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Sunday, October 21, 2018

New rules on registration of security over movable assets: a view from practice

Updated: 11:07’ - 22/08/2014

Bui Duc Giang
PhD in law and associate at Audier and
Partners Vietnam LLC

On February 26, 2014, the Ministry of Justice (MOJ) released Circular No. 08/2014/TT-BTP (Circular 08) which takes effect on April 15, 2014, and amends Circular No. 05/2011/TT-BTP of February 16, 2011 of the MOJ, guiding registration of, and provision of information about, security transactions and contracts and notification of asset seizures to enforce judgments directly, by post, fax or email at the National Center for Registration of Transactions and Assets under the National Registration Agency for Secured Transactions (NRAST) of the MOJ (Circular 05). In addition to changes to operational steps in relation to the registration with the NRAST, the amendment contains some important changes that we try to review in this article. We would also try to point out some practical implications of the new provisions.

Registration of security over a right under a contract

Article 3.6 of Circular 05 has been amended to include two new sub-articles 3.6a and 3.6b. This text provides a partial list[1] of property rights[2] capable of being used as secured assets. The right to claim compensation under a contract is regarded as a property right and can therefore be mortgaged. As for rights under a contract which in principle can be used as secured assets under Article 322.1 of the Civil Code[3], Articles 3.6a and 3.6b provide that they shall include (i) rights under real estate contracts (contracts for sale of residential housing, contracts for contribution of funds in order to build residential housing, cooperation contracts for doing business in residential housing executed with real estate business enterprises; contracts for sale, contribution of capital or business cooperation with regards to other assets attached to land (e.g., a commercial building); contracts for transfer, capital contribution, business cooperation or lease of land use rights together with infrastructure concluded in accordance with residential housing legislation, and (ii) rights under contracts over aircraft or ships. The lawmakers appear to require rights under a contract to fall under one of these two categories. This can be attributed to the fact that Joint Circular No. 01/2014/TTLT-NHNN-BXD-BTP-BTNMT of April 25, 2014, of the State Bank of Vietnam, the Ministry of Construction, the Ministry of Justice and the Ministry of Natural Resources and Environment, promulgating procedures for mortgaging future residential houses, mentions the possibility of taking a mortgage over rights under a contract for sale of a future house[4] and Article 7.5 of Joint Circular No. 16/2014/TTLT-BTP-BTNMT-NHNN of June 6, 2014, of the Ministry of Justice, the Ministry of Natural Resources and Environment and the State Bank of Vietnam, guiding some aspects regarding the enforcement of security deals with the enforcement of mortgages over rights under a contract for sale and purchase of a future house. However, the approach of the lawmakers is regretful as many other contracts may be secured in practice. Examples of such contracts that are typically secured include acquisition documents, intra-group loans, construction or development documents, management agreements, licenses or supply. In addition, under Article 3.6a, receivables, rights to insurance proceeds, fees collected by a residential housing project developer as well as profits gained from business operation and exploitation of land use right value or infrastructure on land (proceeds from land parcel or infrastructure on land) are also included in the first category of rights under a contract. This classification is confusing as those claims are all receivables which the law distinguish definitely from rights under a contract. Furthermore, some important rights under a real estate contract are not mentioned in the list, for instance, the right to lease a commercial building. Although this article leaves open the possibility of creating security over other types of right under a real estate contract, this legal gap may make the security registration staff refuse to register security over those rights under a contract. 

Identification of secured assets

Under Article 33 of Decree No. 83/2010/ND-CP of July 23, 2010, on registration of secured transactions as amended by Decree No. 05/2012/ND-CP of February 2, 2012, general description of secured assets does not affect the validity of the registration of the security transaction[5]. Article 8a.1 of Circular 05 now requires that the secured assets be identified in compliance with the guidelines mentioned in the prescribed security registration request form. Those guidelines annexed to Circular 05 concern only the case of registration of security over a set of assets where it is possible to give either a general description of the common characteristics of those assets or a detailed description of each asset. In case of motor vehicles, the chassis number must be mentioned in the registration request (Article 8a.2). As such, except in case of motor vehicles, parties to a security agreement must not identify in detail the subject matter of their contract for the purpose of registration. Paradoxically, Article 10a (c) provides that registration can be refused inter alia if the identification of the secured asset is not effected in accordance with Article 8a.1.

