ones that would have created value in the future, but due to the breach, they result in losses for the aggrieved party by not being able to enjoy these benefits.

• Burden of Proof:

According to the provisions of Article 304 of Commercial Law 2005, the party requesting compensation for damages has the burden of proof for the losses, the extent of losses caused by the breach, and the direct benefits that the aggrieved party should have received if there had been no breach.

Therefore, in order to have a basis for claiming damages, the aggrieved party is obliged to prove the losses, the extent of the losses caused by the breach and the direct benefits that the aggrieved party should have received. This proof of loss must be expressed in writing, legally valid documents and must reflect the nature of the case, be objective, and must have a connection and a cause-and-effect relationship to the breaches. The clearer and more accurate the evidence, the better the rights of the aggrieved party can be ensured, and, at the same time, allow to determine the obligation to compensate for the damages caused by the breaching party.

From the above content, it can be seen that penalties for breaches and compensation for damages are sanctions that contribute to protecting the rights and interests of the aggrieved party due to the breach. This binds the parties to properly perform their committed obligations under the contract, contributing to protecting the legitimate rights and interests of the parties when damage occurs due to the other party’s fault.

Above is an article by TNTP’s lawyers on the topic: “Penalties for breaches and compensation for damages in commercial contracts”. We hope that the above article brings value to readers.

Best regards.

The risks of purchasing a house through a capital contribution contract

Written by TNTP LAW on 22 May, 2024. Posted in Contract Law, Legal consultation services, Legal newsletter.

Buying a house is an important decision and is often considered one of the biggest investments of a lifetime. However, the real estate market is not always stable and transparent. Purchasing a house through a capital contribution contract is a common but rather risky method. In this article, TNTP will present to our readers an analysis of “The risks of purchasing a house through a capital contribution contract”.

1. What is a Capital contribution contract?

• A capital contribution contract can be understood as an agreement between parties to jointly contribute money or assets to collaborate on a certain task. In this case, the capital contribution contract is an agreement between the buyer and the investor, in which the buyer commits to contribute capital to a real estate project in exchange for the right to purchase a house in the future. Typically, this contract is signed before the project is completed, or even before the project is licensed for construction.

• Practically, many enterprises use the capital contribution contract when the project is still undergoing legal procedures. The terms in the capital contribution contract are often negotiated directly between the investor and the capital contributor. Currently, there is no specific and detailed legal document regulating capital contribution contracts. Therefore, the rights and obligations of the parties involved in the capital contribution are not firmly established.

2. Risks of Buying a House through a Capital contribution contract

As mentioned above, buying a house through a capital contribution contract is not tightly regulated by law, leading to several risks for buyers, including:

a. Legal Insecurity

• Project not meeting sale conditions: For a project to meet sale conditions, it must fulfill all legal requirements (e.g., the investor must have an approved housing construction investment project documents; the housing construction investment project must have completed site clearance according to the approved project schedule; there must be a handover record of the project’s boundary markers; and there must be a notice of eligibility to raise capital from the Department of Construction). However, many investors “circumvent the law” by selling the projects before these conditions are met.

There are also many cases where when a project meets the conditions for opening, the investor sues the customers themselves to request that the signed capital contribution contracts be declared void and returned the money to the customers. They can then resell it to other customers at many times the price at the time of capital raise.

• Unclear contracts: Investors often draft capital contribution contracts with vague, non-transparent terms, making it difficult for buyers to claim their rights in case of disputes.

b. Construction-related Risks

Delay or halt in the project due to the investor’s financial issues is one of the biggest risks when buying a house through a capital contribution contract.

• Construction progress risk: If the investor lacks funds or faces financial difficulties during construction, the project often cannot meet the initial construction schedule. In this case, buyers usually have to wait or might not be able to reclaim the money they have paid.

• Misuse of capital: In some cases, investors raise funds but use the capital for unintended purposes, or for other housing development projects.

• Design changes: Investors may alter the design or project quality without prior notice, resulting in buyers receiving a product that does not meet their expectations.

c. Ownership Risks

A capital contribution contract does not guarantee house ownership for the buyer. The project may be incomplete, or unlicensed, or the investor may encounter financial issues, making it unlikely for the buyer to obtain the house.

• Lack of ownership certificates: Buyers might find that the project does not receive ownership certificates due to legal inadequacies, such as the project’s land not being converted for the intended use or incomplete paperwork.
• Ownership disputes: There are cases where the investor has mortgaged the property or sold it to multiple buyers, leading to ownership disputes. In such scenarios, buyers not only lose ownership but also face difficulties reclaiming their investment.

