On 19 March 2021, the Government enacted Decree 21/2021/ND-CP executing the Civil Code on the guarantee of performing obligations (hereinafter referred to as “Decree No. 21/2021/ND-CP”), which comes into effect from 15 May 2021 and takes place Decrees as follows:
- Government’s Decree No. 163/2006/ND-CP dated 29 December 2006 regarding secured transaction; and
- Government’s Decree No. 11/2012/ND-CP dated 22 February 2012 amending and supplementing several Articles of Decree No. 163/2006/ND-CP.
In this news, we reveal some of the most remarkable points of Decree No. 21/2021/ND-CP.
The new Decree regulates 04 group of assets used to guarantee to perform obligations as follows:
- Available assets or off-plan assets, except for cases that the Civil Code and other relevant laws prohibit from purchasing, selling, conveying or transferring the ownership upon making secured contracts or security interests;
- Assets in the sale and purchase agreement with retention of title;
- Assets which are subjects of the obligations in the violated bare contract towards holding assets;
- Assets which are under all-people ownership in case relevant laws stipulate.
2. Application of laws and agreements on the guarantee of performing obligations
- Apply specific regulations: in case the laws of land, housings, investment, enterprises, securities, insurance, banking, natural sources, seafood, forestry, aviation, marine, intellectual property, science and technology or other fields have specific regulations on collateral, the establishment and performance of security interests or handling the collateral.
- Apply the regulations of the laws on bankruptcy: in case the Securing Party, the Secured Party or persons whose obligations are guaranteed are declared to be bankrupted.
- Perform according to the Party’s agreements: in case the Parties’ agreements in the relation of the guarantee of performing obligations differ from the regulations in Decree No. 21/2021/ND-CP; provided that these agreements must suit the fundamental principle of the civil laws, must not break the conditions for effective civil transactions and the limitation of performing the civil rights in accordance with Civil Code and other relevant laws.
- Apply the regulations on the mortgage and pledge of assets: in case the assets’ owner and the Secured Party reach an agreement on using the assets to guarantee to perform others’ obligations.
- Apply the regulations on security interests corresponding to the contents of the agreement: in case the agreement has the content of ensuring to implement obligations but the Parties do not determine in detail or determine incorrectly the name of security interests; and the content of the agreement suits the security interests prescribed under the Civil Code.
3. Guarantee to perform obligations via many assets
Pursuant to Decree No. 21/2021/ND-CP, one obligation can be guaranteed to perform via more than one asset. The scope of guaranteeing to perform obligations towards each asset of the collaterals shall be determined by the agreement between the Securing Party and the Secured Party. In case there is no agreement to be reached, any asset in those collaterals can be used to ensure to implement all obligations.
4. Effectiveness against a third party of security interests
Security interests only have effectiveness against a third party in case the secured contract has been valid. The security right will be effective against a third party:
- Upon it is registered at the competent authority in accordance with the relevant laws: in case the security interest must register in accordance with the Civil Code, other relevant laws, must be registered according to the agreement or the Secured Party’s requirement.
- Since the Secured Party holds the collateral: towards measures including the mortgage and pledge of assets and depositing which are not covered in point a mentioned above.
- Since (i) the mortgagee or depositors hold the collateral; or (ii) the property manager directly receives the collateral from the mortgagee or depositors; or (iii) the secured contract takes effect in case another person is directly managing property which is used for pledge or deposits: in case the collateral which is one of the security interests prescribed at point b is assigned to another person to manage.
- From the moment the collateral is deposited into an escrow account at the credit institution where it is deposited: towards escrow measure.
5. Right to recourse the collateral
When a security interest which was effective against a third party neither changes nor terminates, the Secured Party has the right to recourse the collateral in case the collateral is transferred to another person due to purchase and sale, donation, exchange, conveyance or transfer of the ownership, possession, usage, or is benefited from the collateral without legal basis and is not one of the following cases:
- The collateral was sold, conveyed or transferred the ownership due to the consent of the Secured Party; this collateral must not continuously use to ensure to implement the obligations as agreed by the Parties;
- Assets used for mortgage are sold, replaced or exchanged in accordance with Clause 4 Article 321 of the Civil Code;
- The collateral is no longer exist or is taken place by another asset as prescribed under Article 21 of Decree No. 21/2021/ND-CP.
In case the Securing Party is a dead individual or a legal entity which is no longer exist, the Secured Party still has the right to recourse the collateral in accordance with:
- Article 658 of the Civil Code and other regulations on inheritance of the Civil Code in case the Securing Party is a dead individual; or
- Regulations of the laws on winding up a legal entity and bankruptcy in case the Securing Party is a legal entity which is wound up or is declared to bankrupt.
6. Application of laws towards secured contracts and security interests
- Secured contracts and security interests which were made and implemented before the effective date of Decree No. 21/2021/ND-CP will apply Decree No. 163/2006/ND-CP and Decree No. 11/2012/ND-CP amending, supplementing several articles of Decree No. 163/2006/ND-CP;
- Secured contracts and security interests which were made and implemented before the effective date of Decree No. 21/2021/ND-CP have not been performed or are performing with the different contents to Decree No. 21/2021/ND-CP, the Parties can discuss to reach an agreement to amend, supplement the secured contracts and security interests in compliance with Decree No. 21/2021/ND-CP and to apply the regulations of Decree No. 21/2021/ND-CP.