Credit contracts and the handling of collateral are integral parts of the financial and banking system, promoting economic development and helping businesses and individuals access capital. However, when parties fail to fulfill their commitments or when disputes arise, resolving these disputes over credit contracts and handling collateral becomes complex and hard to deal with.
1. Credit contracts and collateral
A credit contract is a written legal agreement between the lender (credit institution) and the borrower (individual or legal entity) regarding the provision of a loan with specific terms on interest rates, loan duration, and repayment methods.
Collateral (or security) is the asset that the borrower uses to secure the loan, and where the borrower cannot fulfill their repayment obligation, the lender has the right to handle the collateral to recover the debt.
2. Common arising disputes
Disputes over credit contracts are types of disputes arising from the relationships between parties in a credit contract. The content of disputes often revolves around issues such as:
• Disputes due to breaches of obligations in the credit contracts: The borrower does not comply with the commitments on principal and interest payments according to the contract terms or violations related to the misuse of funds, providing false information.
• Disputes regarding the parties establishing and performing the contract: Disputes about the legal status and authority of the parties when signing the contract, or ambiguities about the rights and obligations in the contract.
• Disputes over the law governing credit contracts: Conflicts regarding the choice of applicable law and dispute resolution methods.
• Particularly common now are disputes arising from the implementation of security interest for credit contracts and the handling of collateral.
3. Causes of disputes in the process of handling collateral
Article 295 of the Civil Code 2015 has specifically detailed the conditions for collateral:
• Collateral must be under the ownership rights of the securing party, except for the cases of lien on property or title retention.
• Collateral may be described broadly but must have enough information to identify.
• Collateral may be existing property or off-plan property.
• The value of collateral may be greater, equal or smaller than the value of the secured obligation.
Additionally, the Civil Code 2015, Law on Credit Institutions 2010, and accompanying legal documents provide detailed regulations on the process of handling collateral. However, in practice, the handling of collateral faces many difficulties, mainly due to the following reasons:
• There are many cases where during the process of handling collateral, credit institutions do not fully notify the asset owner and the borrower or do not follow the process to handle the asset correctly. This often leads to disputes and a lengthy dispute-resolution process in court.
• Disputes can also arise during the auction and sale of collateral. The lack of transparency in the auction process, unreasonable sale price, or the borrower and collateral owner not being timely informed about the auction of their property can lead to legal disputes over the recognition or cancellation of auction results.
• In some cases, the collateral is related to the interests of third parties (e.g., co-owners, beneficiaries of the asset, etc.). If handling the collateral affects the interests of third parties, it can cause disputes.
4. Solutions for resolving disputes
• Negotiation and Mediation: This is the first and preferred method of resolving disputes to avoid prolonged conflicts and minimize legal costs. Parties can seek the solution through direct negotiation or use mediation services from a third party.
• Arbitration: This is an alternative dispute resolution method to court and is often used when the parties have an arbitration clause in the contract. The arbitration process is usually quicker and less costly than litigation in court, and the arbitration result has high legal binding power.
• Court: Resolving disputes in court is a common method currently used. If parties do not comply with the judgment, they will be enforced by the Enforcement Agency. However, the court resolution process can be lengthy.
Disputes over credit contracts and handling collateral are complex processes, requiring strict adherence to legal regulations. To minimize disputes and ensure the lawful rights of all parties involved, credit institutions, as well as borrowers and guarantors, should consider consulting or seeking support from experienced lawyers in this field. Lawyers can provide accurate legal advice, help parties understand their rights and obligations, and guide the handling of complex legal situations. This not only ensures transparency and fairness in the handling process but also reduces legal risks and avoids unnecessary prolonged disputes. Seeking support from legal experts and a team of lawyers will be an important step to protect the rights of the parties.
The above article, “Disputes over credit contracts and handling of collateral” is presented by TNTP to our valued readers. If you have any issues for discussion, please contact TNTP for support.
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