3. Solutions

• Buyers should research the investor, project, and related legal regulations before signing a capital contribution contract. Verify if the project has been licensed for construction and complies with legal regulations.

• Seek assistance from lawyers or legal experts to review the contract and provide advice before signing. This can help buyers identify unclear or potentially risky terms.

• Regularly check the project’s progress and maintain communication with the investor for updates. If there are any unusual actions, consult a lawyer or legal expert immediately.

Buying a house through a capital contribution contract can be beneficial if the project proceeds smoothly but lies many risks behind it. Buyers need to understand these risks and take preventive measures to protect their rights. Being cautious and thoroughly investigating before making a final decision is the key.

This article on ” The risks of purchasing a house through a capital contribution contract” is provided by TNTP for our readers. Should you have any questions, please contact TNTP for further assistance.

Legal regulations on the methods of realizing mortgaged assets

Written by TNTP LAW on 20 May, 2024. Posted in Debt Collection, Legal newsletter.

The methods of realizing mortgaged assets can be agreed upon by the parties when entering into the mortgage contract, or agreed upon when they need to realize the mortgaged assets. The agreement will be prioritised for application. Article 303 of the Civil Code 2015 stipulates four methods of realizing mortgaged assets that parties can agree to apply: i) Put collateral up for an auction; ii) The mortgagee sells the assets themselves; iii) The mortgagee accepts the mortgaged assets themselves to replace the performance of the obligations of the mortgagor; iv) Other methods (such as offsetting the debt obligation). If there is no agreement on the method of realizing mortgaged assets, the assets are auctioned, except where the law provides otherwise. In this article, TNTP will analyze the methods stipulated in the Civil Code 2015.

1. Put collateral up for an auction

If the parties agree on realizing the mortgaged assets by auction and have a separate agreement on the auction procedures, the auction company, the company will then realize the assets according to this agreement. If there is no separate agreement, it will be realized according to the legal regulations on asset auctions. The auction of mortgaged assets must ensure the publicity and transparency of the asset-realizing process (providing full information related to the assets auctioned, the auction session and the sale price of the asset always being equal to or higher than the starting price determined, and the asset sale procedures being conducted professionally).

In practice, the mortgagee must initiate a lawsuit in the competent People’s Court to request the enforcement authority to seize and sell the mortgaged assets. After the judgment or decision takes effect, the mortgagee must continue to submit a request for execution to the competent enforcement authority. Subsequently, the enforcement authority will enforce the seizure of assets to transfer the seized assets to the auction organization for sale.

2. Self-sale by the mortgagee

In this case, the sale price must be agreed upon by all parties to avoid a situation where one party “underprices” and benefits unfairly from the realizing of the assets. The parties may request an organization to appraise the value of the assets as a basis for determining the sale price. This method can only be implemented with the agreement of the parties, as if the mortgagee proceeds to sell the assets and the mortgagor does not perform the procedures for transferring ownership of the assets to the buyer, the transfer cannot be completed.

3. Acceptance of the mortgaged asset by the mortgagee

The mortgagee is entitled to accept the mortgaged asset itself to replace the performance of the obligations of the mortgagor if there is an agreement when establishing the secured transaction or with the written consent of the mortgagor. If the value of the mortgaged asset is greater than the value of the secured obligation, the mortgagee must pay the value difference to the mortgagor; if the value of the mortgaged asset is less than the value of the secured obligation, the unpaid portion of the obligation becomes unsecured. The mortgagor must transfer ownership of the asset to the mortgagee as prescribed by law. From a legal perspective, this method is quite effective as it saves time and costs to realize mortgaged assets, but in reality, this method is not easy to implement as the mortgagee may be restricted from accepting the transfer of assets, or the mortgagor does not comply with the agreed obligations, making it difficult for the mortgagee to transfer ownership.

4. Other methods

The parties may agree on another method of realizing the mortgaged assets besides the methods mentioned above, as long as this choice is in accordance with legal regulations. For example, the parties can agree that the mortgagee sells the mortgaged asset to offset the debt. In reality, the parties can not agree on the realizing of mortgaged assets, the mortgagee only has the option to file a lawsuit in the competent People’s Court and continue to request enforcement after the court’s judgment or decision. This method must comply with the procedures and regulations of civil procedural law, enforcement law, and other relevant laws.

This is TNTP’s article on “Legal regulations on the methods of realizing mortgaged assets”. We hope this article is useful to our readers.

