LEGAL ASPECTS OF DEBT COLLECTION IN VIETNAM
With the strong development of the economy and the increase in lending transactions, debt collection has become an indispensable part of business activities and daily life. However, this is also a sensitive and complicated issue because it is often related to unethical behaviours and infringement of the rights of related parties, affecting their physical and mental fitness. Therefore, the legal aspect of debt collection in VietNam plays an extremely important role. It not only helps to ensure transparency, fairness and efficiency in the debt collection process, but also protects the legitimate rights and interests of creditors and debtors.
The following article will delve into the legal aspects of debt collection in Vietnam, helping readers to have a clear and comprehensive view of current legal regulations related to this issue.
Legal nature of debt collection activities in Vietnam
The laws of Vietnam has recognised “debt collection activities” as a service or a business line. Debt collection activities were previously understood primarily as debt collection services, a business line that was once permitted by law if certain conditions were met until it was completely prohibitted when the Law on Investment 2020 was issued. However, in fact, debt collection services are only a small part of debt collection activities. Currently, creditors can consider applying a number of methods including negotiation, mediation, court proceedings or debt trading to recover debts instead of using debt collection services as before.
Thus, it can be understood that, debt collection, in nature, is civil or commercial act, aiming at enforcing rights and obligations of parties arising from civil or commercial agreements, which is determined according to the parties performing and the purpose of that agreement. For example, regarding a typical consumer loan between acquaintances and friends, debt collection is considered a civil act; regarding loan contract between financial company and client or sale and purchase contract between traders, debt collection is considered a commercial act. Debt collection is a process by which contractual parties excersice their rights and obligations recorded in the contract or in accordance with the law, specifically the buyer’s payment obligations, the borrower’s debt repayment, the seller’s right to receive payment, and the lender’s right to collect debt.
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Aspects of debt collection activities regulated by law
To ensure that debt collection activities are within a certain legal framework, protect the rights and legitimate interests of related entities and maintain social order, some aspects of debt collection activities are regulated by the laws of Vietnam, including key aspects such as the rights and obligations of creditors and debtors, legal debt collection measures, and legal consequences of illegal debt collection acts.
Rights and obligations of creditors and debtors
Most contracts for the purchase and sale of goods, provision of services, leasing, lending or transfer of rights entail payment obligations of the buyer or the service recipient when due as per the agreement. These contracts often clearly stipulate payment obligations, including payment time and sanctions for violations such as fines for breach of contract or late payment interest. If the party with the payment obligation fails to make full or timely payment within the agreed time, the party receiving payment has the right to request the other party to pay the full amount due together with late payment interest (if any).
For debt collection disputes related to civil transactions, civil law of Vietnam clearly stipulates that the aggrieved party has the right to request the breaching party to pay additional interest on the amount of late payment corresponding to the period of late payment. The parties may agree on the interest rate arising from late payment, but it must not exceed 20%/year of the late payment amount, unless otherwise provided by other relevant laws. If the parties do not agree or have an unclear agreement on the interest rate, the interest rate arising shall not exceed 10%/year of the late payment amount at the time of debt payment.[1]
For debt collection disputes related to commercial contracts, the commercial law stipulates that in the absence of other agreements between the parties or other provisions of law, the aggrieved party has the right to request the breaching party to pay interest on the late amount at the average overdue debt interest rate on the market at the time of payment corresponding to the period of late payment[2].
In the event that the paying party fails to perform its obligations as agreed in the contract, disputes may arise between the parties to the transaction and the amount payable may become a debt, with one party being the creditor and the other party being the debtor, leading to debt collection activities. In that case, the creditor may sue the debtor in a competent court. In addition, the debtor has the right to request the creditor to provide accurate information about the debt, request documents proving the debt, and has the right to request the creditor to resolve the dispute through negotiation, mediation or court.
Legal debt collection measures
Debt collection is a complex and sensitive process that requires strict compliance with legal regulations to ensure the rights of the parties involved. In the Vietnamese legal system, the law has clearly stipulated legal debt collection measures that creditors and debtors can conduct without infringing on the legitimate rights and interests of the other party.
When the debtor fails to fulfill his payment obligation, the creditor can send a reminder letter or organise negotiation and conciliation meetings. In case of too many disagreements, the creditor and debtor can ask a third party to act as an intermediary to reach an agreement on the payment plan.
In case the parties in the dispute have negotiated and mediated but failed to reach a common agreement, the creditor may file a lawsuit, requesting the competent court to resolve the dispute and issue a decision or judgment requiring the debtor to pay the debt. When the judgment or decision of the court or competent authority has come into effect, the debtor is required to fulfill the payment obligation to the creditor according to the content of this judgment or decision. If the debtor continues to intentionally not pay the debt or avoids fulfilling the obligation under the judgment or decision that has come into effect, the creditor has the right to request the competent civil enforcement agency to issue a decision to enforce the judgment and enforce this judgment or decision. During this process, the enforcement agency will apply coercive measures such as seizing assets and freezing bank accounts to ensure the performance of the debt payment obligation.
