Author: TNTP LAW

The emergence of debts is a common occurrence in business activities in general and the construction industry in particular. Unattended debts can potentially pose a risk to a company’s cash flow. In this article, TNTP’s lawyers will provide insights into the tasks that businesses need to perform when incurring debts in the construction industry.

1. What is Debt?

Debt is the compilation of all the money that a business is owed by customers or partners, including money from the sale of goods, and products, revenue from providing services to customers but not yet received in full, advance payments, and overdue debts that need to be settled.

2. What Businesses Need to Do When Incurring Debt

a) Aggregating and Categorizing Debts

• After incurring debts, businesses need to aggregate them to ensure they can monitor all outstanding debts recovery, thus ensuring that no debts are forgotten. Subsequently, based on criteria such as the value of the debt, the time of debt occurrence, the financial capability of the debtor, and the importance of the debtor to the company’s operations, debts are categorized with varying degrees of priority for recovery.”

• Not all debts can be quickly recovered, and not all debtors are willing to repay. Therefore, categorizing debts helps businesses make decisions regarding necessary debt recovery measures. For example, for a newly incurred small debt, a business may only need to contact the debtor for a payment reminder. However, for a large debt that has been outstanding for several years, the business should consider filing a lawsuit with the relevant authority to protect its rights.

• Aggregating and categorizing debts should be the first task that a business undertakes when incurring debt. The value of this task is crucial and serves as a prerequisite for the business to take the necessary steps to recover the debt.

b) Requesting Debtors to Sign a Debt Reconciliation Agreement

• Debt reconciliation is the process of verifying a business’s debt amounts against the figures in its accounting books and the actual transaction data when companies execute contracts or transaction obligations. If the figures in the books and the actual data match, the parties executing the contract will confirm this in writing. A written confirmation of all debt amounts, signed and stamped by all parties, is known as a Debt Reconciliation Agreement.

• A complete Debt Reconciliation Agreement should have the acknowledgment of all parties involved, and this acknowledgment is to have the debtor accept the value of the debt. This allows the debt recovery process to be more effective as the business has evidence that the debtor acknowledged the debt value in the Debt Reconciliation Agreement.
• In a company’s accounting and financial management activities, the Debt Reconciliation Agreement is a document that helps the business assess its receivables, expenditures, and debts. Consistently confirming and reconciling debt also enables the business to evaluate its ability to repay debts and that of its other partners.

• In the debt recovery process, the Debt Reconciliation Agreement becomes even more valuable when a business has a strong basis to make payment requests based on the debtor’s precise acknowledgment during negotiations. Additionally, in cases where a business initiates legal action against a debtor, the Debt Reconciliation Agreement serves as crucial evidence for dispute resolution authorities to substantiate the business’s request for legal action.

With all these values, businesses need to promptly request debtors to confirm the Debt Reconciliation Agreement to ensure an effective debt recovery process.

The above are the opinions of TNTP’s lawyers on the topic: ” What to do when a debt arises in the construction industry?” Hopefully, this article provides value to its readers.

Best regard.

The emergence of debts during the operations of businesses in the construction industry is something no business desires. However, not many businesses know how to limit debts during their operations. Therefore, in this article, TNTP’s lawyers will provide insights on how to limit debt in the construction industry.

1. Controlling the Financial Resources of the Business

Controlling the financial resources of a business involves managing and monitoring costs and profits during its operations. This is a crucial task that businesses must constantly carry out to ensure uninterrupted operations. Ineffective financial resource control can lead to a shortage of funds for development, reduce a business’s competitiveness, and potentially result in the business being unable to continue its operations.

Effective financial resource control has a significant impact on debt reduction. When a business can grasp the details of its expenses and debts, it can make informed decisions to address outstanding debts as they come due. It also enables the business to categorize its debts for convenient debt recovery in the future. In contrast, a business lacking the ability to control its financial resources implies that it cannot effectively manage or prevent potential debts that may arise with its partners. Therefore, controlling financial resources is a crucial task for businesses to minimize the possibility of incurring future debts.

2. Identifying and Categorizing Debts

To determine which partners may become potential debtors, businesses also need to identify and categorize their debts. Some small debts can be monitored in preparation for potential recovery if necessary, while larger debts should be considered for necessary recovery measures. Business partners should be categorized based on their financial capabilities and their importance to the business to determine whether they may become debtors in the future.

