VAMC - New tool to resolve bad debts
The much expected Decree on setting up Vietnam Assets Management Company (VAMC) was finally issued on 18 May 2013 and will take effect from 9 July 2013. VAMC is expected to play a major role in resolving the massive amount of bad debts accumulated by Vietnamese banks. However, a quick review of the Decree indicates that in order for VAMC to be up and running many steps and decisions remain to be taken.
The Basic
VAMC is a non-profit State-owned enterprise and incorporated as a single-member limited liability company. VAMC has a chartered capital of VND 500 billion. The SBV is the representative of the State capital in VAMC.
How it works
Decree 53/2013 establishes a quite complicated mechanism to deal with bad debts of Vietnamese banks. Below is an example of how such mechanism works:
- Borrower B mortgages its house to borrow a loan of VND 100 billion (Secured Debt) from Bank A. Borrower B fails to repay the Secured Debt and the Secured Debt becomes bad debt of Bank A. Bank A has not set aside any reserve for the Secured Debt..
- VAMC issues special bonds (VAMC Bond) according to an issuance plan to be approved by the State Bank of Vietnam (SBV). VAMC Bond has a term of five years and carries no interest.
- Bank A sells the Secured Debt to VAMC in exchange of VND 100 billion VAMC Bond. This step requires the Secured Debt and Borrower B to satisfy certain conditions. As a result of the transfer, VAMC will become the owner of the Secured Debt and be entitled to the mortgage over the house of Borrower B (the Mortgage). The transfer is made by way of a contract between VAMC and Bank A. In some cases, the SBV may even force Bank A to sell its bad debts to VAMC if Bank A does not cooperate with VAMC.
- Bank A pledges VND 100 billion VAMC Bond with the SBV to obtain a recapitalisation loan from the SBV (SBV Loan). The amount and interest of the SBV Loan is subject to separate regulations.
- During the term of the VAMC Bond, Bank A needs to establish a reserve (Bank Bond Reserve) of at least 20% of the value of VAMC Bond each year.
- After taking over the Secured Debt and the VAMC will either directly or authorise Bank A to deal with Borrower B. Decree 53/2013 seems to offer substantial legal supports for VAMC to enforce the Mortgage. For example, Decree 53/2013 requires all competent authorities to cooperate with VAMC to allow VAMC to enforce the security interests that it holds.
- VAMC authorises Bank A to enforce the Mortgage and recover VND 50 billion (Recovered Amount) and VND 50 billion remains to be unpaid (Remaining Debt).
- Within five business days after the earlier of (1) the last day of the term of VAMC Bond or (2) the date on which the aggregate of the Bank Bond Reserve and the Recovered Amount is equal to VND 100 billion, Bank A must (2) repay the SBV Loan and get back the VND 100 billion VAMC Bond, and (3) sell back VND 100 billion VAMC Bond to VAMC in return of the Remaining Debt. VAMC will also return the Recovered Amount less the enforcement expenses and a haircut (to be decided) for VAMC to Bank A.
- After Bank A gets back the Remaining Debt and returns the VAMC Bond to VAMC, Bank A will need to use the Bank Bond Reserve to resolve the bad debt resulted from the VAMC Bond and to continue resolve the Remaining Debt.
After the expiration of the preferential Feed-in Tariff (FiT) policy for solar and wind power projects in Vietnam, the energy selling price of solar and wind power plants in Vietnam will now be up to the parties’ negotiation in a power purchase agreement (PPA) but must be within the electricity generation price (EGP) bracket approved by the competent authorities. For that purpose, on 1 November 2023, the Ministry of Industry and Trade (MOIT) issued Circular 19 regulating the mechanism for establishing EGP brackets for solar and wind power plants (Circular 19).
From 1 January 2025, under the new Land Law 2024, Vietnamese who reside overseas and still hold Vietnamese nationality (Vietnamese citizens) will be treated as Vietnamese individuals residing in Vietnam in the matters relating to land use rights in Vietnam, while the land use scheme applicable to persons having Vietnamese origin (người gốc Việt Nam) remains as same as to the one applicable to overseas Vietnamese under the Land Law 2013. This is one of the key changes under the Land Law 2024 relating to Vietnamese residing overseas. This article provides some highlights of the land use scheme applicable to these two groups of land users: (i) Vietnamese citizens and (ii) persons of Vietnamese origin.
On 23 June 2023, the National Assembly adopted the new Law on Tendering effective from 1 January 2024 (Law on Tendering 2023). In an effort to foster a more competitive market, the Law on Tendering 2023 introduces significant amendments regarding the scope of application, methods, and procedures for selecting tenderers and investors. This post will summarize some notable changes in the Law on Tendering 2023.