The process of negotiation, mediation, filing a lawsuit in court or requesting enforcement of judgment to recover debt requires a long time with many complicated legal procedures. Therefore, legal services to support debt collection will be an effective solution for organisations and individuals in need of debt collection.
In addition to the above measures, debt trading is also an option that creditors can consider. Debt trading in civil relations is usually understood as the transfer of special asset which is “debt” from one entity to another. In essence, it is the resale of the “debt collection rights” from a “debt” of the creditor to the debt buyer so that the debt buyer becomes the new creditor of the debtor.[3] This is a fairly safe option when it is possible to recover most of the debt without prolonging the time, spending a lot of effort or incurring many other related costs. Debt trading is also an activity arising from the lending business of credit institutions, understood as a written agreement on the transfer of debt collection rights for debts arising from lending business, payment in lieu in the guarantee business, according to which the debt seller transfers the ownership of the debt to the debt buyer and receives payment from the debt buyer.[4] In this debt trading relationship, the debt seller is a credit institution, the debt buyer is a credit institution or other organisation or individual.
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Legal consequences of illegal debt collection acts
Debt collection is an essential activity in economic life, but it is often viewed negatively because many creditors choose to commit acts that violate the health and spirit of debtors to collect debts. All of these negative acts are violations of the law and those who engage in them will have to bear the corresponding legal consequences, including: creditors may be subject to:
- criminal liability prosecution: If the creditor uses violence, threatens to use violence, mentally threatens, defames or harasses the debtor in many ways to force them to pay the debt, he/she may be prosecuted for crimes such as intentionally causing injury[5], extortion[6] or disturbance of public order[7]; or
- administrative sanctions: If a creditor collects debt and intentionally causes injury or harm to the health of another person but is not prosecuted for criminal liability or disturbs public order and carries tools capable of causing injury, the creditor may be fined from VND 5,000,000 to VND 8,000,000.[8] If a creditor collects debt by dumping or throwing waste, dirt, chemicals, bricks, soil, stones, sand or other objects into a house, residence, person, object or property of another person, the creditor may be fined from VND 3,000,000 to VND 5,000,000.[9] In addition, if credit institutions collect overdue interest and overdue loans in violation of the law, these institutions may be subject to administrative fines ranging from VND 40,000,000 to VND 60,000,000[10]; and/or
- civil liability: If organisations or individuals commit illegal debt collection acts and these acts cause damage to the health and spirit of debtors, these organisations or individuals may have to compensate for both physical and mental damages to the victims.
As analysed above, although the law allows creditors to collect debts, it also prohibits debt collection behaviours that infringe upon the basic rights and interests of debtors. Therefore, creditors need to collect debts in accordance with the law.
The legal aspects of debt collection include many factors, from the legal nature of debt collection, the rights and obligations of creditors and debtors, legal debt collection methods to handling measures when illegal debt collection acts occurs. Parties involved in debt collection activities need to comprehensively consider the legal aspects of debt collection to ensure compliance with the law. Legal debt collection not only helps protect the economic interests of the parties involved, making the debt collection process smooth, transparent and fair, but also helps maintain social order, build trust in borrowing and business cooperation relationships, and create a solid foundation for sustainable economic development.
Above is the overview related toLegal Aspects of Debt Collection in Vietnam that Phuoc and Partners shared with readers. If you encounter any difficulties related to the legal field, please contact us. Phuoc and Partners is a law firm established in Vietnam and currently has nearly 100 members working in three offices in Ho Chi Minh City, Hanoi and Da Nang. Phuoc and Partners also considered as one of the leading law firms with leading specialised legal staff in Vietnam practice areas are rated top in the legal market such as Labour and Employment, Taxation, Mergers and Acquisitions, Litigation. We are confident to be one of the Law Firms providing the best legal services to our clients.
[1] Article 357 and Article 468 Civil Code 2015
[2] Article 306 Law on Commerce 2005
[3] Master. Dao Mai Phuong, “Debt trading market in Vietnam: Current situation and development policy”, Ministry of Finance Electronic Information Portal https://mof.gov.vn/webcenter/portal/btcvn/pages_r/l/tin-bo-tai-chinh?dDocName=BTC264684
[4] Article 3.1 Circular 09/2015/TT-NHNN
[5] Article 134 Criminal Code 2015, amended and supplemented in 2017
[6] Article 170 Criminal Code 2015, amended and supplemented in 2017
[7] Article 318 Criminal Code 2015, amended and supplemented in 2017
[8] Article 7.5(a),(b) Decree 144/2021/ND-CP
[9] Article 7.4(e) Decree 144/2021/ND-CP
[10] Article 3.3(b) and Article 14.3(dd), (e) Decree 88/2019/ND-CP