To ensure the effective implementation of the regulations on the assurance of performing civil obligations in the upcoming effective 2015 Civil Code, the Ministry of Justice has been gathering feedback on the Draft Decree detailing the implementation measures of the Civil Code concerning secured transactions.
Article table of contents
The Civil Code 2015 effective from January 1, 2017 introduces many new contents, including provisions on secured transactions.
According to the Draft Decree, a secured transaction is a civil transaction agreed upon by the parties or prescribed by law regarding the implementation of security measures stipulated in Article 292 of the Civil Code 2015. Specifically:
- The securing party is the party that uses its owned property, reputation, or commitment to perform work for the secured party to ensure the fulfillment of its own or another person's obligations, including: the pledgor, the mortgagor, the depositor, the surety, the subordinated lender, the political-social organization at the grassroots level in the case of trust loans, the buyer in the case of retention of title, the obligor in the case of lien.- The secured party is the party that has the right in the civil relation which is ensured by the property, reputation, or commitment to perform work by the securing party, including the pledgee, the mortgagee, the depositee, the surety receiver, the right holder in case of the subordinated loan, the guarantee receiver, the credit institution in the case of trust loans, the seller in the case of retention of title, and the lienholder in the case of lien.
Secured assets in secured transactions are rights to existing assets and future assets. The Draft Decree specifies:
- Property rights used to secure the performance of obligations include land use rights, property rights to copyrights, industrial property rights, rights to plant varieties, debt claims, rights to receive insurance proceeds, rights to compensation for damages, property rights to capital contributions in enterprises, rights to exploit natural resources, property rights arising from contracts, and other property rights owned by the securing party.- Future assets include:- Assets formed from borrowed capital;- Assets that have not yet been formed, are in the process of formation, or are being legally created at the time of concluding the secured transaction;- Assets that have been formed and are subject to registration of ownership or registration of circulation according to law, but are registered after the conclusion of the secured transaction, except where otherwise provided by law.- Excluding land use rights.
Compared to the current regulations, Article 292 of the Civil Code 2015 introduces 9 security measures for obligation performance, adding two new security measures: retention of title and lien.
In the retention of title relation, the Draft Decree further clarifies the rights and obligations of the buyer as follows:
- The buyer is entitled to use, exploit the asset, and enjoy the benefits and yields from the asset during the retention of title period in accordance with Article 333 of the Civil Code.- The buyer of the asset is not allowed to sell, lease, or use the purchased asset to secure the performance of obligations during the retention of title period, except where otherwise agreed.
The lien relation is established when the lienholder legally holds the asset, which is the subject of a bilateral contract, in cases where the obligor fails to perform or improperly performs its obligations. The lien on the asset is also an effective security measure against third parties, and the lien becomes effective against third parties from the time the lienholder takes possession of the asset.
For more details on establishing and performing secured transactions, see the Draft Decree.
