Regulations on collateral being land use right and assets attached to land in Vietnam

Regulations on collateral being land use right and assets attached to land in Vietnam (Internet image)

1. What is collateral?

Collateral can be understood as property used by the guarantor to secure the performance of an obligation towards the secured party through security measures such as pledge, mortgage, guarantee, deposit, signature. fund, deposit…

2. What does the collateral include?

According to Article 8 of Decree 21/2021/ND-CP, collateral for security for obligation fulfillment includes:

- Current properties or off-plan properties, except for cases where the Civil Code or other relevant laws forbid sale, transfer or other change of ownership at the time of establishing security contracts, security measures;

- Properties sold under property sale agreements with retention of ownership;

- Properties considered as subjects of obligations under infringed bilateral contracts in case of lien measures;

- Properties under general public’s ownership if prescribed by relevant laws.

3. Regulations on collateral being land use right and assets attached to land in Vietnam

Regulations on collateral being land use right and assets attached to land according to Article 10 of Decree 21/2021/ND-CP are as follows:

- Employment of land use right to guarantee fulfillment of obligations may not occur simultaneously with employment of assets attached to land; employment of assets attached to land to guarantee fulfillment of obligations may not occur simultaneously with employment of land use right.

- In case owners and secured parties employ assets attached to land that are not required by the law for registration and have not been registered at request as security for obligation fulfillment, rights and obligations of parties shall conform to agreements in security contracts.

In case owners and secured parties agree to employ assets attached to land that are perennial plants according to Law on Cultivation, temporary constructions according to Law on Construction as security for obligation fulfillment, comply with regulations and law on security for obligation fulfillment in form of movable properties that are not aircrafts or watercrafts.

- In case land use right or assets attached to land that are immovable properties benefiting from adjacent immovable property rights is used as security for obligation fulfillment, rights for adjacent immovable properties shall remain effective for all individuals and juridical persons.

- Security for obligation fulfillment in form of off-plan properties does not apply to land use right.

4. Entitlement for reclaiming collateral

The right to recourse to security assets in Vietnam under Article 7 of Decree 21/2021/ND-CP provides as follows:

(1) Rights of secured parties for collateral in security measures that have taken effect against a third party are not changed or terminated in case collateral is transferred to other individuals as a result of gift, trade, exchange, transfer, other change in ownership, appropriation, use or benefit gain of collateral that lacks legal ground and is not specified under Clause 2 of this Article.

(2) Entitlement for reclaiming of secured parties for collateral in Vietnam does not apply to following properties:

- Collateral that has been sold, transferred or changed in terms of ownership under consent of secured parties and is no longer used as security for fulfillment of obligations;

- Mortgaged properties that have been sold, replaced or exchanged according to Clause 4 Article 321 of the Civil Code;

Sell or replace mortgaged property being goods rotating during the production and business process. In the case of a sale of mortgaged property being goods rotating during the production and business process, the right to require the purchaser to pay money, the proceeds received or the assets formed from the proceeds received shall form the mortgaged property in substitution for the property which was sold.
When a warehouse is mortgaged, the mortgagor may substitute goods in the warehouse but must ensure the value of the goods in the warehouse remains the value agreed.

- Collateral is no longer available or is replaced by other collateral in Vietnam  according to Article 21 of Decree 21/2021/ND-CP;

+ In case securing parties and secured parties agree on dividing, separating collateral into multiple properties according to relevant law provisions, proceed as follows:

++ If division, separation of properties that does not alter ownership, properties that form as results of such division, separation shall remain collateral; 

++ If division, separation of properties that alters ownership, properties that form as results of such division, separation under new ownership shall no longer remain collateral. 

+ In case securing parties and secured parties agree on acquisition, merge or mix of collateral with other properties or collateral is processed into new properties, collateral shall be determined as follows:

++ If new properties are formed as results of acquisition, merge or mix and cannot be separated, the collateral acquired, merged or mixed into the new properties shall become collateral; 

++ If new objects created as results of processing are owned by securing parties, the new objects shall remain collateral.  In case new objects are not owned by securing parties, value of processed collateral shall become collateral.

+ In case securing parties and secured parties agree on using collateral to contribute to commercial juridical persons, non-commercial juridical persons that are social enterprises, shares or stakes shall be collateral, except for cases where securing parties and contributed juridical persons agree on using contributed collateral as security for obligation fulfillment.

+ In case securing parties and secured parties agree on using properties under insurance as security for obligation fulfillment or properties that are being used as security for obligation fulfillment are put under insurance and an insured event occurs, compensation or replacement properties that must be paid to insurance beneficiaries of insurance enterprises shall become collateral.

5. In case collateral is perennial plants according to Law on Cultivation are harvested or auxiliary constructions according to Law on Construction are deconstructed, yield or other properties gained from the harvest or deconstruction shall become collateral.

6. In case securing parties install, integrate software or software system for properties that are being used as security for obligation fulfillment as per relevant law provisions, property rights for the software and software system within the scope of this collateral shall be collateral.

7. In case collateral is called because securing parties violate relevant laws, securing parties must pay damages for secured parties as agreed upon under security contracts. In case securing parties receive payment and/or compensation from the Government according to relevant law provisions, properties that are paid or compensated shall become collateral.

8. In case collateral is recalled for national defense, security purposes, socio-economic development for national and public interest, compensation or replacement properties or exchanged properties according to relevant law provisions shall become collateral.

9. In case collateral is disposed, damaged entirely or deconstructed, confiscated according to decisions of competent authorities, collateral shall be considered no longer available, except for cases under Clauses 4, 5, 7, and 8 of this Article.

10. Other cases according to the Civil Code or relevant law provisions where collateral is unavailable or replaced and new properties arise or replacement properties are available, these properties shall become collateral.

- Other cases according to the Civil Code and other relevant law provisions.

3. In case securing parties are individuals who have deceased or juridical persons who have ceased to exist, entitlement for reclaiming collateral of secured parties shall not be terminated but conform to Article 658 of the Civil Code and other regulations on inheritance in the Civil Code in case securing parties are individuals who have deceased or conform to regulations and law on dissolution of juridical persons and bankruptcy in case securing parties are juridical persons who have dissolved or declared bankrupt.

Quoc Dat

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