Vietnam: What is the risk treatment measure of debt sale?

“Debt sale” means the Fund's transfer of a part or all of the rights to collect debt and other rights associated with an SME’s debt to a debt buyer and receipt of payment from the debt buyer. Specifically, eligible borrowers, requirements, application and debt sale methods are specified in Article 10 of the Circular No. 14/2020/TT-BKHĐT as follows:

- Eligible borrowers are SMEs facing risks in the following cases:

+ SMEs suffer financial and/or property damage due to disasters, calamities, crop failure, epidemics, fire, war events or national state of emergency.

+ SMEs incur risks due to objective factors which directly affect their business operations resulting in their inability or failure to repay debts (principal and/or interest) under signed contracts. 

+ SMEs have bad debts according to results of debt classification as prescribed in Clause 1 Article 37 of Decree No. 39/2019/ND-CP and fall into neither the case in Clause 1 nor the case in Clause 2 Article 10 of the Circular No. 14/2020/TT-BKHĐT.

- Eligibility requirements: An SME:

+ has used borrowed funds for the purposes specified in the Contract.

+ faces difficulties during business resulting in its loss or accumulated losses incurred within at least 01 year preceding the year of risk treatment and its failure to repay debt (principal and/or interest) in full and on schedule as agreed upon in the signed contract.

+ has submitted an adequate application as prescribed in Clause 3 Article 10 of the Circular No. 14/2020/TT-BKHĐT.

- Application for debt sale:

+ In case of debt sale requested by the SME: The SME shall prepare an application as prescribed in Clause 3 Article 7 the Circular No. 14/2020/TT-BKHĐT. If an SME has a request for selling of total book value of debt, commitments, and information about feasibility of the business plan and the debt repayment plan must not be specified in the application for risk treatment.

+ In case of debt sale requested by the Fund: The Fund shall prepare an application for debt sale, consisting of:

• The written proposal for risk treatment made by the Fund, indicating the followings: causes of the risk resulting in the SME’s failure to repay debt under the signed contract, the outstanding principal and interest payable. Any adopted risk treatment measures and proposed ones must be specified in the written proposal for risk treatment.

• The record of capital and asset damage incurred by the SME (the SME’s certification thereon is not required).

- Debt sale dossier

+ In case of risk treatment requested by the SME: The debt sale dossier includes the documents specified in Point a Clause 3 Article 10 of the Circular No. 14/2020/TT-BKHĐT.

+ In case of risk treatment requested by the Fund: The debt sale dossier includes the documents specified in Point b Clause 3 Article 10 of the Circular No. 14/2020/TT-BKHĐT.

+ The Fund's report on risk treatment:  In addition to the contents specified in Point c Clause 4 Article 7 of the Circular No. 14/2020/TT-BKHĐT, the report on risk treatment shall include the proposal for sale of partial or entire book value of debt.

+ The original of the debt buyer’s written request for or letter of acceptance of debt purchase.

+ Other documents and instruments as prescribed by law or requested by the debt buyer (if any).

- Debt sale methods: Selling debts by auction or negotiation.

More details at the Circular No. 14/2020/TT-BKHĐT of the Ministry of Planning and Investment of Vietnam, effective on February 25, 2021.

Le Thanh

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