Depending on the value and timing of debt occurrences, the methods of debt recovery may vary. Therefore, identifying and categorizing debts is essential for businesses to limit debts. Failure to identify and categorize debts directly affects the debt recovery process and, more importantly, the company’s cash flow when it cannot recover these debts. Without clear identification and categorization of debts, businesses will have difficulty implementing necessary measures to prioritize the recovery of important and high-value debts with a high likelihood of recovery. In such cases, the debt recovery process becomes significantly more challenging, and there may be cases where the debts cannot be recovered, leading to financial losses that cannot be compensated for by the business.

3. Inability to Effectively Recover Debts

This is the primary reason that leads to businesses accruing debts, as when there is no capability to recover debts effectively, debts tend to accumulate without proper resolution. Typically, businesses focused on their core operations often lack experience in debt recovery. This results in businesses not knowing how to efficiently pursue debt collection from various debtors, as well as balancing financial resources and timing for these activities. Consequently, businesses may fail to recover debts and may even waste financial resources and time on ineffective debt recovery activities.

To address this issue, businesses need to implement training programs or recruit experienced staff in the field of debt recovery. When these employees possess strong expertise and legal knowledge, they can carry out debt recovery activities effectively, in compliance with the law, and minimize risks for the business during the debt recovery process.

The above is an article by TNTP’s lawyer on the topic: ” How to limit debt in the construction industry? ” Hopefully, this article provides value to its readers.

Best Regard.

Although debt collection in the construction industry is vitally important and significantly impacts the cash flow of businesses and organizations as well as individuals across all sectors of society, many businesses still struggle to carry out debt collection effectively. One of the primary reasons for low debt collection rates is the inability to determine favorable and difficult debt collection timing. In this article, TNTP’s legal team will provide insights into what constitutes a difficult debt collection timing in the construction industry.

1. What Is Debt in the Construction Industry?

The construction industry encompasses various related and interconnected sectors, including raw materials, architecture, structural engineering, real estate, land administration, and more. Consequently, debts arising within the construction sector are diverse and complex. However, TNTP will specifically address debts arising during the execution of commercial real estate projects—a common source of difficult debt collection.

Determining what constitutes a difficult debt collection timing depends on various factors, including the role of the debtor in contract execution, the amount of the debt, the financial capabilities of the debtor, and more. TNTP will provide its perspective on defining difficult debt collection timing below.

2. Difficult times when debt collection in the construction industry

A debt is considered difficult to collect when the period from the inception of the debt to the commencement of the recovery process exceeds 12 months. During this time, businesses may miss the opportune moment to implement preventive measures or initiate debt collection for the following reasons:

a) Debtor’s Inability to Pay

One of the primary reasons why a debt becomes difficult to recover when it has been outstanding for an extended period is that the debtor may no longer have the financial capacity to make payments. While a 12-month timeframe may not seem excessively long, unforeseen events can lead to the debtor’s financial inability to operate effectively, or even result in bankruptcy or dissolution. In such cases, businesses have limited options for debt collection, other than resorting to legal proceedings through dispute resolution authorities if the debtor is unwilling to pay voluntarily. Even if dispute resolution authorities issue legally binding judgments or decisions that require the debtor to make payments, the business can only recover the debt if the debtor still possesses funds or assets. If the debt collection process is initiated too late, the debtor’s assets may no longer be available, and the business may not be able to recover any funds.

b) Document Compilation Takes Time

When a debt remains unpaid for an extended period, it becomes difficult for a business to demand payment due to the time-consuming process of compiling necessary documents. These debt-related documents may include invoices, payment requests, and debt reconciliation between the business and the debtor. Based on TNTP’s practical experience, these documents are often stored by the accounting or clerical departments of businesses for future operational years. The prolonged storage of documents can lead to their loss or poor preservation conditions, potentially resulting in damage. This is not to mention that staff turnover or departures within the business can make it difficult to ensure proper document retention, given that the debt may have originated a long time ago.

Furthermore, if a business decides to initiate legal proceedings against the debtor through relevant dispute resolution authorities but fails to provide the necessary documents to substantiate the claim, it can significantly jeopardize the business’s interests. In some cases, these dispute resolution authorities may reject the initiation request due to the business’s inability to provide the required documents and evidence to support the debt collection claim.

Therefore, it is evident that the time-consuming process of document compilation can hinder a business from taking effective debt collection measures, ultimately jeopardizing its legal rights and interests.

