Decree No. 165/1999/ND-CP on Secured Transactions

DECREE

Decree No. 165/1999/NĐ-CP dated November 19, 1999 of the Government

on secured transactions

_____________

GOVERNMENT

Pursuant to the Government Organization Law dated September 30, 1992;

||| Based on the Civil Code dated October 28, 1995;

At the proposal of the Minister of Justice.

DECREE:

PART I

GENERAL PROVISIONS

Article 1. Scope of Application

1. This Decree stipulates the conclusion and performance of pledge, mortgage, and guarantee contracts with assets to secure the fulfillment of civil obligations and the disposal of pledged and mortgaged assets.

2. In cases where there are no other provisions in the law, this Decree shall also apply to the pledging, mortgaging, and guaranteeing of assets to secure the fulfillment of obligations in economic and commercial transactions.

3. The conclusion and performance of mortgage contracts for land use rights and the disposal of mortgaged land use rights shall be carried out in accordance with the provisions of the law on land; in cases where the law on land does not provide for such matters, the provisions of this Decree shall apply.

4. This Decree shall also apply to the pledging, mortgaging, and guaranteeing of assets to secure the fulfillment of obligations in civil, economic, and commercial transactions involving foreign elements, except where international treaties to which the Socialist Republic of Vietnam is a party have different provisions or where the law provides otherwise.

Article 2. Definitions

2. Self-generated and self-consumed electricity is electricity produced and consumed by an organization or individual to serve their own needs.

1. "Secured transaction" means a pledge, mortgage, or guarantee contract with assets whereby the guarantor commits to using assets to secure the fulfillment of civil obligations.

2. "Guarantor" means the pledgor, mortgagor, or asset guarantor.

3. "Recipient of security" means the pledgee, mortgagee, or asset guarantor recipient.

4. "Obligation secured" means the obligation whose fulfillment is secured by pledge, mortgage, or asset guarantee.

5. "Future obligation" means an obligation arising after the secured transaction has been concluded.

6. "Security asset" means the asset of the guarantor used for pledge, mortgage, or guarantee to secure the fulfillment of obligations for the recipient of security.

7. "Future-formed asset" means movable or immovable property formed after the date of conclusion of the secured transaction and will belong to the guarantor as income, interest, property formed from borrowed capital, ongoing construction projects, or other assets that the guarantor has the right to receive.

8. "Goods circulating in the production and business process" includes machinery, equipment, raw materials, materials, fuel, consumer goods, other movable properties, or immovable properties used for exchange, sale, and linked to the production and business functions of the guarantor.

Article 3. Principles for concluding and performing secured transactions

1. The parties have the right to agree on the conclusion and performance of pledge, mortgage, and guarantee contracts with assets and the disposal of security assets, but must not contravene the law or social morals.

2. The lawful rights and interests of the parties in secured transactions are respected and protected by the law.

Article 4. Scope of Guarantee

1. The parties may agree on the pledging, mortgaging, or guaranteeing of assets to secure the fulfillment of current or future obligations.

2. The obligation secured may be partial or full according to the agreement of the parties or as provided by law. Where the parties do not agree otherwise and the law does not provide otherwise, the obligation secured shall be full, including the obligation to pay interest and compensate for damages.

3. An obligation may be secured by one or more assets, including future-formed assets, using one or more security measures.

Article 5. Conditions for collateral assets

Collateral assets must meet the following conditions:

1. Belong to the owner of the collateral.

For land use rights mortgaged to secure obligations under laws on land.

State-owned enterprises may pledge, mortgage, or guarantee state-owned assets entrusted to them for management and use to secure obligations in accordance with laws on state-owned enterprises and other relevant legal documents.

2. Permitted for transactions and not subject to disputes.

3. The owner of the collateral must insure the asset if required by law.

Article 6. Collateral assets securing multiple obligations

1. A collateral asset can be used to secure multiple obligations in the following cases:

a) Assets that have been registered for ownership; land use rights where the user has been issued a certificate of land use rights according to the law;

b) Assets that, according to the law, do not require registration of ownership but the collateral transaction involving such assets must be registered with the competent authority for collateral transactions.

2. In the cases specified in Clause 1 of this Article, the value of the collateral asset must exceed the total value of the secured obligations, except where otherwise provided by law or agreed upon by the parties.