1) Amendments to the scope of application
Under both the Law on Tendering 2023 and the old Law on Tendering 2013, the selection of investors for (1) projects using land in accordance with the law on land, and (2) other projects in accordance with specific laws must comply with the tendering procedures. The Law on Tendering 2023 provides for certain changes relating to such cases.
Regarding projects using land, the above requirement appears to refer to the circumstances of land allocation and land rental via tender procedure as set forth in the new Land Law effective from 1 January 2025 (Land Law 2024). Under the Land Law 2024, the provincial People’s Council must decide to allow a project using land to be tendered. This condition is not provided in the Land Law 2013 and the Law on Tendering 2013.
With respect to other projects in accordance with specific laws, under Decree 23/2024 implementing the Law on Tendering 2023, the Government specifies projects subject to tendering under specific laws. Such projects include, for example, investment projects for the renovation and reconstruction of apartment buildings, or investment projects for the construction of domestic solid waste treatment works. Previously, the Law on Tendering 2013 did not provide for further clarification on this issue.
From February 2024, companies and foreign investors applying for a contribution of capital or purchase of share/capital contribution by the foreign investor (M&A Approval) must state the actual price of proposed transfer, instead of the estimated transfer price as previously. This is one critical change in the new template for the application for an M&A Approval under Circular 25/2023 of Ministry of Planning and Investment (MPI).
The change may have an adverse effect on relevant parties, especially the foreign investor, particularly:
The parties of an M&A transaction may find it difficult to declare an “actual transfer price” since the M&A Approval will be issued well in advance of the closing of the transaction.
In a shareholder agreement (or joint venture agreement) between members of a multiple member limited liability companies (Multiple LLC), the members often agree on various transfer restrictions such as right of first offer (ROFO), right of first refusal (ROFR), tag along or drag along rights. These transfers are intended for the parties to control the ownership structure of the Multiple LLC and their exit from the Multiple LLC. However, implementing such agreements on transfer restriction may be inconsistent with the statutory transfer restrictions provided in Article 52 of the Enterprise Law 2020. Therefore, a shareholder agreement relating to a Multiple LLC should have specific provision to resolve such inconsistencies.
The table below sets out the potential inconsistencies between agreements on ROFO, ROFR, Tag Along and Drag Along and the transfer procedures under Article 52 of the Enterprise Law 2020.
Please download the pdf version here.
In this post, we continue discussing the new changes introduced by the Real Estate Business Law 2023. Part 1 of our discussion can be found Here.
This post is written by Nguyen Hoang Duong and Nguyen Bich Ngọc, and edited by Nguyen Quang Vu.
1) New restriction when collecting deposit for purchase of off-plan real estate
Under the Real Estate Business Law 2023, real estate developers can only collect a deposit of up to 5% of sale price of the relevant real estate from purchasers when the residential houses, construction works are qualified to be put into trading. The law further requires a deposit agreement to expressly set out the sale price and area of the off-plan real estate. The off-plan real estate under the deposit agreement must satisfy conditions for sale under law. This indicates that collecting a deposit is considered putting relevant off-plan real estate into business.
The new requirements may pose significant difficulty for real estate developers with weak financial capacity when it comes to funding for pre-construction phase of their projects.
Introduction
On 18 January 2024, new Law on Credit Institutions (LCI 2024) has been passed by the National Assembly. LCI 2024 will replace the Law on Credit Institutions 2010 (as amended) (LCI 2010) from 1 July 2024. In a series of posts, we will introduce the new changes of LCI 2024.
It seems that the ongoing criminal case against the controlling shareholders of Saigon Commercial Bank (SCB) has motivated the draftsman of LCI 2024 to introduce stricter management toward credit institutions (CIs).
Stricter conditions of independent board members
LCI 2024 tightens the standards and conditions of independent members of the Board of Directors of CIs. Specifically, an independent member of the Board of Directors of a CI must not represent ownership of any share of such CI and not, together with his/her related persons, directly or indirectly own 1% or more of the charter capital of such CI.
A broader range of related persons
LCI 2024 expands the definition of related persons to also cover the relationship between (i) the “grandparent” company/CIs and the “grandchildren” company, (ii) the manager/controller of a parent company/CIs and the subsidiary, and (iii) an individual with his/her wider range of family members.
