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May 14, 2021

Vietnam’s Decree 21 Updates Regulations on Security for Performance of Obligations

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On May 15, 2021, Decree No. 21/2021/ND-CP of the Government of Vietnam dated March 19, 2021, guiding the implementation of the Civil Code of 2015 on security for performance of obligations (Decree 21) will come into effect and replace Decree No. 163/2006/ND-CP of the Government dated December 29, 2006, on security transactions, as amended by Decree No. 11/2012/ND-CP (together, “Decree 163”).

One of the most significant changes of Decree 21 in comparison to Decree 163 is the new system of terminology in relation to security for performance of obligations. In particular, the new decree provides new definitions for existing terms such as “guarantor” and “guarantee” and sets out the definitions of newly added terms such as “secured obligator,” “security contract,” and “reasonable duration.” This change reflects the intention of the legislators to unify the relevant terminology in accordance with the Civil Code of 2015.

Article 4 of Decree 21 lists out principles for the application of laws and the parties’ agreements on security for performance of obligations. Accordingly, in cases where the laws on specialized areas such as land, housing, insurance, banking, aviation, or intellectual property have provisions on security assets, establishment and implementation of means of security, or enforcement of security assets, the provisions of the specialized laws will prevail. Moreover, if the parties have agreements that are different from provisions in Decree 21 but do not violate (i) fundamental principles of civil law or (ii) conditions for a civil transaction to be valid or (iii) limitations on the exercise of civil rights in accordance with the Civil Code or other relevant laws, such agreements may be enforced.

Decree 21 devotes an entire chapter to regulations on security assets (collateral) which includes definitions and descriptions of security assets and detailed provisions on 10 types of security assets including land use rights and assets attached to land, objects, valuable papers, etc. Notably, Decree 21 no longer provides that a security asset may not be attached by the courts or authorities to perform the guarantor’s other obligations if the security transaction is valid and effective against third parties and the laws do not regulate otherwise, as provided under Decree 163. This change makes the new decree consistent with the existing regulations on enforcement of civil judgments which state that mortgaged or pledged assets may still be attached for the purpose of enforcement of civil judgments, provided that the applicable conditions are satisfied.

The new decree provides detailed regulations on the establishment and implementation of means of security and enforcement of security assets. Accordingly, a means of security may be established based on the agreement of the parties via a security contract or a lien. For enforcement of security assets, Decree 21 goes into detail on the enforcement of future assets or invested mortgaged assets for the first time.

Decree 163 will still be applicable to security agreements or security interests which were established and implemented prior to May 15, 2021. The parties to such security agreements or security interests which have not been implemented or have been implemented but contain provisions different from provisions under Decree 21 may, but are not required to, agree to amend the existing security agreements or security interests to comply with the new decree.

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