Article 7. Collateral

Collateral includes:

1. Machinery, equipment, raw materials, fuel, materials, consumer goods, precious metals, gemstones;

2. Vietnamese currency, foreign currencies;

3. Bonds, stocks, promissory notes, bills of exchange, deposit certificates, drafts, and other negotiable instruments valued in money;

4. Property rights arising from copyright, industrial property rights; claims for debt repayment, entitlements to insurance payments, and other property rights arising from contracts or other legal grounds;

5. Rights over capital contributions in enterprises, including in foreign-invested enterprises;

6. Rights to exploit natural resources as prescribed by law;

7. Ships as prescribed by the Maritime Code of Vietnam, aircraft as prescribed by the Civil Aviation Law of Vietnam when pledged;

8. Income, rights arising from pledged assets;

9. Other assets as prescribed by law.

Article 8. Mortgaged assets

Mortgaged assets include:

1. Residential buildings, construction works attached to land, including assets attached to such residential buildings and construction works, and other assets attached to land;

2. Land use rights that can be mortgaged according to laws on land;

3. Proceeds, income, insurance amounts, and other rights arising from mortgaged immovable property, if agreed upon by the parties or prescribed by law;

4. In the case of mortgaging all immovable property with attachments, the attachments also constitute mortgaged assets. In the case of mortgaging part of immovable property with attachments, the attachments only constitute mortgaged assets if agreed upon by the parties;

5. Ships as prescribed by the Maritime Code of Vietnam, aircraft as prescribed by the Civil Aviation Law of Vietnam when mortgaged;

6. Other assets as prescribed by law.

Article 9. Guaranteed assets

The guarantor and the beneficiary of the guarantee may agree to secure the performance of the guarantee obligation with assets as prescribed in Articles 7 and 8 of this Decree.

Chapter II

ESTABLISHING AND IMPLEMENTING LOAN PLEDGE CONTRACTS, MORTGAGE CONTRACTS, AND GUARANTEE CONTRACTS WITH ASSETS

FORM OF LOAN PLEDGE CONTRACTS, MORTGAGE CONTRACTS, AND GUARANTEE CONTRACTS WITH ASSETS

Article 10. Form of loan pledge, mortgage, and guarantee contracts with assets

1. Loan pledge, mortgage, and guarantee contracts with assets must be in writing; they may be separate documents or included in the main contract.

2. Loan pledge, mortgage, and guarantee contracts with assets may be certified by a Notary Public or authenticated by a competent People's Committee, if agreed upon by the parties; in cases where certification or authentication is required by law, the parties must comply.

Article 11. Main contents of loan pledge and mortgage contracts

1. Loan pledge and mortgage contracts contain the following main contents:

a) Obligations secured;

b) Description of the pledged or mortgaged assets;

c) Value of the pledged or mortgaged assets, if agreed upon by the parties or prescribed by law;

d) Custodian of the pledged or mortgaged assets;

đ) Rights and obligations of the parties;

e) Circumstances and methods for handling the pledged or mortgaged assets;

g) Other agreements.

2. In the case of pledging or mortgaging future-formed assets, when the pledgor or mortgagor acquires ownership of such assets, the parties may agree to establish an annex to the contract describing the assets and their value, if agreed upon or prescribed by law.

Article 12. Main contents of guarantee contracts with assets

1. Guarantee contracts with assets contain the following main contents:

a) The guarantor's commitment to perform the obligations on behalf of the guaranteed party;

b) Guaranteed obligations, scope of guarantee, and the guaranteed party;

c) Guaranteed assets; value of the guaranteed assets, if agreed upon by the parties or prescribed by law;

d) Rights and obligations of the guarantor, the beneficiary of the guarantee, and the guaranteed party;

đ) Circumstances and methods for handling the guaranteed assets;

e) Other agreements.

2. In the case of guaranteeing future-formed assets, when the guarantor acquires ownership of such assets, the parties may agree to establish an annex to the contract describing the assets and their value, if agreed upon or prescribed by law.

Article 13. Registration of security transactions

1. The parties may agree that the guarantor or the beneficiary of the guarantee shall register the security transaction.

2. Registration of security transactions shall be carried out in accordance with the provisions of the Decree on registration of security transactions.

Article 14. Pledging, mortgaging, or guaranteeing one collateral asset for multiple obligations

1. In the case where the parties agree to use one collateral asset to secure multiple obligations as prescribed in Article 6 of this Decree, the guarantor must inform the subsequent beneficiary of the previous guarantees; otherwise, compensation must be made if damage occurs to the damaged party.

2. Each time a collateral asset is pledged, mortgaged, or guaranteed for multiple obligations, it must be documented in writing and registered with the competent authority for security transactions.

3. The priority order for payment among parties secured by the same specified asset shall be determined according to the registration order of the security transaction.

In case the parties receiving security agree to change the priority order of payment, such change must be registered with the competent authority for security transaction registration.

