The recent credit crunch and anti-corruption campaigns in Vietnam have made many bond issuers in Vietnam fail to repay their outstanding bonds. According to a recent report, around 67 bond issuers are in default and the outstanding amount is around US$ 3.7 billion. Bond issuers, who wish to recover the principal and coupons and to enforce their rights, could face significant legal issues. In this post, we will discuss some of these issues:

·        Lack of documents and information: It may be difficult for a bondholder to have access to all the transaction documents of a bond including (1) detailed bond terms and conditions,  (2) agreements between issuers and other service providers such as bondholders’ representative, security agent, or registration agents, and (3) security agreements. This is because under the law, a bond issuer is not required to make public all these documents. Only a summary of key terms and conditions of the bonds is required to be published. And only for bonds issued after 1 January 2021, a bond holder is granted the right to request for documents and information relating to the bonds. In addition, in practice, many individual investors did not pay attention in collecting these documents when purchasing the relevant bonds.

·        Uncooperative agents: In a standard bond transaction, the bond issuer will usually engage various service providers to act as representatives for the bondholders (e.g., bondholders’ representative, security agents, or registration agents). Since these representatives are appointed and paid by the bond issuer, in practice, they may be reluctant to take actions against the bond issuers for the benefit of the bond holders if the bond issuers are in default.

A bondholders’ representative (Đại diện người sở hữu trái phiếu) is defined in Decree 155/2020 as a depository member of the Vietnam Securities Depository or a fund management company which is appointed or selected to “represent” the bondholders’ interests. However, it is not clear whether the bondholders’ representative is a legal representative or an authorized representative of the bondholders.

The legal nature of the role of bondholders’ representative is quite important. For example, if the bondholders’ representative is the legal representative of the bondholders then the bondholders cannot directly exercise their rights under the bond terms. On the other hand, if the bondholders’ representative is only an authorised representative of the bondholders then technically, the bondholders could still directly exercise their rights under the bond terms.