Order of priority for payment between joint secured parties in Vietnam

Order of priority for payment between joint secured parties in Vietnam (Internet image)

Regarding this issue, LawNet responded as follows:

1. Cases of realization of collateral in Vietnam

Cases of realization of collateral according to Article 299 of the Civil Code 2015 are as follows:

- An obligator fails to perform or perform not as agreed an obligation when it falls due.

-. An obligator must perform the secured obligation before time limit due to his/her violation against the obligation as agreed or prescribed by law.

- Other cases as agreed by the parties or prescribed by law.

2. Regulations on notification of realization of collateral in Vietnam

Regulations on notification of realization of collateral under Article 300 of the Civil Code 2015 are as follows:

- Before a collateral is realized, a secured party must notify the securing party and other secured parties of the realization of the collateral within a reasonable time limit.

If the collateral at risk of being damaged resulting in diminished value or lose the entire value, a secured party may realize it immediately and notify the securing party and other secured parties of the realization of such asset.

- If the secured party does not notify the realization of collateral as prescribed in Clause 1 of Article 300 of the Civil Code 2015 that cause damage to the securing party and/or other secured parties, compensation must be made.

3. Order of priority for payment between joint secured parties in Vietnam

Order of priority for payment between joint secured parties according to Article 308 of the Civil Code 2015 is as follows:

- When an asset is used to secure the performance of many obligations, payment priority order between the joint secured parties shall be determined as follows:

+ If all types of security take effect against a third party, the order of priority for payment shall be determined according to the order of effect against the third party;

+ If there are some types of security take effect against a third party while some types of security do not take effect against the third party, the payment of obligations with security taking effect against the third party shall be given priority;

+ If all types of security do not take effect against a third party, the order of priority for payment shall be determined according to the order of establishment of types of security.

+ The order of priority for payment prescribed in Clause 1 of Article 308 of the Civil Code 2015 may be changed as agreed by the parties. The subrogating party of the right to priority of payment shall only be given priority within the secured extent of the subrogated party.

4. Regulations on acceptance of the collateral as substitution for the performance of obligations of the securing party in Vietnam

Regulations on acceptance of the collateral as substitution for the performance of obligations of the securing party under Article 305 of the Civil Code 2015 are as follows:

- The secured party may accept the collateral as substitution for the performance of obligations of the securing party if agreed by the parties.

- If there is no agreement prescribed in Clause 1 of Article 305 of the Civil Code 2015, the secured party may only accept the collateral as substitution for the performance of obligations of the securing party with the written consent of the securing party.

- Where the value of the collateral is greater than the value of the secured obligation, the secured party must pay the difference amount to the securing party; where the value of the collateral is less than the value of the secured obligations then the unpaid obligations become unsecured obligations.

- The securing party is obliged to follow the procedures for transfer of ownership rights to the secured party as prescribed by law.

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