Article 15. Cases where the pledgor retains the pledged property

The parties may agree that the pledgor retains the pledged property in the following cases:

1. The pledged property has been registered for ownership rights.

2. The pledged property does not require registration for ownership rights, but the pledge of such property must be registered with the competent authority for security transaction registration.

Article 16. Effectiveness of the security transaction

1. The security transaction becomes effective from the moment the last party signs the document. In case the security transaction must be registered with the competent authority for security transaction registration, it becomes effective from the registration date.

2. The invalidity of the security transaction does not affect the effectiveness of the obligation secured thereby, except in cases where the security transaction is a condition for the effectiveness of the secured obligation.

Article 17. Rights and obligations of the guarantor when retaining the secured property

1. The guarantor who retains the secured property has the following rights:

a) To exploit and use the secured property, and enjoy profits and income from the secured property, except where otherwise agreed.

b) For movable goods circulating in the production and business process, the guarantor may sell such goods provided that they notify the secured party and have the right to demand payment, with the proceeds or assets obtained from using the proceeds being substitute secured properties for the circulating goods sold.

2. The guarantor who retains the secured property has the following obligations:

a) To preserve and maintain the secured property.

b) Not to exploit the utility of the secured property if doing so poses a risk of damage to the property.

c) Not to sell the secured property except as provided in point b, Clause 1 of this Article and Article 358 of the Civil Code.

Article 18. Rights and obligations of the secured party when the guarantor or a third party retains the property

1. When the guarantor or a third party retains the secured property, the secured party has the following rights:

a) To examine and inspect the secured property directly.

b) To request the holder of the secured property to provide information on the current status of the property.

c) To request the holder of the secured property to apply necessary measures as agreed upon to preserve the value of the property in case the secured property is at risk of damage due to exploitation or use.

d) To request the holder of the secured property to transfer the property to themselves for disposal, except where otherwise agreed or provided by law.

2. The secured party has the obligation to return the documents concerning the secured property to the guarantor if the secured party holds such documents.

Article 19. Rights and obligations of the parties in a security transaction with future assets

The secured party has the right to supervise and inspect during the formation of the secured property. Once the secured property is formed and belongs to the guarantor, the parties have rights and obligations as stipulated in the Civil Code regarding pledge, mortgage, guarantee, and this Decree.

Article 20. Liability of the holder of the secured property in case of loss or damage to the secured property

In case the secured property is lost or damaged, it shall be handled as follows:

1. If the guarantor retains the property, they must immediately notify the secured party; supplement or replace the secured property or supplement or replace the security measure; otherwise, the secured party has the right to request the guarantor to fulfill their obligation ahead of schedule, unless otherwise agreed.

2. If the secured party retains the property, they must immediately notify the guarantor and compensate for losses to the guarantor or agree with the guarantor on offsetting mutual obligations. The parties may also agree on supplementing or replacing the secured property or supplementing or replacing the security measure.

3. If a third party retains the property, they must immediately notify the guarantor and the secured party and compensate for losses to the guarantor. The compensation amount is used to offset mutual obligations between the guarantor and the secured party, unless otherwise agreed. The guarantor and the secured party may also agree on supplementing or replacing the secured property or supplementing or replacing the security measure.

4. In case the secured property is insured, the secured party has the right to request the guarantor to cooperate in carrying out necessary procedures to receive insurance money from the insurance organization. The amount paid by the insurance organization is used to settle the obligation to the secured party. The parties may agree on supplementing or replacing the secured property or supplementing or replacing the security measure.

Article 21. Security transaction in case the guarantor is a reorganized enterprise

In case the guarantor is an enterprise that has been divided, split, merged, consolidated, or converted, the security transaction terminates, unless the secured party and the newly organized enterprises have agreed otherwise or there is a different provision in law.

Chapter III

DISPOSAL OF COLLATERAL

Article 22. Cases of handling the secured property

The secured property shall be handled in the following cases:

1. Upon reaching the due date for performance of the obligation, the guarantor fails to perform or performs incorrectly.

2. The guarantor breaches their obligation leading to the need to perform the obligation ahead of schedule, but still fails to perform or performs incorrectly.

3. The law provides that the secured property must be handled for the guarantor to fulfill another obligation that has reached its due date.

4. The guarantor is an enterprise declared bankrupt or dissolved by a competent state agency's decision.

5. Other cases agreed upon by the parties or provided by law.

Article 23. Principles for handling the secured property

Handling the secured property must comply with the following principles:

1. The secured party has the right to directly or authorize a third party to handle the property in the cases stipulated in Article 22 of this Decree, except where the parties have agreed that the guarantor will carry out the handling.