Sincerely,

OVERVIEW AND NOTES WHEN DRAFTING PRINCIPAL CONTRACTS

Written by TNTP LAW on 17 May, 2024. Posted in Contract Law, Legal newsletter.

Principle contracts are one of the types of contracts that are quite popular today in commercial transactions. In the process of establishing a transaction, the parties to the transaction will base on their needs and ability to enter an appropriate type of Contract. To better understand the principal contract, TNTP sends you the article with the article “Overview and notes when drafting the principal contract”.

I. What is a principle contract?

A principal contract is a type of contract expressing an agreement between the parties that is oriented on the purchase, sale, and supply of goods/services. In the principal contract, the parties usually only stipulate general issues, so the principal contract is often considered as a type of Framework Contract or Memorandum of Understanding between the Parties. The agreements in the principal contract are often used as the basis for the parties to sign the economic contract or add annexes to the principal contract.

II. Features of the Principal Contract

The principal contract has the following outstanding features:

• Firstly, in the principal Contract, the parties only agree on general and binding matters for the parties to ensure the performance of one or more transactions will occur in the future.

• Secondly, the current law does not have a clear and specific definition of the name of the principal contract, but in fact, a principal contract is considered as a memorandum of understanding or agreement of the parties to the contract on the sale and purchase of goods or the provision of services or other civil and commercial transactions.

• Thirdly, the agreement in the Principal Contract is oriented and is the basis for signing an economic contract or supplementing the contract annex to the principal contract.

• Fourthly, the duration of the principal contract does not depend on the number of orders and transactions arising.

• Fifthly, Subjects applicable to signing principal contracts are companies that have regular, continuous trading relationships or are geographically far apart.

III. Note when drafting a principal contract

Because the principal contract possesses the characteristics mentioned above, when drafting this kind of contract, the Parties should pay attention to the following points:

• Principle contracts are, in nature, civil contracts, ordinary commercial contracts, and are governed by civil law as well as commercial law. Therefore, the content of the principal contract must ensure all the basic contents of a contract such as: information about the parties to the contract, the subject matter of the contract, rights, obligations, and responsibilities of the parties, general commitments, and duration of the contract. Also, because of its “principal” and oriented nature, some terms of principle contracts are often not as specific and detailed as other types of economic contracts. However, the principle for determining prices, payment methods, shipping, performance time… should still be regulated, avoiding cases where principal contracts have been signed but no detailed agreement on the transaction is reached later in contracts, contract annexes, or specific orders.

• The subject in the principal contract will be governed by the agreements in the contract. Therefore, even if it is principled, the subject provision should also cover the scope of work, services or goods/characteristics of the traded goods.

• Contract values and principles can be fixed in a variety of ways. Normally, in the principal contract, the parties will agree on a payment method of (1) reconciliation of debts and monthly payment or (2) definitive payment of each delivery or after completion of the service.

• The agreement of the principal contract is applied to solve the problems arising from the specific transaction. Therefore, the validity of principal contracts has a huge influence on specific transactions. Specific transactions are considered subcontracts, which are integral parts of the principal contract. Under the law, the termination of the main contract also terminates the subcontract, unless the parties have a subcontract agreement to replace the main contract. Thus, if the principal contract ceases to be valid, specific transactions are also automatically terminated if the parties do not have an agreement to continue to perform that transaction. Therefore, to limit risks, in the principal contract, the Parties should stipulate in case the Principal Contract terminates, it will not affect the attached annexes unless the Parties agree otherwise.

Above is an overview and notes when drafting a principal contract. Hope our article is useful for you and your work.

Respect.

Legal regulations on the cases of realizing mortgaged assets

Written by TNTP LAW on 15 May, 2024. Posted in Dispute Settlement.

Realizing mortgaged assets is one of the bases for terminating a mortgage; therefore, realizing mortgaged assets will affect the rights and interests of parties in the mortgage relationship as well as other related parties. According to Article 299 of the 2015 Civil Code, realizing mortgaged assets is performed in the following three cases: i) An obligator fails to perform or perform not as agreed an obligation when it falls due; ii) An obligator must perform the secured obligation before the time limit due to his/her violation of the obligation as agreed or prescribed by law; iii) Other cases as agreed by the parties or prescribed by law. In this article, TNTP will specifically analyze the cases of realizing mortgaged assets according to current legal regulations.

1. First case: An obligator fails to perform or perform not as agreed an obligation when it falls due

In the first case, the secured obligation is usually related to borrowing and payments, including obligations to pay interest, compensation for damages, and other costs. If the parties do not agree on the scope of mortgage security, any breach of obligation may lead to a case where the mortgagee has the right to realise mortgaged assets.

