In recent times, the project is particularly interested in the fact that the State Securities Commission (“SSC“) has issued a decision to revoke 9 bond issuances of 3 subsidiaries of Tan Hoang Minh Group. Immediately after this Decision, Tan Hoang Minh responded that if one of these issuances must be canceled at the request of the state management agency, Tan Hoang Minh will work with the bond issuer, the state management agency to return the money mobilized to customers in accordance with the law. So what can the investors do to recover the investment money from the bond purchase of Tan Hoang Minh?
1. First, we need to consider whether the cancellation of 09 bond issuances resulted in the guarantee contract between Tan Hoang Minh and the asset management units being invalidated?
In essence, the bond is like a form of the loan contract, the Enterprise bond issuer raises loans from bond buyers ( the investors) for the purpose of financing its business. In return, the business will have to pay interest to the investor for a predetermined periodic period (usually annually or half a year) and return the principal on the due date to end the debt. The issue of bonds with collateral by the Enterprise will ensure the risk when the Enterprise fails to pay interest and principal to the investors.
However, many Enterprises issue bonds but do not have collateral. Pursuant to Clause 1, Article 5 of Decree No. 153/2020/ND-CP stipulates the private offering and trading of corporate bonds in the domestic market and the offering of corporate bonds to the international market. Accordingly, enterprises mobilize individual bonds according to the principle of self-borrowing, self-payment, and self-responsibility, state management agencies do not license the issuance. Therefore, it can be seen that the Securities Law 2019 and Decree 153/2020/ND-CP still has many “loopholes” in regulations related to individual Enterprise bonds with no collateral or collateral of low quality.
It is easy to see that, in the case of Tan Hoang Minh, most of the proceeds from highly likely bond mobilizations have been used by Tan Hoang Minh for investment in projects. Therefore, the processing of cash flow refunded to the investors who bought bonds in 09 bonds issuances canceled will depend on the handling of the collateral Tan Hoang Minh when issuing bonds.
For bond issuances, Tan Hoang Minh has collateral and has a unit to organize and manage collateral. In this case, the contract on the management of collateral will be considered as a subcontract for bond transactions between Tan Hoang Minh and the investors. Pursuant to Clause 2, Article 407 of the Civil Code 2015 Invalid contract “The invalidity of the main contract terminates the sub-contract unless the parties agree that the sub-contract may replace the main contract. This provision does not apply to measures to secure the performance of obligations”. Therefore, although the 09 bond issuances of Tan Hoang Minh were canceled, the contract on organization and management of secured assets between Tan Hoang Minh and the union organizing and managing collateral is still valid. Thus, the cancellation of 09 bonds issuances of Tan Hoang Minh bonds did not result in the cancellation of the guarantee contract between Tan Hoang Minh and the secured asset management units.
2. What can the investors do to recover the investment money from the bonds purchase of Tan Hoang Minh? There are two options investors can use.
– Firstly, in the case of collateral Tan Hoang Minh, it is very difficult to predict the solvency such as shares, land use rights, property rights arising from investment cooperation contracts,… or the solvency of the collateral Tan Hoang Minh is not high.
In this case, after the expiration of the 60-day period from the date of the SSC’s decision to apply the recovery of 9 bond issuances, Tan Hoang Minh has not yet made payment of interest and principal to investors, the investor has the right to request the court to open bankruptcy procedures as prescribed in Clause 1, Article 5 of the Bankruptcy Law 2014. However, this case only applies when the investor has no guarantee or is only partially secured. After being accepted by the Court to open bankruptcy procedures, the assets of the Enterprise will be divided in order such as bankruptcy expenses, salary debts, allowances, debts incurred after opening bankruptcy procedures for the purpose of restoring the business activities of the Enterprise, financial obligations to the State, unsecured debts payable to creditors, debts with guaranteed debts that have not been paid due to the value of assets that are not sufficient to pay debts. Thus, in case the debt payment time limit expires as prescribed, Tan Hoang Minh does not make the payment of the debt, and the investor has no guarantee or partial guarantee, the investor has the right to request the court to open bankruptcy procedures.
– Secondly, request the units to organize and manage assets to ensure the handling of collateral of Tan Hoang Minh for each bond issuance. In case the collateral is owned by Tan Hoang Minh and can be handled. The investor can request the unit to organize and manage the secured assets to handle the secured assets of Tan Hoang Minh to pay the interest and investment principal.
Thus, the investors need to know information about bonds is the only way to limit the risks for investors when entering the corporate bond market. Investors should take note of the basic principle that the higher the interest rate, the greater the risk. Therefore, the investors need to be very careful when assessing risks before deciding to buy Enterprise bonds in order to limit possible situations in having to “follow” the consequences of the Enterprise issuing bonds in violation of regulations. The investors can ensure their rights and interests when participating in bond trading.
The above is to share the legal knowledge of TNTP in response to the question “Tan Hoang Minh bonds are canceled: How to recover the investment amount?”. I hope the article will help your work.
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Lawer Nguyen Thanh Ha