The above is an article by TNTP’s lawyers on the topic of ” Difficult times when debt collection in the construction industry” We hope this article provides value to our readers.

Sincerely,

Debt Incurrence in the construction industry is a frequent occurrence and can significantly impact the interests of various parties involved. Therefore, debt collection in the construction sector is immensely important and has a substantial impact on the cash flow of businesses or individuals participating in investments. In this article, TNTP’s lawyers will provide insights into what can be considered an opportune time for debt collection in the construction industry.

1. What constitutes debt in the construction industry?

The construction industry encompasses various related and interdependent sectors, including raw materials, architecture, structural engineering, real estate, land management, and more. Consequently, the debts incurred within the construction sector are diverse and intricate. However, TNTP will specifically focus on debts arising from commercial real estate projects – one of the activities that frequently generate challenging debts.

Entities incurring debts in the construction industry can range from investors, subcontractors, real estate brokers, suppliers of construction materials to both organized and individual investors. Debt incurrence can take place at various stages, including before project approval, during project execution, during project acceptance, and even when the project is being marketed and sold.

2. Optimal Timing for Debt collection in the Construction Industry

Due to the extensive nature of the construction industry, involving various entities, determining the ideal timing for debt collection depends on several different evaluation criteria, such as the ongoing relationships, entities incurring the debt, the quantity, and the timing of the debt incurred. Specifically:

a) Based on Project Completion Level

Considering the level of completion of a construction project, the opportune time for debt collection should be before the project’s completion. At this stage, all parties involved will have prepared for the acceptance process, which serves as a basis for the project’s execution. This period also makes it easier to identify responsibilities if there are issues with the project, such as quality or progress, based on the contract’s terms. For investors, this is a time for project review and inspection of the work carried out by construction subcontractors. If any issues arise during the project, investors can rely on these issues to request explanations from subcontractors or deduct costs if losses occur, or if the project’s progress is delayed, affecting the business phase.

b) Based on the Importance of Construction Projects

Within a construction project, there are various components with varying degrees of importance. In cases where the execution of a significant component is underway, it is advisable for all parties to consider resolving debt as early as possible to mitigate risks that could directly impact the quality and progress of the construction. When debt remains unresolved for critical project components, the project may face shortages in materials, insufficient labor, and the construction unit may struggle, leading to delays or compromised quality due to conflicts arising from late payments.
Debt incurred at critical project stages can be attributed to various factors, such as rising material prices leading to suppliers’ inability to fulfill quantity and quality commitments to construction contractors, delays in bank disbursements due to market-related cash flow fluctuations, or failure to recognize the significance of these stages leading to a lack of concentrated funds to be mobilized at the right time. Regardless of the causes, debt incurred during critical stages of a construction project will significantly affect the entire project, and in some cases, the operation of businesses. Therefore, businesses should aim to resolve these debts as early as possible in such scenarios.

c) Based on the Financial Capability of the Debtor

In practice, businesses can only make payments if they have the capacity to sustain their operations and cash flow. No business can settle debts if they are unable to maintain their operations. Similarly, in the construction industry, businesses should consider taking necessary measures to recover debts from debtors with strong financial capabilities while being cautious of debtors showing signs of insolvency or ceasing operations.

Businesses should take essential steps to assess the financial capability of debtors in order to determine whether they are financially sound. This assessment may involve reaching out to partners or financial institutions to find out if the debtor is accumulating unmanageable debts or engaged in disputes with other businesses. Once the financial capability of the debtor is established, businesses can proceed with debt collection measures to ensure the most effective repayment of the debt.

Above is an article by TNTP lawyers on the topic ” Favorable time for debt collection in the construction industry” We hope this article is helpful to our readers.

Sincerely,

With the unpredictable changes in the real estate market in recent times, the construction industry is facing numerous challenges in its operations. Many construction projects are experiencing capital shortages or halted construction due to quality assurance issues. Additionally, the sudden surge in construction costs due to soaring real estate prices, affecting the purchasing power of investors, has resulted in the emergence of difficult-to-collect debts within the construction sector. In this article, TNTP’s legal team will provide insights into the challenges of debt recovery in the construction industry in Vietnam today.

1. Types of Debts in the Construction Industry

The construction industry encompasses various related and interconnected sectors, including raw materials, architecture, structural engineering, real estate, land administration, and more. Consequently, Debts in the Construction Industry are diverse and complex. In this article, we will focus on debts that arise during the execution of commercial real estate projects—a common source of challenging debt recovery.

