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). 

Updated bankruptcy process in Vietnam

The following is a bankruptcy process updated according to the new Bankruptcy Law:

Insolvency status

An enterprise is considered insolvent (mất khả năng thanh toán) if it is “unable to pay the due debts within 3 months from the due date ”. Resolution 3/2005 clarifies that “due debts” are the unsecured debts or partly secured debts, which is expressly recognized by the relevant parties, supported by adequate evidencing documents and free of dispute. The court may require further evidence to prove the insolvent status of a company subject to a petition for bankruptcy proceedings.

Filing and acceptance of a petition for bankruptcy proceedings

Petition: An unsecured or partly secured creditor of a company by noticing that the company is in an insolvent status will have the right to file a petition for bankruptcy proceedings against such company together with evidence of the insolvent status.

Negotiation: The company subject to a bankruptcy petition may negotiate with the claimant within 20 days from the date of filing. If negotiation is successful then the bankruptcy petition could be withdrawn

Court’s fee: The petitioner must make an advance of the bankruptcy fees, determined by the court

Court: The provincial court of the locality where the company in bankruptcy registered for its business registration is in charge of bankruptcy cases for companies with “foreign” elements, branches or real estates in different districts. In other less complicated cases, the district court will be in charge.

Acceptance of bankruptcy hearing: The Court will issue a decision whether to commence the bankruptcy proceedings within 30 days from the date of acceptance of the petition for bankruptcy proceedings. Creditors and debtors of the company are also entitled for being noticed of such decision.

Commencement of bankruptcy proceedings

Appointment of a Receiver: Within three days from the commencement of bankruptcy proceeding, the court will appoint a receiver (being either qualified individuals or company). The receiver will play a major role in running the company’s operation and liquidating the company’s assets during the bankruptcy proceeding.  The receiver may act as the legal representative of the company if necessary.

Standstill: After the court accepts the petition, the disposal of the company’s secured assets for secured creditors will be temporarily suspended except where the secured assets are in danger of being destroyed or significantly losing their value. In addition, disputes relating to the company’s assets will be suspended by the relevant court or arbitration.

Limitation on operation: The company is also prohibited from (1) disbursing and concealing assets, (2) settlement of unsecured debts, (3) waiver of right to claim, and (4) turn unsecured loans to secured loans. Any material transaction by the company including material disposal or borrowing must be notified and approved by the receiver.

Company’s assets: Within 30 days from the date of receiving the court’s decision to commence bankruptcy proceedings, the company will have to list out an inventory of its assets in accordance with the detailed list submitted to the court and determine the value of such assets.

List of creditors: Within 30 days from the date of the court's decision to commence bankruptcy proceedings, creditors of the company must submit to the Receiver their detailed request for debt payment. Thereafter, the receiver must prepare a list of creditors with details of the debts thereof.

Creditors meeting: Within 20 days after completion of the list of creditors or the list of company’s assets, whichever is earlier, the court will convene the first meeting of the company’s creditors to discuss the company’s situation and approve a resolution to recover the company’s business, if the creditors consider that the company is recoverable. If the creditors consider that the company is not recoverable then the court will decide to commence the liquidation procedures. A creditor meeting requires a quorum of a number of creditors representing at least 51% of the unsecured debts. A decision of the creditor meeting requires the consents of at least 65% of the unsecured debts which will bind all creditors.

Suspension: From the date the Court decides to commence the bankruptcy proceedings to before the date of announcement of the company’s bankruptcy, if the company is not in bankruptcy the court may issue a decision to suspend the bankruptcy proceedings. Such decision may be appealed by the creditors.  

Recovery of business activities

After the creditor meeting decides that the company’s business may be recoverable, a recovery plan will be prepared by the company and approved by the receiver. The plan will then be subjected to the approval of the second meeting of the company’s creditors. The maximum term for the company to implement the business recovery plan is 3 years.

The court will then review and approve the recovery plan. Once the recovery plan is approved by the court, the company will be released from various operational restrictions imposed on the company discussed above. However, the company is required to report on the implementation progress every six months.

If the approved recovery is carried out successful then the court will terminate the process and the company will escape bankruptcy.

Declaration of bankruptcy

The court will declare the company’s bankruptcy in the following cases: (i) the creditors fail to convene the creditors meeting; (ii) the creditors meeting fails to approve their resolution; (iii) the company in bankruptcy has no money or other assets to pay for the bankruptcy fee or advance the bankruptcy charges in case the petitioner is the company; (iv) after the acceptance of the petition for bankruptcy proceedings, the company is unable to pay for the bankruptcy charges; (v) no recovery plan is duly proposed or approved;  or (vi) the company fails to implement the recovery plan.

