On 19 March 2021, the Government has issued Decree 21 guiding the Civil Code on obligation performance security (Decree 21/2021). Decree 21/2021 replaces Decree 163 of the Government dated 29 December 2006 on security transactions (Decree 163/2006) from 15 May 2021.

Parties’ autonomy

Decree 21/2021 appears to allow the parties to a security transaction to agree on any issue relating to a security transaction as long as such agreement complies with the fundamental principles of the Civil Code 2015, does not violate the conditions for a transaction to take effect, and does not violate the limitation on the exercise of civil right under the Civil Code 2015 and other relevant law.

It is not clear if the parties can agree not to follow the provisions of Decree 21/2021 as long as such agreements comply with these mentioned conditions. For example, Article 9.1 of Decree 21/2021 regulates that the description of the security assets is agreed by the secured party and the securing party, but it is also followed by the requirement that such description must be in accordance with several other provisions of Decree 21/2021. It is not clear if the parties can apply Article 4 to describe the security assets in a manner different from the provisions of Decree 21/2021, or, even if the parties have the right to agree on the description of the security assets, such description must follow Article 9.1 of Decree 21/2021.

Concept of obligor and obligee

Decree 21/2021 defines that the obligor (“người có nghĩa vụ được bảo đảm” in Vietnamese) is a person whose obligation is secured by security measure. It is also clearly stated that the obligor may or may not concurrently be the securing party (“bên bảo đảm” in Vietnamese).

Interestingly, Decree 21/2021 removes the express description in Decree 163/2006 that the obligee is the secured party in a secured obligation. It is not clear if this change provides for the possibility that the secured party needs not to be the obligee in a secured transaction (see more discussion here).

Under Vietnamese law, it is a common understanding that the obligee (e.g, the lender) must be the secured party (e.g., the mortgagee) in a secured transaction although the securing party (e.g., the mortgagor) could be different from the obligor (e.g., the borrower). In fact, this has been the position under Decree 163/2006 for several years. However, the new Decree 21/2021 replacing Decree 163/2006 from 15 May 2021 removes the express description that the oblige is the secured party in a secured obligation. It is not clear if this change provides for the possibility that the secured party needs not to be the obligee in a secured transaction.