On 26 August 2020, the Vietnam Securities Depository (VSD) issued Decision 154/QD-VSD (Decision 154/2020) to allow a lender who has taken a mortgage over shares or other securities registered with the VSD (Public Securities) to request the VSD to transfer the mortgaged or pledged Public Securities to a third party designated by the lender, if the mortgage or pledge agreement allows the lender to do so.

Previously, the VSD only transfers the Public Securities to the lenders when the lenders take actions to enforce a mortgage or pledge over Public Securities. Accordingly, the old regulations could cause problems for lenders who are subject to restrictions in directly holding the relevant Public Securities (e.g., ownership limit or other investment conditions).

However. the new amendments still fail to address the following issues:

Decision 154 still fails to address the failure to clearly cover the case where the securing party is not the principal obligor. The application submitted to VSD still requires the evidence of the failure of securing party to fulfil the obligation under the security agreement. If the securing party is not the principal obligor, the enforcement of a mortgage can be triggered by action of the principal obligor not action of the securing party. On the other hand, if the securing party already agrees to the enforcement of the relevant mortgage or pledge over the Public Shares, the requirement for the evidence of the failure of securing party to fulfil the obligation under the security agreement seems redundant.
The VSD still does not clearly allow a lender who is not a credit institution, a member of VSD or an organization who has a custodian account with VSD to “block” the trading of Public Securities which are subject to mortgage or pledge with the relevant lender.

This post is written by Nguyen Hoang Duy and edited by Nguyen Quang Vu.

Vietnam Business Law