For a project financing or limited recourse financing in Vietnam, a mortgage over shares (or equity capital) of the project company usually forms part of the security package due to the ease of creating and perfecting a mortgage over shares. That said, when an enforcement event occurs and if the borrower or the project company does not cooperate, the lenders (usually foreign lenders), who wish to immediately taking over the mortgaged shares, may find it difficult to actually enforce the mortgage due to the need to complete various licensing procedures for the sale or transfer of the mortgaged shares.

Thanks to the flexibility offered by the Enterprises Law 2014 and the Investment Law 2014, lenders may now consider taking some extra measures to increase their ability to enforce the mortgaged over shares of a project company in Vietnam. In particular,

· Foreign lenders could require the project company to obtain so called “M&A Approval” under Article 26 of the Investment Law 2014 in favour of the foreign lender in advance. Unlike the Investment Registration Certificate, a foreign investor granted with an M&A Approval is not required to actually to follow through with the investment. In addition. the procedures to obtain the M&A Approval do not require submission of the share transfer agreement to the authority.

· Lenders could require the project company to appoint a representative of lenders as one of legal representatives of the project company and to make another corporate seal and hand-over such corporate seal to lenders. This is because the Enterprise Law 2014 now allows a company to have more than one legal representatives and corporate seals. By controlling the legal representative and the seal of the project company, the lenders can directly apply to the relevant authorities to complete required licensing procedures should the project company or borrower fails to do so. The charter of the project company could provide that the rights of the lenders’ legal representative only arise when an enforcement event occurs.

· Lenders could request the company to hand-over the shareholder registration book to the legal representative appointed by the lenders or a third party (e.g. a securities company) to manage the shareholder registration book. When the lenders enforce the mortgage, the lenders’ representative can update the shareholder register to record details of either a new buyer or the lenders as a new shareholder using the second corporate seal.

This post is contributed by Le Minh Thuy, a trainee lawyer at Venture North Law.

Vietnam Business Law