Business finance has increased the importance of secured lending. There is a clear understanding of different assets that can be used as security. The use of movable assets such as accounts receivable and listing as security is common. The growth of business and the increasing complexity of the law have led to change. In addition, trade needs to adhere to not only Vietnam’s legal and commercial practices, but also international practices. Apparently, the security agreements made in Vietnam are close to international norms.
This article discusses the use of company assets such as receivables and assets as collateral for financing the business.
Secure transactions
The general rules for secure transactions between the lender and the lender first appeared in the 2005 Civil Code.[1]. These regulations reflect recent developments in securities transactions. Prior to the 2005 Civil Code, secured transfers were classified based on the type of property. Movable property was used as compensation in “pledge” while immovable property was used as compensation in “mortgage”. Under the Civil Code of 2005, whether a secured transaction is a pledge or mortgage depends on whether the lender owns (pledged) or does not pledge (pledge). Regulations have followed this concept since the 2015 Civil Code[2] Enforced.
Under current regulations, the security interest that arises in the acquisition and acquisition is treated as collateral, because the property of the entity and the receivable remains with the buyer – for example, the raw materials produced. Used in This change, of course, if the security liability is not satisfied when it expires, and the property is taken by the lender. However, whether the property is movable or immovable is no longer controlled. But it is still important to understand the need for filing.
To complete the mortgage
The law does not require that mortgages on inventory or receivables must be registered to take effect. However, a mortgage priority on unregistered assets without registration may be successfully challenged by a third party who has an interest in the same property. Another risk is that a loan secured by unregistered securities would be treated as an unsecured loan if the principal assets were given to another lender as compensation to re-register their secured interest. Under the 2015 Civil Code, the lender’s secured interest on an asset that is recorded takes precedence over the unregistered interest on the asset. In case both the mortgages are properly registered, the lender’s secured interest is rated according to the date of registration. It is explicitly advisable for the lender to insist that the secured interest it generates be recorded, to ensure its priority.
There are a number of registration issues that lenders will consider. First, the current system for registering secured interests is strictly complete. Mortgages on receivable entities or accounts, say, must be registered with the National Registration Authority for secure transactions (“NRAST”“While secured interest in immovable property such as land, houses or buildings must be registered with the Land Registry Office under the Department of Natural Resources and Environment.”Land Registration AuthorityWe point out a simple problem that arises from this dual registration system. Many entities, such as building materials and fittings, eventually become part of a house or building, for example, on immovable property. Similarly, plants and crops are considered land-related assets – an immovable property – but they are certainly movable assets after harvest. Unfortunately, there is a cross between the two systems of registration. There are no rules for reference, therefore, it is unclear whether a guarantee that is registered with the Land Registration Office and then recognized as a movable property, as registered with the NRAST. Or vice versa.We think no.
Second, while access to registered immovable property information is much easier through the NRAST online database, there is still no complete online database for tracking the mortgage status of immovable property. The current practice is that the lender must send a letter to the land registrar requesting information.
Security agreement
Although mortgage registration may give the lender some leeway that it will be able to repay its loan when the lender is in default, there is no alternative to a comprehensive security agreement. The language of a security agreement for dynamic underlying assets, such as entities and receivables, often corresponds to a specific reality and security situation.
For example, security agreements with entities as collateral will require the maintenance and reporting of specific records. There are warning requirements if there is an intent to lose assets. A contract may require that the proceeds be from the sale of the entity or that the recipient’s payments be recorded separately. The agreement may provide that the proceeds, when received, be stored in an account that is separate from the customer’s own accounts and that separate rules apply. Agreements for annexes, modifications, and changes in stock assets must be registered with NRAST.
If the recipient is to be reimbursed, in case of default by the lender, the lender must reserve the right to receive the loan directly from the buyer. The lender can ask the borrower to pay interest on the late payment. It is also important to insure that the lender can repay any uncollectible money received against the lender.
This is a brief discussion of security as used in business finance in Vietnam. We anticipate that over time, the practice and complexity of this form of asset-based financing will continue to change.
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