The recent credit crunch and anti-corruption campaigns in Vietnam have made many bond issuers in Vietnam fail to repay their outstanding bonds. According to a recent report, around 67 bond issuers are in default and the outstanding amount is around US$ 3.7 billion. Bond issuers, who wish to recover the principal and coupons and to enforce their rights, could face significant legal issues. In this post, we will discuss some of these issues:

· Lack of documents and information: It may be difficult for a bondholder to have access to all the transaction documents of a bond including (1) detailed bond terms and conditions, (2) agreements between issuers and other service providers such as bondholders’ representative, security agent, or registration agents, and (3) security agreements. This is because under the law, a bond issuer is not required to make public all these documents. Only a summary of key terms and conditions of the bonds is required to be published. And only for bonds issued after 1 January 2021, a bond holder is granted the right to request for documents and information relating to the bonds. In addition, in practice, many individual investors did not pay attention in collecting these documents when purchasing the relevant bonds.

· Uncooperative agents: In a standard bond transaction, the bond issuer will usually engage various service providers to act as representatives for the bondholders (e.g., bondholders’ representative, security agents, or registration agents). Since these representatives are appointed and paid by the bond issuer, in practice, they may be reluctant to take actions against the bond issuers for the benefit of the bond holders if the bond issuers are in default.

· Unclear rights to take enforcement action directly against the bond issuer: A bond holder could find it difficult to take enforcement action directly against the bond issuer since the bond issuers have already appointed various agents to “represent” the bond holders. At law, it is not clear if those agents are legal representatives or authorized representatives of the bond holders. If they are legal representative then the bond holder may not have the right to take actions directly against the bond issuer. Even if bond holders could establish a direct enforcement right, in practice, they still faces many difficulties. For example, the security registration is usually made in the name of the relevant security agent who may also keep the secured assets (or documents).

· Potential invalidity of the transaction documents: When issuing a bond, the bond issuer must comply with various requirements (e.g., the bond must be issued to “professional investors” only). If the bond issuer fails to comply with such requirement, the validity of the bond issuance could be subject to challenged. If a bond is considered invalid then the bond holder may not be able to claim the interests accrued over such bond. Instead, the bond holder may need to claim for damages caused by the bond issuer which will require the bond holder to prove that the bold issuer (or the relevant agents) is at fault in causing the bond invalid.

This post is written by Nguyen Quang Vu.

Vietnam Business Law