Currently, Vietnamese laws allows a Vietnam-based enterprise to guarantee aboard if meeting some conditions.
Through this article, BLawyers Vietnam would raise some notes for Vietnam-based enterprise’ guarantee for a loan of a foreign enterprise.
- Applicable law
To determine the applicable law to the guaranteed transaction, the parties must check whether any international treaties of which Vietnam is a member, applied for such transaction. If international treaties have different regulations from Vietnamese law, such treaties are applied pursuant to laws of Vietnam.
If the parties chose a country’s law is an applicable law in advance, that law will be applied. Otherwise, the parties have no choice on the applicable law, the applicable law is the law of the country that closely associates with the transaction. However, the applicable law shall not contrast with basic principles of Vietnamese law.
- Approval of Prime Minister on allowing Vietnam-based enterprise to guarantee
By law, a Vietnam-based enterprise must obtain a written approval of the Prime Minister before guaranteeing a foreign enterprise’s loans. However, so far, there has been no official document guiding the procedures for obtaining such approval. Up to now, there has also been no public information on which Vietnam-based enterprise has obtained the Prime Minister’s approval to guarantee for foreign enterprises.
In 2020, the State Bank of Vietnam has prepared a draft decision on regulations on the order and procedures for the Prime Minister to consider and approve for economic organizations to lend abroad, guarantee for non-residents without overseas investment projects (the “Draft Decision”) but it hasn’t been approved yet.
As such, Vietnam-based enterprise should consider guaranteeing for the foreign enterprise during the Draft Decision has not been adopted. Without Prime Minister’s approval, the enterprise cannot transfer money to fulfill guaranteed obligations as well as the guarantee transaction may be invalidated.
- Obligations and scope of guarantee
Vietnam-based enterprise is responsible for fulfill the guarantee obligations according to the beneficiary’s request within the certain period upon agreed, if the foreign enterprise falling the following cases:
- Failing to perform the due payment of guaranteed obligations;
- Failing to perform the guaranteed obligation or before the deadline as agreed;
- Failing to adequately fulfill guaranteed obligations;
- Failing to correctly fulfill guaranteed obligations;
- Lacking capacity for fulfilling guaranteed obligations; or
- Other cases as agreed between parties.
Vietnam-based enterprise can undertake to guarantee for the foreign enterprise with a part or full liabilities, including interest, penalties and compensation for any damage and interest on late payment or others as agreed.
- Using security with assets for guaranteed obligation
In addition to the guarantee of the loan, the parties can agree on other security with the assets of Vietnamese enterprise or foreign enterprise (e.g., mortgages, mortgages or asset holdings) to ensure the guarantee obligations.
However, the parties must register the security with the competent authorities in the following cases:
- Mortgage of land use rights;
- Mortgage of property on land whose ownership has been stated in the certificate of rights to use land, ownership of house and property on land;
- Pledge or mortgage of aircrafts; or
- Mortgage of seagoing ships.
- Recovery of the guarantee debts from the foreign enterprise
After fulfilling the guaranteed obligation, the Vietnam-based enterprise has right to request the guaranteed foreign enterprise to repay the fulfilled guarantee. This procedure is named “recovery of guarantee debts” and will be proceeded via a guaranteeing account.
Writer: Thu Tran
For further information, please contact:
Minh Ngo Nhat, Managing Partner, BLawyers
minh.ngo@blawyersvn.com