2. The collateral assets shall be disposed of according to the method agreed upon by the parties, except where otherwise provided by law; in cases where there is no agreement and the law does not provide otherwise, the party receiving the collateral has the right to request the auction of the collateral assets.

3. The competent state agency shall be responsible for implementing necessary measures to dispose of the collateral assets in accordance with the provisions of the law.

Article 24. Method of Disposing of Collateral Assets

Collateral assets shall be disposed of according to the following methods:

1. Selling the collateral assets;

2. The party receiving the collateral may accept the collateral assets directly in lieu of fulfilling the secured obligation;

3. The party receiving the collateral may directly receive payments or assets that a third party must transfer to the party providing the collateral.

Article 25. Time of Disposal of Collateral Assets

The party receiving the collateral has the right to decide the time of disposing of the collateral assets, but not earlier than seven days for pledged assets and fifteen days for mortgaged assets from the date of registering the notice requesting disposal, except in cases provided for in Clause 2, Article 30 of this Decree.

The time of disposing of collateral assets cannot be earlier than the time when the party providing the collateral must fulfill its obligations, except where the parties have agreed otherwise or where the law provides otherwise.

Article 26. Notice of Disposal of Collateral Assets

1. Before proceeding with the disposal of collateral assets, the party receiving the collateral must notify the party providing the collateral in writing about the disposal of the collateral and register the notice requesting disposal of the collateral at the registration authority for security transactions.

2. In cases where a single asset is used to secure multiple obligations, the registration authority for security transactions that has registered the request for disposal of the collateral must notify in writing about the disposal of the collateral to all parties receiving the collateral.

3. The notice of disposal of collateral assets shall include the following main contents:

a) Reason for disposing of the collateral;

b) Collateral assets to be disposed of;

c) Method of disposal;

d) Secured obligation;

đ) Time of disposing of the collateral assets.

Article 27. Rights of the Party Receiving the Collateral over the Collateral Assets after Registering the Notice Requesting Disposal

After registering the notice requesting disposal of the collateral, the party receiving the collateral has the right to implement or request the party providing the collateral to implement necessary measures in accordance with the law to protect the collateral assets.

Article 28. Obligations of the Party Providing the Collateral

From the moment of receiving the notice of disposal of the collateral assets, the party providing the collateral may not destroy or dissipate the collateral assets; may not sell the collateral assets, except with the consent of the party receiving the collateral.

Article 29. Delivering the Collateral Assets to the Party Receiving the Collateral When the Party Receiving the Collateral Does Not Hold the Collateral

1. From the moment of receiving the notice of disposal of the collateral assets, the party providing the collateral or the third party holding the collateral assets must deliver the collateral assets and related documents to the party receiving the collateral, except where the parties have agreed otherwise.

2. The delivery of the collateral shall be carried out within the deadline and location specified by the party receiving the collateral in the notice of disposal of the collateral, except where the parties have agreed otherwise.

3. In cases where the party providing the collateral or the third party holding the collateral assets does not deliver the collateral, the party receiving the collateral has the right to request the competent state agency to apply necessary supportive measures to compel the delivery of such collateral.

4. From the time of receipt until the disposal of the collateral assets, the party receiving the collateral must take measures to maintain and preserve the collateral assets.

Article 30. Selling the Collateral Assets

1. The collateral assets shall be sold at the time specified in the notice of disposal. The collateral assets may be sold directly to the buyer or auctioned by the parties.

2. In cases where the collateral assets are at risk of damage, immediately after notifying the disposal of the collateral assets, the party receiving the collateral has the right to sell those assets.

3. In cases where the buyer or transferee of the collateral assets must meet certain conditions as prescribed by law, the sale or transfer of the collateral assets must comply with those provisions.

Article 31. Disposal of Collateral Assets is a Right to Demand Payment, a Right to Request Settlement

1. After the deadline specified in the notice of disposal of the collateral assets, which is the right to demand payment, the right to request settlement, the party receiving the collateral has the right to request a third party who is obligated to pay the debt or settle on behalf of the party providing the collateral to pay the amount due according to the agreement.

2. In cases where the third party delays payment to the party receiving the collateral, the party receiving the collateral has the right to request interest on the delayed payment at the overdue interest rate set by the State Bank corresponding to the delay period at the time of settlement.

Article 32. Disposal of Mortgaged Land Use Rights

Mortgaged land use rights shall be disposed of according to the method agreed upon by the parties; in cases where there is no agreement, the party receiving the mortgage has the right to request the auction to settle the obligation.