2. Second case: An obligator must perform the secured obligation before the time limit due to his/her violation of the obligation as agreed or prescribed by law

For the second case, depending on the parties’ agreement, the right-holder may realise mortgaged assets to recover the secured obligation prematurely if the obligated party breaches the agreement. Apart from cases of realizing mortgaged assets as agreed, specialized law also stipulates cases where mortgaged assets may be realised even if the secured obligation is not yet due or not breached. For example, if the mortgagor is undergoing bankruptcy proceedings at the competent People’s Court, the Court may suspend the contract not yet due and require realizing mortgaged assets to secure the suspended obligation (Article 53.1 (b) of the 2014 Bankruptcy Law).

3. Third case: Other cases as agreed by the parties or prescribed by law

In the third case, based on the basic principle of civil law that parties’ agreements must be respected, the entities related to the mortgaged assets have the right to agree and unify with each other on realizing mortgaged assets to benefit all parties. However, such agreements should not be contrary to social ethics, not violate legal regulations, nor affect the legal rights and interests of third parties. For example, the parties may agree that if the mortgagee discovers risks that seriously reduce the value of the mortgaged assets, the mortgagee has the right to request realizing mortgaged assets.

Above is TNTP’s article on “Legal regulations on the cases of realizing mortgaged assets”. We hope this article will be useful to the readers.

Sincerely,

What will happen if resolution 42/2017/QH14 on pilot settlement of bad debts of credit institutions expires?

Written by TNTP LAW on 13 May, 2024. Posted in Legal newsletter.

To overcome difficulties, and legal inadequacies that often arise in the process of settlement of bad debts and collateral of credit institutions, the National Assembly passed and issued Resolution 42/2017/ QH14 on pilot settlement of bad debts of credit institutions (“Resolution 42”) takes effect from August 15, 2017. This Resolution has made it easier for credit institutions to settle bad debts and collateral and is almost considered a “prerogative” given to credit institutions. However, from January 1, 2024, Resolution 42 will no longer be effective, and this will have a significant impact on the banking industry’s rights in settlement of bad debts. Within this article, TNTP will clearly analyze the consequences of Resolution 42 when being expired.

1. Some basic and outstanding contents of Resolution 42

• Regarding conditions for seizing collateral:

To resolve difficulties of credit institutions in the process of settlement of collateral related to the delivery of collateral for treatment, creating favorable conditions for credit institutions to speed up the treatment of bad debts, to avoid the case of collateral owners deliberately being sluggish or resisting to prolong the treatment time, Resolution 42 allows credit institutions to exercise the right to seize collateral when all of the following 05 conditions are met:

 Firstly, when a case of treatment of collateral occurs according to the provisions of Article 299 of the Civil Code 2015, the right to treat collateral arising in the following cases: (i) An obligator fails to perform or perform not as agreed an obligation when it falls due; (ii) An obligator must perform the secured obligation before time limit due to his/her violation against the obligation as agreed or prescribed by law; and (iii) Other cases as agreed by the parties or prescribed by law.

 Secondly, in the security agreement, there is an agreement that the grantor agrees to allow credit institutions and foreign bank branches have the right to seize the collateral of bad debts when cases of disposal of collateral occur under the law.

This provision ensures that the seizure of collateral is carried out with the parties’ prior agreement. At the same time, Resolution 42 also prescribes that the “security agreement” according to the Resolution includes other documents recording the agreement between the parties.

 Thirdly, secured transactions and security interests have been registered according to the law. This provision ensures the secured party’s rights that have adverse effects against a third party.

 Fourthly, collateral is not a disputed property in a case that has been accepted but has not been resolved or is being resolved at a competent court; not being subject to temporary emergency measures by the Court; is not under distraint or applying measures to ensure judgment enforcement according to the provisions of law.

 Fifthly, credit institutions, foreign bank branches, and organizations buying, selling, and treating bad debts have fulfilled their information disclosure obligations as prescribed in the Resolution.

• Regarding seizure of collateral:

 Regarding authorization of seizure, to strictly control seizure, Resolution 42 stipulates that authorization to seize collateral is carried out as follows: (i) A credit institution is entitled to authorize the seizure of collateral solely to its affiliated assets management company; (ii) The bad debt purchaser/manager is entitled to authorize the seizure of collateral solely to a debt-selling credit institution or an assets management company affiliated to a debt-selling credit institution.

