Vietnamese insurers permitted to issue surety bonds

Under Decree 68/2014, a Vietnamese non-life insurance company may now issue a “guarantee insurance” (bảo hiểm bảo lãnh) to guarantee contractual obligations of its customers in favour of a third party. The customer will need to pay insurance premium to the insurance company for the guarantee insurance. Thereafter, if the customer fails to perform the guaranteed obligations then the insurance company must perform the guaranteed obligations and will have a right to require reimbursement from the customer. In essence, a guarantee insurance is not a traditional insurance product but is similar to a surety bond or a bank guarantee. So for the first time, insurance companies will be competing with banks in performance bonds and guarantee market. This must be an important product for some non-life insurance companies in Vietnam as the whole Decree 68/2014 is all about definition of guarantee insurance. 

Detailed foreign exchange regime for Foreign Invested Enterprises in Vietnam

Circular 19/2014 issued this week is a major regulations on foreign exchange management of foreign-invested enterprises in Vietnam. Circular 19/2014 has filled much of the vacant left by Circular 4/2001 on the same subject. Before Circular 19/2014, foreign invested enterprises (FIEs) can only rely on a few general provisions of Decree 160/2006. Under Circular 19/2014

• It now seems that Circular 19/2014 only applies to FIEs that have been granted an Investment Certificate. A foreign investor which acquires shares in a Vietnamese company and participates in the management of such company does not need to comply with Circular 19/2014 if the acquisition is not subject to issuance of an Investment Certificate. Instead, in that case, the foreign investor will comply with Circular 5/2014 on foreign exchange regime applicable to “indirect” investment. This is an encouraging news for many M&A lawyers who can now advise with more certainty which bank accounts should be used for acquisition of a domestic companies;
• Circular 19/2014 also repeals the requirements under Circular 5/2014 that a foreign investor must convert into compliance with the foreign exchange regime applicable to foreign direct investment once the indirect investment by the foreign investor becomes a direct investment.
• Similar to Decree 70/2014, Circular 19/2014 repeatedly require “an FIE and the foreign investors in such FIE” to open direct investment capital accounts (tài khoản vốn đầu tư trực tiếp) (one in VND and one in foreign currency). 

• Circular 19 expressly requires all payment for transfer of capital in an FIE to be made through the direct investment capital account. In the past, some foreign investors have preferred to by passing the direct investment capital account and receiving payment for capital transfer offshore. 

• The direct investment capital account now also receives proceeds from domestic loans both in Vietnamese Dong and foreign currencies. Under the old regulations, this account only receives proceeds from foreign loans. This requirement may restrict the banking operation of many FIEs in case these FIEs have multiple domestic loans at different banks. This is because an FIE can only have one direct investment capital account for each currency;

• The VND direct investment capital account can receive capital contribution in VND by both foreign investors and Vietnamese investors;

• The direct investment capital account must be used to transfer proceeds from sale of shares or capital contribution in an FIE by a foreign investor unless the sale of shares or capital contribution results in a “change in the legal entity” of the FIE. It is not clear what change in the legal entity means;

• Any foreign currencies converted from VND by a foreign investor must be remitted out of Vietnam within 30 working days from the date of conversion. Presumably, this provision is to prevent foreign exchange speculation by foreign investors in Vietnam;

• A foreign investor is expressly allowed to bring in foreign currency for the preparation of an investment project even before issuance of the Investment Certificate; and

•  By March 2015, all special foreign currency capital accounts (tài khoản tiền gửi vốn chuyên dùng bằng ngoại tệ) opened under Circular 4/2001 must be closed and converted into direct investment capital account under Circular 19/2014. 

Sale of secured assets without auction in Vietnam

The key to reduce bad debts in Vietnam is to sell or otherwise deal with the assets that are mortgaged or pledged to secure unpaid debts more quickly and effectively. Otherwise, the Government can only either delay the situation (but only up to a point) or use its own depleted budget to remove bad debts from the banking system. Circular 16/2014 jointly issued by the State Bank, the Ministry of Justice and the Ministry of Natural Recourse and Environment in June 2014 should assist creditors including banks and the VAMC  in enforcing the secured assets mortgaged or pledged to them. Circular 16/2014 contains specific and detailed procedures for the enforcement of certain types of mortgages or pledges.

One important point under Circular 16/2014 is that it provides for a process whereby the secured asset can be sold privately without going through a public auction. In particular, If the mortgage/pledge agreement allows the creditor to sell the secured assets through private sale but does not specify the valuation method, then the creditor and the securing party may

(1)          mutually agree on the value of the secured assets;

(2)          if (1) fails, the securing party may appoint a valuer to value the secured assets;

(3)          if the securing party does not appoint a valuer then the creditor may do so;  

(4)          if the assets cannot be sold at the valuation determined by the valuer at (2) or (3), then the creditor may reduce the sale price within 15 days. The creditor may reduce the sale price three consecutive times (up to 10% each). The creditor may only reduce the sale price after 30 days for secured assets being real properties or 15 days for other assets from the last price reduction; and

(5)          if the assets cannot be sold after three times of reducing price, the creditor may take over the secured assets in lieu of the secured obligations at the valuation being the latest sale price being proposed at (4).