Article 33. Disposal of Collateral Assets by Accepting the Collateral Assets Directly

1. In cases where the parties agree to dispose of the collateral assets by the party receiving the collateral accepting the collateral assets directly in lieu of fulfilling the obligation, the party providing the collateral must deliver the asset and related documents to the party receiving the collateral.

2. In cases where the value of the collateral assets exceeds the value of the secured obligation, the party receiving the collateral must pay the excess value to the party providing the collateral; if the value is less, the party receiving the collateral has the right to request the party providing the collateral to pay the shortfall, except where there is another agreement.

Article 34. Disposal of Collateral Assets Securing Multiple Obligations

In cases where it is necessary to dispose of collateral assets to fulfill a due obligation, other obligations that are not yet due shall also be considered due and all parties receiving the collateral shall participate in the disposal. The party receiving the collateral that has registered the notice requesting disposal of the collateral is the person responsible for disposing of the collateral, unless the parties receiving the collateral have agreed otherwise.

Article 35Disposal of Guarantee Collateral

1. In cases where the guarantee contract does not specifically identify the guarantee collateral, the parties must agree on the type of asset to be disposed of.

2. In cases of selling guarantee collateral, the party receiving the guarantee has the priority to be paid from the proceeds obtained.

Article 36. Exploitation and Use of Collateral Assets

In the case where the collateral property has not been disposed of to fulfill the obligation, the secured party may exploit and use the collateral property. The proceeds from the exploitation and use of the collateral property shall be used to settle the obligation, after deducting reasonable and necessary expenses for such exploitation and use.

Article 37. Payment of proceeds from the sale of collateral property

1. The proceeds from the sale of the collateral property shall be managed by the secured party, except where the parties have agreed otherwise.

2. The proceeds from the sale of the collateral property shall be paid in the following order:

a) After deducting the costs of preserving, selling the collateral property and other necessary expenses related to the disposal of the collateral property, the remaining amount shall be used to settle the obligation for the secured party; if the secured obligation is a loan debt, then it shall be settled for the secured party in the order of principal, interest, penalty, and compensation for damages (if any); if there is surplus money after the sale, it must be returned to the guarantor; if there is a shortage, the guarantor must pay the remaining amount;

b) In the case where one asset is used to secure multiple obligations, the proceeds from the sale shall be paid according to the order of registration of the security transaction.

Article 38. Transfer of ownership of assets, land use rights

1. The buyer of the collateral property, the person receiving the collateral property in lieu of fulfilling the guarantor's obligation towards themselves, has the right to own the property.

2. In cases where the ownership or use rights of the property must be registered in accordance with the law, the competent state agency shall be responsible for registering the ownership or use rights for the buyer or the person receiving the collateral property within seven days for movable property; fifteen days for immovable property, from the date of receipt of complete and valid documents, except where the law provides otherwise.

3. The person receiving the transferred land use right has the rights and obligations of the transferor and shall be issued a certificate of land use right.

Article 39Right to request arbitration or court resolution

In cases of disputes related to the disposal of collateral property, the parties have the right to request arbitration or court resolution.

During the period when the arbitration or court is handling the resolution, the parties must take measures to protect the property, and are not allowed to sell, exchange, give away, or transfer the collateral property in any form, except where there is a decision from the arbitration or court.

Article 40Cancellation of registration at the security transaction registration authority

After disposing of the collateral property, if the security transaction has been registered at the security transaction registration authority, the secured party must request cancellation of the registration in accordance with the provisions of the Decree on security transaction registration.

Chapter IV

IMPLEMENTING PROVISIONS

Article 41. Effectiveness of the Decree

1. This Decree takes effect fifteen days after its issuance; the following documents and regulations cease to be effective:

a) Article 2 of Decree No. 17-HĐBT dated January 16, 1990 of the Council of Ministers detailing the implementation of the Economic Contract Ordinance;

b) Other provisions on pledge, mortgage, and guarantee that contradict the provisions of this Decree.

2. Security transactions concluded before the effective date of this Decree shall continue to be implemented according to the terms agreed upon by the parties which comply with the law at the time of conclusion. The parties may agree to amend and supplement security transactions concluded before the effective date of this Decree in accordance with the provisions of this Decree.

Article 42. Implementation guidance

1. The Ministry of Justice, the State Bank of Vietnam, Ministries, ministerial-level agencies, and government agencies within their respective functions, tasks, and authorities shall be responsible for guiding the implementation of this Decree.

2. Ministers, Heads of Ministries equivalent to Ministries, Heads of Government Agencies, Chairmen of provincial People's Committees are responsible for enforcing this Decree.