Legal framework and key considerations when drafting a power of attorney for debt recovery

In business operations and civil transactions, facing capital appropriation and overdue debts is an ever-present risk for both individuals and businesses, particularly in high-value transactions involving the sale of goods, the provision of services or lending. When a debtor delays, avoids or refuses to cooperate in making payment, a creditor’s own efforts to recover the debt often consume considerable time and resources but achieve limited results.

In this context, executing a Power of Attorney that allows a qualified and lawfully operating organization or individual to carry out debt recovery measures on behalf of the creditor, in accordance with the law, has become a common solution chosen by many creditors. However, the legal validity of this document depends directly on the quality of its drafting: a Power of Attorney with an unclear or incomplete scope of authorization or one granted to an inappropriate party, may cause the creditor difficulties and even expose the creditor to legal risks during the debt recovery process.

In this article, TNTP provides readers with a detailed analysis of the legal framework and key considerations when drafting a Power of Attorney for debt recovery, together with a sample document for reference.

1. What is a Power of Attorney for debt recovery?

In essence, a Power of Attorney for debt recovery is a document that establishes an authorized representative relationship. Under Article 134 of the Civil Code 2015 (“Civil Code 2015”), representation means an individual or a legal entity acting in the name of and for the benefit of another individual or legal entity to establish and perform civil transactions. As for the legal basis for establishing representation, the right of representation may be established through authorization between the principal and the representative. Specifically, Clause 1, Article 138 of the Civil Code 2015 provides that an individual or a legal entity may authorize another individual or legal entity to establish and perform civil transactions.

Accordingly, a Power of Attorney for debt recovery is a document whereby the creditor (the authorizing party) grants another party (the authorized party) the right to act in the creditor’s name and for the creditor’s benefit to take actions to recover the debt, including contacting, working and negotiating with the debtor, participating in litigation and pursuing judgment enforcement. In this authorization relationship, the authorizing party retains its status as the creditor; the authorized party only acts on behalf of the creditor within the authorized scope and does not become the creditor of the debt.

2. Cases in which a Power of Attorney for debt recovery should be executed

Based on practical experience in debt handling, creditors should consider granting authorization and executing a Power of Attorney for debt recovery in the following cases:

• The creditor has repeatedly contacted the debtor and requested payment, but the debtor still fails to pay or does not respond;
• The debtor has made payments but only in part, thereby failing to secure the creditor’s business cash flow;
• The creditor knows that the debtor is able to pay but refuses to cooperate;
• The creditor is unable to conduct the debt recovery directly or wishes to authorize another individual or organization to act as its representative to recover the debt; or
• The case is complex (high value, involving foreign elements or requiring litigation or judgment enforcement) and calls for professional support.

Regarding timing, if recovery measures have been taken for 30 to 45 days without results, the creditor should consider transferring the case file and executing a Power of Attorney in favor of an organization or individual with expertise in debt recovery. Granting authorization and implementing debt recovery measures in a timely manner not only maximizes the likelihood of recovering the debt but also reduces the risk that the overdue debt will become prolonged, lead to disputes or result in bad debt.

3. Contents of a Power of Attorney for debt recovery

A Power of Attorney for debt recovery should include the following information:

• National name, motto and document title: formatted in accordance with common practice for a Power of Attorney;
• Information of the authorizing party and the authorized party: for organizations, clearly state the name, tax identification number, address and legal representative; for individuals, clearly state the full name, citizen identification number and address;
• Basis and details of the debt: clearly identify the debtor, the contract or transaction giving rise to the debt, the value of the debt and other related contents;
• Scope and content of the authorized work: specifically list the tasks that the authorized party may perform;
• Term and validity of the Power of Attorney; and
• Signature and seal of the authorizing party (and of the authorized party if both parties sign for confirmation).

Where the case is expected to involve multiple stages, the creditor should define a scope of work broadly enough to cover all of these stages from the outset, thereby avoiding re-executing the authorization document multiple times while the case is being handled.

4. Sample Power of Attorney for debt recovery

Based on the foregoing legal provisions and analysis, TNTP provides readers with the following sample Power of Attorney for debt recovery for reference. When using this template, the creditor should adjust the parties’ information, the details of the debt, the scope of work and the term of authorization to the specific circumstances of each case.

THE SOCIALIST REPUBLIC OF VIETNAM

Independence – Freedom – Happiness

——–o0o——–

POWER OF ATTORNEY

(Re: debt recovery)

…, … / … / …

AUTHORIZING PARTY: ………………………………………………………………

Tax identification number: ……; Address: ………; Legal representative: …… – Position: ……

AUTHORIZED PARTY: ……………………………………………………………….