Assets liquidation

Process: The court’s decision to declare a company bankrupt will be sent to the judgment enforcement agency. The judgment enforcement agency will open a bank account and then request the receiver to start liquidating the assets of the company in bankruptcy.

Settlement of secured debts: After the commencement of bankruptcy proceedings, based on the receiver’s proposal, the judge will settle the secured debts in one of the following ways: (i) in case the secured assets are used to implement the business recovery procedures, the settlement thereof is subject to the creditors meeting’s resolution; or (ii) in case the company does not implement the business recovery procedures or the secured assets are unnecessary for the business recovery procedures, (a) if the secured agreements are due, the secured assets will be settled in accordance with such agreements; or (b) if the secured agreements are undue, such agreements will be suspended and the secured debts will be settled before the declaration of bankruptcy.

Priority of assets distribution: Where the court decides to declare the bankruptcy of the company, the assets of such company will be distributed in the priority order of (1) bankruptcy charges, (2) unpaid salary, severance allowances, social insurance, health insurance and other benefits of its employees, (3) the debts arose after the commencement of bankruptcy proceedings in order to recover the company’s business activities and (4) due financial obligations to the State, unsecured debts and secured debts which have not been settled since the value of the secured assets are not enough to pay the debts.

Termination of the liquidation procedures: The judgment enforcement agency will decide to terminate the assets liquidation procedures when the company has no more assets to carry out the assets distribution or the assets distribution has been fully completed.

Voidable transactions

Under the Law on Bankruptcy, inter alia, the following transactions may be held by the court to be invalid if conducted within six months prior to the date the Court issues the decision to commence the bankruptcy proceedings:

·         The payment of debts which are not yet due;

·         Payment of or to set-off the undue debts in favour of the creditors or with the amount of money greater than the undue debts;

·         Transactions relate to the asset transfers which are not based on the market price;

·         Swapping the unsecured debts to secured debts or partly secured debts;

·         Transactions out of business purposes of the company; and

·         Other transactions for the purpose of disposing of assets of the company.

A 18 month period applies to the above transactions with the related party of the Company. 

Directly land leasing from private landlord outside an industrial zone

Traditionally, a foreign investor in Vietnam may acquire land use rights by either from the State or from a developer of industrial zone. Article 93 of the old Land Law 2003 suggests that a foreign invested company may lease land directly from a private landlord being an economic organisation even if the landlord is not an industrial zone developer. However, there is no clear for a foreign investor to follow this direct leasing option. And in practice, few foreign investors can actually lease land from an economic organization outside of industrial zones.

The new Land Law 2013 and its implementing regulations also contain a similar provision allowing a foreign invested enterprise to direct lease land from an economic organization outside of industrial zones easier. In addition,

• The new Land Law 2013 specifically encourage an investor which presumably includes foreign invested enterprises to directly lease land from economic organizations in the event they do not want to lease land from the State or the industrial zones;
• Direct land leasing from economic organizations must satisfy the following conditions, among others: (i) complying with the approved district-level annual land use plan; and (ii) there is no other “clear” land in the relevant neighborhood available for the project. Both of these conditions are not clear and may be difficult to comply with in practice; and
• The land lease contract with the private owner must be registered with the land registration office. Upon registration, the land lease shall be recorded in the corresponding land use right certificate already granted to the landlord but no separate land use right certificate will be issued under the name of the lessee. 

Music or movies on-demand streaming or webcast in Vietnam

Online streaming or providing webcast of music or movies starts becoming popular in Vietnam. This could raise some interesting points from copyright law perspective. A broadcaster under the Intellectual Property Law may broadcast music without obtaining approval of the relevant right holders as long as the broadcaster pay certain royalty fees to the copyright holder. It is not clear if a provider of online streaming or webcast of music or movies could qualify as a broadcaster under the Intellectual Property Law. This is because:

• “Broadcasting” is defined as the transmission of sound or image or both sound and image of a work, performance, audio and visual recording or broadcast to the public by wireless or landline means including satellite transmission, in such a way that the public may access such work from any place and time the public select. It is not clear if the delivery of a musical recording through the internet could qualify as the transmission of a recording by wireless or landline means. The Intellectual Property Law seems to distinguish the internet from wireless or landline means. However, Decree 100 seems to consider the internet as a part of wireless or landline means; and

• Broadcasting organisation is defined as the organisation which initiates and carries out broadcasting. In the case of on-demand music service, it is not clear whether the service provider or the end-user could be considered as the organisation which initiates the broadcast.