Pledge (cầm cố) of property is a transaction in which a party (the pledgor) handovers (giao) a property owned by the pledgor to the other party (the pledgee) to secure the performance of a obligation(s). The law does not clarify what action could be considered as “handover” of a property. Therefore, it is not clear whether one can use intangible asset such as the right to claim debt as a pledged asset.

On one hand, the definition of pledge suggests that the pledged assets must be tangible so that it can be handedover or delivered to the pledgee. In this regard, intangible asset cannot be pledged because it cannot be physically delivered from one party to another party.

On the other hand, other provisions of the law suggest that pledge over intangible assets could be permissible because:

·        The Enterprises Law 2014 allows a limited liability partner to pledge its contributed capital (phần vốn góp) into a partnership. When a limited liability partner contributes capital into a partnership, the assets used to contribute would be under the ownership of such partnership. The limited liability partner is only entitled to the right over the contributed capital. For this regard, the “contributed capital” in this context should be considered as a property right (quyền tài sản), which is an intangible asset; and

·        The term “handover” can be interpreted to mean that the pledger must handover all documents relating to the intangible asset. This is because mortgaging intangible asset, specifically mortgaging the right to claim debt, is allowed at law. However, under Articles 301 and 323.5 of the Civil Code 2015, it is required that in order to enforce the mortgage, the person in possession of mortgaged assets must handover the mortgaged assets to the creditors. In the context where the mortgaged assets being intangible, if interpreting that handover means physically deliver, then such mortgage cannot be enforced. Reasonably, this provision might allow the mortgagee to demand possession of documents evidencing the ownership over the pledged asset such as loan agreements, debt purchase agreements, and other documents relating to the intangible asset.

Applying these approaches on an analogy basis, pledge over other intangible assets such as the right to claim debt should be possible.

This post is written by Nguyen Thu Giang and edited by Nguyen Quang Vu.