At the same time, Resolution 42 also clearly stipulates that credit institutions, bad debt purchaser/manager, and entity who is authorized to seize collateral may not take measures that violate the prohibitions of law during the seizure process.

 Regarding the responsibilities of state agencies, Resolution 42 stipulates: (i) The local government and police authority of administrative division where the collateral will be seized shall, within its functions, tasks, powers, keep social safety and order during the seizure process at the requests of credit institution or bad debt purchaser/manager; (ii) If the grantor fails to cooperate or be present upon notice sent by credit institution or bad debt purchaser/manager, the representative of the People’s Committee of commune where the collateral will be seized shall witness and sign a record of collateral seize; (iii) The Ministry of Public Security shall direct police authorities to keep social security and order every time a credit institution or bad debt purchaser/manager exercise the right to seizure of collateral.

• Regarding the application of simplified procedures for settlement of disputes in respect of collateral at courts:

 To shorten the process of resolving disputes through the Court and increase the efficiency of treatment of collateral through the Court, Resolution 42 allows the Court to apply simplified procedures to resolve disputes over the obligation to deliver collateral or disputes over the right to treatment of collateral.

 Regarding the conditions for applying simplified procedures, Resolution 42 stipulates that simplified procedures will be applied when all of the following conditions are met: (i) The security agreement clearly indicates the grantor’s consent to the credit institution’s right to seize the collateral upon occurrence of the case of treating collateral as per the law; (ii) The secured transaction or security interests has been registered as prescribed by law; (iii) No litigant has resided overseas or no disputed property is located overseas, unless the overseas litigant and the other litigant in Vietnam have come to an arrangement over requesting the court to handle the case under simplified procedures or litigants represent items of evidence for their legitimate ownership of collateral and have come to an arrangement over the collateral treatment.

2. Meaning of Resolution 42 – “Prerogative” for credit institutions

• Creating a relatively solid legal framework to help the banking industry in treating bad debts to achieve positive results, bringing huge benefits to banks, businesses, and the economy.

• Covering shortcomings based on reviewing problems and providing content consistent with the practice that has a positive impact on the banking system in the treatment of bad debts.

• Promoting borrowers’ awareness and responsibility in paying debt to the bank.

3. What will be the treatment of bad debts when Resolution 42 expires?

Resolution 42 was born to overcome difficulties, and legal inadequacies in the process of treatment of bad debts of credit institutions. However, Resolution 42 has expired on January 1, 2024. The expiration of Resolution 42 has had a major impact on the ability of credit institutions to treat bad debts, one of which is that credit institutions no longer have the right to seize collateral without the consent of the mortgagor but must go through the legal proceedings to seize the collateral of the debtor. This ensures the borrower’s rights and ensures that the bank does not have too much power to unilaterally conduct collateral seizure activities.

Above is TNTP’s article on ” What will happen if Resolution 42/2017/QH14 on pilot settlement of bad debts of credit institutions expires?”. We hope this article will be helpful to our readers.

Sincerely,

Author: TNTP LAW

The statute of limitations and the subjects have the right to request the competent authority to declare the contract invalid

1. The statute of limitations for requesting competent authorities to declare a contract invalid

2. The subjects have the right to request and declare the contract invalid

(a) The subjects have the right to request

(b) The subjects have the right to declare

DEBT COLLECTION WHEN THE DEBTOR IS A FOREIGN ENTERPRISE – WHAT DO VIETNAMESE ENTERPRISES NEED TO DO?

1. Common difficulties when collecting debt from the debtor

• Difficult to identify the exact address and legal status of the debtor

• Language barrier

• Filing a lawsuit abroad is very expensive (because the contract signed between the parties stipulates a foreign dispute settlement body).

2. Debt collection methods that Vietnamese enterprises should apply

• Contacting the debtors by phone or email

• Sending Letter of Demand (LOD)

• Hiring a law firm in the debtor’s country

• Filing a lawsuit at a foreign dispute settlement agency

Distinguishing between business dissolution and bankruptcy

1. Concepts

2. Legal Basis

3. Causes and Mandatory Conditions

4. The parties with the right to request and the entities making the decision

5. Order of Asset Payment

6. Legal Consequences

Legal regulations on the cases of realizing mortgaged assets

1. First case: An obligator fails to perform or perform not as agreed an obligation when it falls due

2. Second case: An obligator must perform the secured obligation before the time limit due to his/her violation of the obligation as agreed or prescribed by law

3. Third case: Other cases as agreed by the parties or prescribed by law

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