For revolving goods and stock-in-trade specifically, in accordance with Article 8a.4.1, the following particulars may be described in the registration form: name, category and quantity of the goods, as well as the address of the warehouse or other information concerning those goods. Likewise, the specific name and the legal ground[6] for the creation of the property right, its monetary value (if any) or other information regarding this property right may be stated (Article 8a.4.2). As such, the suggested particulars are laid down on an indicative basis only and the parties may choose their method of identifying the secured goods or property rights[7]. For instance, if the secured asset is a receivable, the information to be provided may include: account debtor, payment location, amount of the receivable or its valuation and payment term (if any).

Assignment of a future receivable

Pursuant to Article 22.4 of Decree No. 163/2006/ND-CP of December 19, 2006, on secured transactions as amended by Decree No. 11/2012/ND-CP of February 22, 2012, “in case a receivable is assigned in accordance with Article 309 of the Civil Code, the priority between the assignee of this receivable and the mortgagee of it is determined by the order of registration of those transactions with the competent registrar”. In this regard, it should be noted that up to date, Vietnamese law recognizes assignment of receivables only by way of sale (outright assignment) and not by way of security[8]. Article 2.4 of Circular 05 provides that contracts for assignment of existing and future receivables may be registered with the NRAST.

Under Article 309.2 of the Civil Code, the assignor of a receivable has to give written notice to the account debtor. This provision is unclear on the sanction of the failure to do so. In case of a future receivable, such notice may be given only on the existence of the receivable. Therefore, Circular 05 appears to recognize the validity and enforceability of the outright assignment of a receivable. This is a step forward because the current law does not provide so.

Vietnamese law remains unclear on the concept of a future receivable. English law may offer some insights into this question. A mere expectancy, not based on any existing legal right is a future receivable. For instance, sums which the assignor hopes to receive under a contract not yet made are future receivables. In contrast, sums which are certain to become payable in the future under an existing contract or other legal obligation are not treated for this purpose as future receivables, but as existing receivables. So, for instance, a loan repayable at a fixed future date, or rent payable in the future under an existing lease, is an existing receivable. So also the right to be paid sums in the future under an existing contract is an existing receivable even though the precise amounts which will become payable are as yet unascertained, e.g. royalties payable under a patent licensing agreement already made[9].

From a practical view, it can be inferred from the above that to ensure its priority, the outright assignee of a receivable should register the assignment with the NRAST even if relevant provisions of the Civil Code (Article 309 and seq.) don’t lay out this requirement.

Registrars’ territorial competence

At present, there are three NRASTs in Hanoi, Da Nang and Ho Chi Minh City. Under the former version of Circular 05, security over moveable assets may be registered with one of them and the choice of a registrar has no effect on the legal value of the registration (Article 4). Circular 08 has crossed out this choice and this approach may be construed as giving territorial competence to the registrars (e.g. security created by companies based in Hanoi or surrounding provinces should be registered with the Hanoi registrar). This may be of some importance in practice as the view of those registrars may differ on a specific question of law, especially when the law is unclear and there is no clear interpretation of that question of law. It is said that the MOJ is about to enact a new regulation which will specify which provinces will fall under the competence of each of those registrars.

From the above, it can be said that the lawmakers have tried to further clarify the substantive law with regard to some aspects although Circular 05 was supposed to be guiding merely registration of security. Notably, the new definition of rights under a contract is unsatisfactory and may prevent the taking of security over various rights under contracts which are not mentioned in the Circular.-

[1] This list is completed by Article 3.7 and seq of Circular 05.

[2] Vietnamese law recognizes four categories of asset: choses in possession (e.g., a machine), money, valuable papers (e.g., a bond) and property rights (e.g., a debt claim). Property rights are by nature intangible assets although relevant texts don’t use the term intangibles.

[3] Security over a right under a contract is rare in practice because of the lack of legal provisions.

[4] For some comments on this Circular, see (in Vietnamese), Nguyen Quoc Vinh, “Mortgages over residential houses: incomplete provisions”,, June 18, 2014.

[5] See Bui Duc Giang, Taking security over future property in Vietnam, Vietnam Law & Legal Forum, Vol. 20, No. 230, October 2013.6

[6] For instance a contract or a legal obligation.

[7] Unlike English law, Vietnamese law doesn’t regard receivables as a category of current (revolving, circulating) assets.

[8] See Bui Duc Giang, Taking share security in Vietnam: law and practice, Vietnam Law & Legal Forum, Vol. 20, No.  231-232, November & December 2013.

[9] Chitty on contracts, Sweet & Maxwell, 31st edn., (volume 1 – General Principles), 2013, paras. 19-028 and seq.


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