Commercial real estate refers to properties constructed for commercial purposes, primarily for leasing and business activities. It is a preferred investment avenue for many investors. However, amidst the signs of a declining real estate market in Vietnam due to various reasons, Debts in the Construction Industry are increasing, significantly impacting the interests of investors, construction contractors, and stakeholders.

2. Classifying Debts in the Construction Industry

a) Debts Related to Project Progress

Project progress is a top priority for every investor and contractor when undertaking a real estate project. Ensuring that construction is on schedule minimizes risks associated with rising material prices, meets market demand promptly, and, most importantly, ensures timely capital recovery when properties can be sold. However, due to various objective and subjective factors, project delays can lead subcontractors to accumulate debts with investors. Slow progress on a project can result in increased capital requirements or penalty clauses for contract breaches.

b) Debts Related to Construction Materials

Construction materials are fundamental to shaping any real estate project. Without these materials, projects remain on paper. Both investors and construction contractors must carefully consider the quantity, quality, and prices of construction materials before and during a real estate project. Similar to other market factors, the value and quality of construction materials continuously fluctuate depending on various market-related and non-market-related factors. Many real estate projects fail to meet construction deadlines or even be complete due to the impact of construction materials.

c) Debts Related to Project Quality in the Construction Industry

Similar to every aspect of services in society, quality is a critical factor in determining whether a real estate project can be completed or profitable. Quality factors in a real estate project encompass numerous elements, including the quality of construction materials, the quality of construction work, and the quality of construction management.

Debts arising among parties involved in project implementation related to quality issues are also diverse. These disputes can range from conflicts over the quality of construction materials between construction contractors and material suppliers to disputes regarding the construction quality between investors and contractors during project execution or inspection. These issues can even extend to debts arising between investors or buyers of the project and the project’s developer or construction contractor. If these debts are not carefully resolved or balanced to safeguard the interests of all parties, they can lead to disputes among stakeholders involved in the construction project.

The above is an article by TNTP’s legal team expressing their perspective on the challenges of debt recovery in the construction industry in Vietnam today. We hope that this article provides value to our readers.

Sincerely,

In the process of debt recovery in general and specifically in the construction industry, negotiation is an approach for debt recovery. However, not all negotiation processes can yield the best results for businesses. In the following article, TNTP lawyers will provide insights into whether negotiation for debt recovery in the construction industry is effective.

1. What is Negotiation?

Negotiation is the process in which parties involved in a dispute engage in exchanges to understand, settle, compromise, and resolve differences to find a common solution to the dispute without the assistance or judgment of any third party. Among the methods of dispute resolution, negotiation is considered a common and easily implemented method when all parties have the willingness to resolve the matter. Similarly, in debt recovery in the construction industry, negotiation is an effective method that businesses should consider using.

2. Characteristics of Negotiation

a) Can Only Be Conducted Based on Voluntary Spirit, Goodwill, and Cooperation

The first characteristic of negotiation is that all parties involved must have the willingness to resolve the matter. Goodwill is demonstrated when parties can collectively exchange ideas and requirements based on a balance of interests among all parties to find the optimal solution. If any of the parties lack voluntariness and goodwill, negotiation cannot take place.

This is a fundamental difference between negotiation and other dispute-resolution methods. Negotiation is not simply one party making demands of the other; it involves both parties exchanging ideas to agree on the best solution for both. In this process, both parties must accept that the other party’s interests must be balanced with their own, rather than one party gaining an advantage while the other suffers a disadvantage. Therefore, negotiation can be either difficult or easy depending on the attitudes, expression of viewpoints, and interests of the parties involved.

b) Has Many Advantages Compared to Other Dispute Resolution Methods

• Not bound by legal procedures or third parties. Since only the parties involved in the dispute participate, negotiation is an effective and flexible method for debt recovery.
• Because it involves only the disputing parties, negotiation is a highly confidential method of debt resolution, especially when a successful negotiation does not harm the dignity, reputation, or cooperative relationship between the parties.
• It is cost-effective and does not incur fees or expenses compared to litigation or dispute resolution in commercial courts/arbitration. Any costs, if incurred, only involve travel and expenses agreed upon by the parties and are not subject to legal regulations.
• The resolution process is rapid if the parties can agree on a resolution plan. Debt repayment can occur immediately after the parties sign a mutual agreement to settle the debt.