On 22 June 2023, the National Assembly passed a new Law on E-transactions, set to be effect from 1 July 2024 (LET 2023). The LET 2023 introduces significant changes regarding the use of e-signatures by individuals as outlined below:
1) Restriction on individuals’ right to create and use of their own e-signature
The LET 2023 categorizes e-signatures into three types as below, none of which encompass e-signatures self-generated by individuals:
specialized e-signatures (chữ ký điện tử chuyên dùng), which are created and used by organizations for their “own private operations” in accordance with their function and tasks;
public digital signature (chữ ký số công cộng), which are used for “public activities” and are secured by an e-certificate confirming the public digital signature issued by a qualified service provider; and
specialized digital signature for official use (chữ ký số chuyên dùng công vụ), which are digital signatures used for official activities and are secured by an e-certificate confirming the specialized digital signature for official use issued by a qualified service provider
Unlike the broader definition of e-signatures under the LET 2005, which may cover signatures self-created by individuals, this classification significantly limits individuals' ability to create and use their own e-signatures. Under the LET 2023, individuals may be required to use a public digital signature issued by a third-party service provider in normal e-transactions.
Under the Law on Bankruptcy 2014, creditors (chủ nợ) of a bankrupt enterprise include unsecured creditors, partially secured creditors (chủ nợ có bảo đảm một phần) and secured creditors (chủ nợ có bảo đảm). While it is not entirely clear, it appears that partially secured creditors are considered as a separate class of creditors and have their own rights during a bankruptcy proceeding.
Under the Law on Bankruptcy 2014,
a secured creditor is defined as a creditor having the right to require the relevant bankrupt enterprise to perform an obligation to repay a secured debt with the assets of the enterprise or a third party; and
a partially secured creditor is defined as a creditor having the right to require the relevant bankrupt enterprise to perform an obligation to repay a secured debt with the assets of the enterprise or a third party “where the value of such assets is less than that debt”.
The definition of a secured creditor does not clearly refer to “fully secured creditors” since it does not require the value of the secured assets is equal or more than the debt owed to a secured creditor. Accordingly, technically, the term “secured creditor” could cover both partially secured creditor and fully secured creditor. That said, a more in-depth reading of the Bankruptcy Law 2014 suggests that partially secured creditors are treated as a separate class of creditors. However, it is not clear whether this distinction is created by design or by chance by the draftsman of the Bankruptcy Law 2014.
From January 2021, under the Enterprise Law 2020, if a member of the board of directors (the Board) hands in his/her letter of resignation to resign as a Board member in a joint stock company (JSC), he/she may not cease to be a Board Member until approved so by the General Meeting of Shareholders (GMS) of the relevant JSC. To mitigate the potential issues arising from this provision, a JSC may consider providing that the GMS must dismiss a Board member when he/she tenders his/her resignation. In addition, the resigning Board Member should give authorisation to another appropriate person until he/she is officially dismissed.
After incorporating a joint stock company (JSC), the founding shareholders of the JSC will typically have 90 days from the issuance of the enterprise registration certificate (Capital Contribution Period) to pay for the shares they have subscribed as at the incorporation of the JSC (Subscription Shares). Under the Enterprise Law 2020, it is reasonable to consider that during the Capital Contribution Period, the founding shareholders who have not paid for the Subscription Shares in full would have all the shareholders rights including rights to transfer the Shares which have not been paid up. However, the drafting of the Enterprise Law 2020 could give rise to the position that during the Capital Contribution Period shareholder rights, the founding shareholders have only the voting right.
Introduction
As detailed in a prior post, in our opinion, representations and warranties (warranties) should constitute obligations of the person giving it under Vietnamese law. They could imply an obligation on the part of the person providing them (Warrantor) to guarantee that the stated facts and matters are true. In this post, we will try to examine the consequences of breaches of representations and warranties under Vietnamese law. As discussed further below, depending on the context, a breach of warranties might give rise to:
· liabilities for breach of warranties as independent obligations; or
· liabilities for breach of obligations to deliver conforming goods; or
· liabilities for breach of obligations to provide information to contracting parties; or
· indemnity (or reimbursement) of losses to the extent the parties have agreed for an indemnity (or reimbursement) of losses arising from a breach of warranties.
Given that “representations and warranties” are exclusively common law concepts and no specific legal framework for them is provided under Vietnamese law, it is important that Vietnamese law contracts should have provisions dealing with the above in order to achieve the intended outcome of the parties.
Based on the discussion below, probably, the preferable approach is to have specific wording in the share sale and purchase agreement that warranties form part of the description and quality of the sale shares so that, among other things, seller could be subject to the remedies applicable to breach of obligation to deliver non-conforming goods.
Please download the pdf version here.
After a quite lengthy debate and discussion, on 28 November 2023, the National Assembly officially adopted a new law on real estate business (Real Estate Business Law 2023). The Real Estate Business Law 2023 is expected to enhance the real estate business environment and resolve some long-standing legal issues. However, the new Real Estate Business Law 2023 will have to wait until 1 January 2025 to take effect. The deferred effectiveness of the Real Estate Business Law 2023 is probably intended to give the National Assembly more time to promulgate the new land law, which to some extent could be considered as the “foundation” for formulating the Real Estate Business Law 2023.