By Ngo Thanh Tung, Pham Si Hai Quynh and Nguyen Duy Linh
July 2014

Joint Circular No. 16/2014/TTLT-BTP-BTNMT-NHNN of the Ministry of Justice, Ministry of Natural Resource and Environment and the State Bank of Vietnam (Circular 16) provides guidance on issues relating to the disposal of security assets.

Circular 16 takes effect from 22 July 2014 and supplements existing regulations providing specific guidelines on measures lenders can take when disposing various types of security assets. The circular also provides procedural guidelines on the transfer of ownership or [land] use rights for disposed security assets.

The introduction of Circular 16 is aimed at assisting lenders in their handling of non-performing loans and settlement of disputes between banks and customers where the customers refuse to cooperate in the disposal and handling of security assets.

The mortgagees (lenders) are generally permitted to forcibly seize security assets where the mortgagor (borrower) is uncooperative, receive assets as a substitute for secured obligations, or initiate civil procedures to protect their legitimate rights and interests over the security assets. Where the disposed security assets are inadequate in value to cover the secured obligations, the mortgagee can off-set from the secured obligations the sum realized from the disposal of the assets.

It should be noted that Circular 16 does not regulate the disposal of security assets for the enforcement of civil judgments.

We briefly outline below certain important measures and guidelines of Circular 16.

Disposal of mortgaged assets which are sold or replaced by the mortgagor

The mortgagee (lender) has the right to request the user or new owner of mortgaged assets (such as goods circulated in manufacturing/business process) to return such assets provided there is a registration of the assets with the National Registration Agency of Secured Transaction (“NRAST”).

Where the user or new owner of the mortgaged asset refuses to return it, the mortgagee can proceed to seize the asset. If the asset is damaged or decreased in value, the mortgagee can request the mortgagor to repair the asset or replace it accordingly.

The mortgagee also has the option to request the mortgagor or new owner to transfer the payment from the sale of the mortgaged asset.

In the event the security assets are seized by a third party on the ground of a bilateral contract with the mortgagor, Circular 16 allows the mortgagee to take the necessary steps to arrange for the return of the assets from the holder. The mortgagee can subsequently request the mortgagor to repay all costs incurred by the mortgagee in taking such steps.

Disposal of registered mortgaged land use right or real estate on land reclaimed by the State

Subject to agreement by the parties, the mortgagee of a registered mortgaged land use right or real estate on land reclaimed by the State, will be able to receive any State compensation due to the mortgagor which relates to the land mortgaged.

The mortgagee will need to file an application with the authorities and the mortgagor will be notified by the agency responsible about the impending transfer of the compensation to the mortgagee. Where the mortgagor disagrees with such transfer, the compensation will be held by the agency pending a valid decision on dispute settlement.

Disposal of mortgaged right over a debt

For a mortgagee to be in a position to collect a debt which has been mortgaged, the mortgagee must first notify the debtor accordingly and request payment for such debt. Where the debtor fails to arrange for payment, the mortgagee may be able to:

  • Seize security assets which relate to the debt;
  • Demand payment of the debt and accrued interest;

  • Demand from the mortgagor to cover any shortfall between the debt repayment and secured obligation.

Disposal of future assets

Where the mortgaged assets are assets formed in the future such as residential houses (including social housing) and have not yet been transferred to the mortgagor, Circular 16 sets out the procedure whereby the mortgagee will be entitled to receive such assets or transfer them to third parties. The registration of formed assets can be arranged with the mortgagor’s authorization.

Determination of sale price of secured assets

Circular 16 provides a mechanism for determining the sale price of secured assets which are to be sold or transferred to cover the mortgagor’s obligations.

The mortgagee and mortgagor can always reach an agreement as to the sale price of the asset but where the mortgagor does not cooperate, the mortgagee can appoint a valuator to determine the sale price.

Where the assets cannot be sold at the sale price determined by the valuator the mortgagee can decrease the price up to 30% (within 3 months) without the mortgagor’s consent. If the assets cannot be sold despite the discounted sale price, the mortgagee can proceed to receive the secured asset as a substitute to the mortgagor’s secured obligations at the discounted sale price unless otherwise agreed.

Procedures for transferring ownership or use rights of disposed security assets

Circular 16 reiterates that the procedures for transferring ownership or [land] use rights of disposed security assets should be carried out in accordance with the laws and regulations covering such assets.

However, where the mortgagor refuses to sign documents or take steps required for such transfer including registration documents, the mortgagee will be able to sign such documents and/or conduct the necessary procedures to effect the ownership transfer.