Vietnam corporate debt collection regulations you need to know

Debt collection is not only a corporate finance issue but also a complex legal process requiring strict compliance with regulations. This compliance ensures all parties’ rights while avoiding legal violations. This article overviews the legal framework governing corporate debt collection in Vietnam and analyzes creditors’ rights and obligations under current law.

I.Overview of debt recovery laws and compliance requirements

1.Legal basis

Under Vietnamese law, debt recovery is the process where creditors use legal measures to compel debtors to fulfill their payment obligations. This process relies not only on contracts and agreements between parties but also requires strict adherence to legal regulations. Debt recovery must comply with several key legal frameworks, including the Civil Code 2015, the Commercial Law 2005, the Construction Law 2014 (as amended in 2020), the Credit Institutions Law 2010 (as amended in 2017), the Civil Procedure Code 2015, the Enforcement of Civil Judgments Law 2008 (as amended in 2014) and other applicable legal documents.

The relationships/transactions that often give rise to debts to be recovered in Vietnam include:

• Sale of goods and provision of services relations

In practice, disputes from sales and service contracts make up a large portion of debt recovery cases. These typically occur when buyers or service users delay payment, pay incompletely or refuse to fulfill obligations without valid reasons. In such cases, creditors can invoke Civil Code 2015 (“the CC”) provisions – specifically Clause 1, Article 440: “A purchaser must pay the full price at the agreed place and time” or Clause 1, Article 519: “A client must pay the agreed fee for services”. These provisions help prove the debtor’s violation and compel payment. Additionally, both the CC and Commercial Law 2005 clearly define payment timeframes and methods. Thus, if the purchaser/client violates the payment obligation, the creditor has full legal grounds to initiate proceedings and request the court/arbitration to order the debtor to pay the debt and arising interest.

• Construction relations

In construction activities, payment disputes between investors and contractors are particularly common. These disputes typically arise for two reasons: parties failing to honor contractual commitments or contracts lacking clear terms about rights and responsibilities. According to Clause 3, Article 144 of the Construction Law 2014 (as amended in 2020) on construction contract payment: “The principal shall fully pay the value for each time of payment to the contractor after subtracting advanced amount and work warranty money as agreed upon in the contract, unless otherwise agreed upon by the parties”. When investors delay or deliberately refuse payment, contractors can cite this provision to demand both payment and late payment interest.

• Credit relations

In the credit sector, bad debts from lending activities present significant challenges for credit institutions. These activities are governed by both general civil law and specific credit legislation. According to Clause 1, Article 466 of the CC: “Where the property lent is a sum of money, the borrower must repay the lender the loan in full when due. If the property is an object, the borrower must deliver to the lender an object of the same type, quantity and quality, unless otherwise agreed”. Furthermore, Clause 2, Article 95 of the Credit Institutions Law 2010 (as amended in 2017) states: “In case a borrower cannot pay a due debt, the credit institution may handle debts and assets used as loan security according to the credit contract, guarantee contract and law, unless otherwise agreed by involved parties…”. Based on these provisions, credit institutions can legally implement debt recovery measures, including handling collateral as specified above or under Article 299 of the CC. This legal framework enables banks to recover bad debts and manage pledged or mortgaged assets.

Beyond the common relationships discussed, many other transaction types including leasing, cooperation and franchise agreements can generate disputes over obligations that lead to debt recovery situations. Vietnamese law provides a comprehensive regulatory framework for these relationships, clearly establishing the rights and obligations of all parties involved. Creditors who thoroughly understand the legal provisions applicable to their specific circumstances can more effectively protect their legitimate rights during debt recovery proceedings.

2.Compliance requirements in the debt recovery process

• Regarding evidence: Article 93 of the Civil Procedure Code 2015 (“CPC”) defines: “Evidence in civil cases refers to factual things which are submitted to Courts by involved parties, agencies, organizations or individuals or gathered by Courts according to the order and procedures prescribed by this Code and are used by Courts as bases to determine objective details of the cases as well as to determine whether the involved parties’ claims or protests are well-grounded and lawful or not”. Evidence only has probative value when it is lawfully collected and follows proper legal procedures. If evidence is deemed invalid, creditors risk having their claims rejected or facing prolonged debt recovery processes.
• Regarding lawful methods: Creditors are not allowed to use violence, threats or hire illegal debt collection services but may only carry out negotiation, conciliation, litigation at court or arbitration and judgment enforcement with the support and advice of lawyers or legal experts.
• Regarding dispute resolution procedures: Each debt recovery method follows different legally mandated procedures. For negotiation and conciliation, parties may freely agree to terms while adhering to the principles of voluntariness and legal compliance under Article 3 of the CC. When pursuing court litigation or arbitration, creditors must strictly follow regulations regarding jurisdiction, limitation periods, evidence requirements and filing procedures as outlined in the CPC and the Commercial Arbitration Law 2010. During the enforcement phase, the Enforcement of Civil Judgments Law 2008 (as amended in 2014) clearly defines the procedures for enforcement requests, the authority of enforcement agencies and the rights and obligations of all parties involved.

II.Rights and obligations of creditors under Vietnamese law

1.Rights of creditors

Vietnamese law recognizes and protects many rights of creditors, including:

• The right to request performance of payment obligations;
• The right to claim damages and penalties for breaches;
• The right to initiate proceedings or request arbitration to resolve disputes;
• The right to request provisional urgent measures;
• The right to handle secured assets; and
• Other rights under Vietnamese law.

2.Obligations of creditors

Along with rights, creditors also have several important legal obligations:

• The obligation to provide evidence;
• The obligation to comply with procedural rules;
• The obligation to respect the lawful rights and interests of the debtor and related parties;
• The obligation to make a deposit when requesting provisional urgent measures; and
• Other obligations under Vietnamese law.

Vietnamese law comprehensively stipulates the rights and obligations of creditors, ensuring a balanced approach that protects all parties’ interests. These rights and obligations are specifically defined for each type of relationship or transaction through both general and specialized legal frameworks. When creditors properly fulfill their legal obligations, they can significantly enhance their debt recovery effectiveness while minimizing potential legal risks.

Corporate debt recovery in Vietnam is a complex legal process despite its commonality. Creditors must thoroughly understand the legal basis, statute of limitations, evidence requirements and procedural rules governing their claims, along with their rights and obligations. Legal compliance not only safeguards legitimate rights but also ensures a transparent, effective and sustainable recovery process. Companies should consult with legal professionals to develop optimal debt recovery strategies that minimize risks while protecting their long-term interests.