In September 2020, the Ministry of Justice (MOJ) published a draft decree (Draft Decree) on security interests such as mortgages, or pledges in Vietnam. Once issued, the Draft Decree will replace Decree 163/2006 on the same topic. Some important changes are discussed below:

· Legal basis for the Decree - Unlike Decree 163/2006 which implements the Civil Code 2005 only, the Draft Decree is stated to implement the Land Law 2013 and the Housing Law 2014 on secured transactions.

· Parties’ autonomy - The Draft Decree appears to allow the parties to a secured transaction to agree on any issue relating to a secured transaction as long as such agreement complies with the fundamental principles of the Civil Code 2015. However, it is not clear if the parties can agree not to follow the provisions of the Draft Decree as long as such agreements comply with the fundamental principles of the Civil Code 2015.

· Flexible formality requirements – The Draft Decree expressly allows a secured transaction to exist in the form of a separate security contract, a part of another contract, power of attorney, or other unilateral undertakings unless otherwise restricted by law.

· Definitions of secured assets - The Draft Decree introduces various definitions of certain types of assets that can be used as secured assets in a secured transaction. In particular, the Draft Decree defines property rights (quyền tài sản) to include the right to claim debt, right to request for payment, interests arising from a contract, project development rights, right to sublease right to lease infrastructure in an industrial zone of which rent is paid a lump sum, or right to claim damages.

· Pledge of buildings is possible - The Draft Decree provides that assets attached to land can be pledged (cầm cố). Before the Draft Decree, Land Law 2013 only provides the right to mortgage assets attached to the land. Accordingly, a pledge of assets attached to land may be challenged on the ground that it is not provided in the Land Law 2013. The Draft Decree also allows land use right over a piece of land to be used as secured assets separately or together with the assets attached to such land.

· Stricter requirements on the description of secured assets – The Draft Decree requires the description of secured assets to satisfy various details including (1) the ownership rights of the securing party, (2) whether the secured assets is current or future assets, (3) whether the secured assets are located outside of Vietnam, (4) whether the secured assets is subject of another obligation, (5) whether the secured assets are under the management of government authority, (6) the specific characteristics of the assets if it is a specific object (vật đặc định), (7) all related parts of the assets if it is an integrated object (vật đồng bộ), (8) the contractual and legal basis of the property right, if the secured asset is property right, (9) details of the investment registration certificates, construction permits, land use right certificates of the secured assets are real estate project, and (10) location of the warehouse where the secured assets are kept

It is not clear if the parties fail to describe the secured assets per the requirements on the Draft Decree then the secured transaction could be invalidated. The current practice in describing secured assets in lending documents is to keep the description generally and broadly so that it can capture as much secured assets as possible. It is not clear if the requirements under the Draft Decree will apply to secured transactions which are entered and registered before the issuance of the Draft Decree.

· The spouse being co-securing parties – If the securing party is a married individual and cannot prove that the secured assets are his/her own property then both the individual and his/her spouse must enter into the secured transactions.

· Security interests created over an equity interest of an enterprise must comply with any requirements provided in the enterprise’s charter. This could create an obstacle for the parties since they may not be able to control changes to the charter of the relevant company.

· A security interest may have effect against third parties if the title certificate of the secured assets (instead of the physical secured assets) is handed over to the secured party.

· The Draft Decree allows the secured parties to perfect a security interest by making or attaching a public announcement or notification of the security interests to the secured assets.

This draft is written by Nguyen Hoang Duy and Nguyen Quang Vu.

Vietnam Business Law