Tax identification number: ……; Address: ………; Legal representative: …… – Position: ……

By this Power of Attorney, the Authorized Party, as the representative under authorization, shall act on behalf of the Authorizing Party to perform all act necessary to recover the debt arising from Contract/Transaction No. … dated … between the Authorizing Party and the Debtor, …… (Tax identification number: ……; Address: ……; Legal representative: …… – Position: ……), with a total debt value of ……, including:

1. Contacting, negotiating with the Debtor and related third parties; drafting and signing documents recording the negotiation results within the scope of authorization.

2) Representing the Authorizing Party in dispute resolution before competent authorities; drafting, signing and submitting procedural documents and materials; participating in mediation, hearings and court sessions at all levels; working with the Courts, the Procuracy and other competent authorities.

3. Representing the Authorizing Party during the judgment enforcement stage, including drafting and submitting documents such as the request for enforcement of the judgment, the request for verification of enforcement conditions and the request for application of security measures, etc.; working with civil judgment enforcement agencies and other relevant competent authorities.

This Power of Attorney takes effect from the date of signing until the authorized tasks above have been completed, unless otherwise agreed by the parties.

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5. Key considerations when drafting a Power of Attorney for debt recovery

1. Regarding the authorized party

Under Article 6 of the Investment Law 2025, the business of debt collection services is on the list of prohibited business investment activities. Creditors should therefore avoid authorizing organizations that operate under the guise of “debt collection” services. Granting authorization to an entity without lawful operating authority or to one that uses unlawful measures (such as threatening or harassing the debtor, causing disturbances or insulting the debtor’s honor and dignity), not only renders the debt recovery ineffective but may also exposes the creditor to potential legal risks.

2. Regarding the scope of authorization

Article 141 of the Civil Code 2015 provides that a representative may only establish and perform civil transactions within the scope of representation. The content and scope of the authorized work must therefore be clearly defined and fully cover all stages of the debt recovery process, in order to avoid difficulties arising during implementation and to prevent the representative from establishing or performing civil transactions beyond the scope of representation.

3. Regarding the term of authorization

Under Article 140 of the Civil Code 2015, the term of authorization is determined by the authorization document or by law. In the absence of an agreement and the law does not provide otherwise, the term of authorization is one year from the commencement of the right of representation.

Article 140 of the Civil Code 2015 also sets out the cases in which representation under authorization terminates, such as: by agreement of the parties; upon expiry of the term of authorization; when the authorized work has been completed; when either party unilaterally terminates the authorization; when an individual dies or a legal entity ceases to exist; when the representative no longer satisfies the conditions prescribed by law; or when other grounds arise that make it impossible for the representation to continue. A clear understanding of these provisions helps the creditor proactively determine the term of authorization and adjust or terminate the authorization when necessary.

6. Frequently asked questions

1. Is notarization of a Power of Attorney for debt recovery mandatory?

Current law does not require a Power of Attorney for debt recovery to be notarized; notarization is therefore optional. Where the authorization involves no remuneration, no compensation obligation and no transfer of asset ownership or real estate use rights, the parties should have their signatures on the Power of Attorney certified in accordance with Clause 4, Article 24 of Decree No. 23/2015/ND-CP. Nevertheless, to facilitate dealings with competent authorities and third parties, the parties should consider having the Power of Attorney notarized or certified, especially when the case enters the litigation and judgment enforcement stages.

2. What is the term of a Power of Attorney for debt recovery?

The term of authorization is agreed upon by the parties or prescribed by law. Where there is no agreement and the law does not provide otherwise, the term of authorization is one year from the date on which the Power of Attorney is made. In practice, the parties often agree that the Power of Attorney for debt recovery remains effective until the work has been completed or the authorization terminates in the cases specified in Article 140 of the Civil Code 2015.

3. May the authorized party delegate the authorization to another person?

Under Article 564 of the Civil Code 2015, the authorized party may only sub-authorize another person with the consent of the authorizing party or where a force majeure event makes it impossible to achieve the purpose of the authorization without such sub-authorization. In addition, the sub-authorization must not exceed the scope of the original authorization and must be made in a form consistent with the original authorization. Accordingly, if the creditor permits sub-authorization, this should be clearly stated in the Power of Attorney to avoid future disputes.

The above is our article entitled “Legal Framework and Key Considerations When Drafting a Power of Attorney for Debt Recovery” presented by TNTP. Should you have any matters requiring clarification, please contact TNTP for further assistance.

Best regards,