A new resolution of the Supreme Court on borrowing interests in Vietnam

On 11 January 2019, the Supreme Court issued Resolution 1 guiding the application of several regulations on interest, interest rate and relevant penalty (Resolution 1/2019). Resolution 1/2019 will take effect from 15 March 2019. Below are some salient points of Resolution 1/2019

  • Resolution 1/2019 clearly states that the interest rate caps of the Civil Code 2005 and 2015 will not apply to credit contracts between banks and its customers. In the past, there has been long debate regarding whether the interest rate caps of the Civil Code 2005 and 2015 will apply to credit contracts.

  • If the interest rate, overdue interest on principal and overdue interest on interest are higher than the permitted cap, the exceeding interest which has been paid will be deducted from the principal of the loan.

Collective actions by bondholders in Vietnam

Collective action mechanism among bondholders is one of the common features in terms and conditions of a corporate bond.  Two important features of collective action mechanism are:

·        the use of a bond trustee to act for the benefit of bondholders; and

·        the use of bondholders’ meeting to allow a decision of a majority (or super-majority) of bondholder regarding the bond (e.g. changing the terms of the bond) to bind minority bondholders who disagree with such decision.

Arguably, if the provisions of bondholders’ meeting are included in the terms of the bond and a bondholder agrees to such term then the provisions on a civil transaction under Civil Code 2015 may allow the use of bondholders’ meeting in Vietnam. However, the validity of a decision of a bondholders’ meeting which is not approved by all bondholders is still questionable under Vietnamese law. This is because:

Determination of a contract term under Vietnamese Civil Code 2015

Commonly, a contract would contain a clause defining the effective term of such contract (thời hạn có hiệu lực của hợp đồng). In such clause, the moments the contract take effect and cease to have effect are determined, whether by a certain period or an occurrence. Nonetheless, the Civil Code 2015 does not have any provisions on the “term” of contracts. Instead, the Civil Code 2015 has separate provisions for (i) the term or time-limit, and (ii) the moment when a contract takes effect and the circumstances where a contract is terminated.

Under the Civil Code 2015, by default, the commencement of a term by reference to an event would start on the day immediately following the date of such event but not the date of the event itself. Therefore, if the term of a contract is defined to commence on the signing date, the contract would actually take effect on the day after, which might not be what the parties intended. Due to this, a contract could be effective on the signing date if (1) so provided by law or (2) the parties agreed on a different method for calculating a term.

Regarding (1), one might argue that the provisions specific to contracts under the Civil Code 2015 should be deemed as a “different regulations” of the law. According to Article 401.1 of the Civil Code 2015, the commencement of the term of the contract would be the moment such contract is executed or otherwise agreed by the parties. However, Article 401.1 of the Civil Code 2015 also provides an exemption of “otherwise provided by relevant law”, which could cause a confusion as to which provision would prevail to govern the term of a contract.

Regarding (2), as mentioned above, the parties can agree on a different method for calculating a time-limit, which could resolve the confusion in case both provisions are applied to govern a term of a contract. For example: “The term of this Agreement shall be 2 years from the signing date of this Agreement inclusive.” In this example, the parties agree that the signing date would also count towards the term of the Agreement, which arguably could be considered as an agreement on a different method for calculating the term of the Agreement.

This post is contributed by Le Thanh Nhat, a trainee at Venture North Law.

A new Circular on registration of mortgages and other secured transactions in Vietnam

On 20 June 2018, the Ministry of Justice issued Circular 8 on the registration and provision of information on security interest and contracts (Circular 8/2018). Circular 8/2018 will replace Circular 5/2011 on the same subject from 4 August 2018.

Name of the object of the registration

The object of registration under Circular 5/2011 is secured transactions (giao dịch bảo đảm), which is in line with the Civil Code 2005. However, the term “secured transaction” is almost removed from the Civil Code 2015 and the registration is now the registration of security interest (biện pháp bảo đảm). Circular 8/2018 adopts such approach and determined the object of registration is security interest to be consistent with the new Civil Code 2015.