3. Limitations of Debt Recovery Negotiation

Despite the many advantages of resolving disputes, debt recovery negotiation has some limitations, including:

• A mandatory condition is that all parties must have the willingness to resolve the matter; otherwise, no settlement agreement can be reached.
• The agreements reached in the negotiation process do not have enforceability and depend on the voluntary compliance of the parties. Therefore, if one party is not willing to honor the agreement, it can render the agreement meaningless.
• Creditors may have to accept a dispute resolution plan that is less favorable when they have to share their interests with debtors. In such cases, the amount recovered may be less than the actual debt.

Therefore, implementing a debt recovery in the construction industry can bring both benefits and drawbacks to a business. In such situations, businesses must weigh the advantages and disadvantages to choose an effective negotiation strategy that safeguards their interests. Hence, it can be seen that negotiation is an effective dispute-resolution option in the construction industry, but its success depends on various factors, and it may not always be beneficial for businesses.

This article presents the viewpoint on the effectiveness of debt recovery negotiation in the construction industry by TNTP lawyers. We hope this article is useful to our readers.

Sincerely,

Debt recovery is an effective means of resolving disputes in general and specifically in the context of debt collection. It is a relatively common method employed by many businesses. In the following article, TNTP’s legal team will provide insights into the effectiveness of litigating for debt recovery within the construction industry.

1. What is Litigation for Debt Recovery?

Litigation involves the creditor filing a lawsuit, along with relevant documentation, with dispute resolution authorities, including the competent court and commercial arbitration center. The purpose of litigation is to request these dispute resolution bodies to issue a legally binding document, which includes an Arbitral Award in the case of commercial arbitration, and a Judgment/Verdict with legal enforceability in the case of the competent court.

These Arbitral Awards/Verdicts are based on legal provisions and the case’s evidence and documentation. Consequently, the enforcement of such judgments is ensured by legal regulations, and the enforcement authorities act on behalf of the state’s authority to carry out necessary enforcement measures. This ensures that the debtor is compelled to execute the judgment and settle the debt.

For the aforementioned reasons, litigation is a preferred method for many businesses seeking to recover debts in a legal context within the construction industry.

2. Advantages and Disadvantages of Initiating Legal Proceedings for Debt Recovery

a) Advantages

• Acceptance of a business’s initiation of legal proceedings is based on the content of the documentary evidence, such as contracts and relevant legal provisions provided by the parties involved. Therefore, if a business can substantiate that its request is legitimate, the Court or Arbitration Center will accept this request.
• Initiating legal proceedings in accordance with legal regulations helps ensure transparency.
• The legal judgments, decisions, or verdicts will have legal enforceability, compelling the debtor to comply, regardless of their willingness.
• Enforcement authorities will act on behalf of the state’s authority to carry out enforcement measures if the debtor does not cooperate. Thus, ensuring effective debt recovery.

b) Disadvantages
• Legal judgments, decisions, or verdicts may be subject to appeals and objections, leading to prolonged proceedings. If the appeals or objections are successful, the business’s request may not be accepted.
• If a business lacks sufficient evidence and documentation to substantiate its initiation of legal proceedings, the Court or Arbitration Center may not accept the request.
• Businesses will have to pay court fees and legal costs before these authorities can resolve the dispute. The amount to be paid depends on the value of the debt being sought, which can be a burden for the business.
• The enforcement procedure may be ineffective if the debtor is no longer operational or lacks assets for execution. In such cases, the enforcement process may be prolonged, and certain stages of enforcement may require additional fees from the business.

3. Is Initiating Legal Proceedings for Debt Recovery Effective in the Construction Industry?

From the factors mentioned above, it can be seen that while initiating legal proceedings for debt recovery has many advantages, this method also comes with certain limitations. The most crucial aspect is whether the business has sufficient evidence to substantiate its request for litigation or not, and whether, after obtaining a legally enforceable judgment, decision, or verdict and meeting the conditions for enforcement, the debtor can still settle the debt or not.

For these reasons, businesses need to assess their cases, financial capabilities, and the value of the debt when considering whether initiating legal proceedings for debt recovery will yield the highest value for them.

The above is an article by TNTP’s legal team on the topic: ” Is it effective to sue for debt recovery in the construction industry?” We hope that this article will be beneficial to our readers.

Sincerely,