DEBT COLLECTION LAWS OF VIETNAM
Debt collection is a frequent activity and an indispensable part of daily life for individuals as well as the commercial rhythm of traders. Therefore, the inclusion of debt collection services in the list of prohibited business sectors under the Law on Investment 2020 does not mean that debt collection activities are entirely prohibited by the State or that the legal framework for debt collection in Vietnam has been abolished. Debt collection laws of Vietnam is not a specific legal document but are a compilation of legal provisions from various sources that regulate the recovery of debts owed to creditors, arising from lawful agreements between parties. Through these legal provisions, creditors can exercise their right to collect debts and protect their legitimate rights and interests. The following article will delve into an analysis of Debt collection laws of Vietnam, providing readers with a clear and comprehensive understanding of the current legal regulations related to this issue.
Legal sources regulate debt collection activities in Vietnam
Previously, laws of Vietnam recognised debt collection services as a legitimate business sector, with specific regulations on its activities and business conditions outlined in Decree 104/2007/ND-CP[1]. Currently, the National Assembly has promulgated the Law on Investment 2020, prohibiting the business of debt collection services by listing this activity among the business sectors, lines prohibited from business investment.
However, debt collection is essentially a civil or commercial act that arises when one or more parties fail to fully comply with their obligations under the terms of agreements in loan contracts, purchase and sales of goods, service provision, and other types of contracts governed by civil law or specialised laws such as commercial, investment, and real estate business laws. Therefore, creditors can rely on the terms agreed upon in the contract and the rights and obligations of the parties as stipulated in civil law, commercial law, and other specialised laws to carry out debt collection.
The Civil Code
The Civil Code stipulates that the obligor in a civil relationship must make payments fully, punctually, at the correct location, and in the manner agreed upon by the parties[2]. Additionally, the Civil Code specifies the payment obligations for each type of contract, with particular detail given to loan contracts, both interest-free and interest-bearing. In cases where the obligor delays payment, they must pay interest on the overdue amount corresponding to the period of delay. The interest rate is mutually agreed upon by the parties but must not exceed the statutory interest rate[3]. If the contract does not clearly specify the interest rate for late payments, the parties may apply the interest rate for late payments as prescribed by the Civil Code[4].
Additionally, the Civil Code recognises the right to collect debt as a property right, which can be traded. According to Article 450.2 of the Civil Code, in cases where the property right is a debt collection right and the seller guarantees the debtor’s ability to pay, the seller must bear joint liability for the payment if the debtor fails to pay when due.
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The Law on Commercial
Law on Commercial recognises the payment obligations of parties in commercial contracts such as contracts for the purchase and sale of goods, service provision contracts, commercial promotion contracts, intermediary contracts, and contracts of other commercial activities. Additionally, the Law on Commercial regulates commercial sanctions that the parties may agree upon in the contract to enhance the responsibility of the obligor, preventing the obligor from failing to pay or delaying payment. These sanctions include fines for contract breaches, claims for damages, temporary suspension of contract performance, or cessation of contract performance. Furthermore, the Law on Commercial grants creditors the right to demand interest from debtors for late payments, with the interest rate calculated based on the average overdue debt interest rate on the market at the time of payment.
The Law on Commercial also regulates the methods of dispute resolution available to creditors and debtors in the event of disputes arising from commercial debts. These methods include negotiation, mediation, resolution via arbitration, or at Court[5].
The Civil Procedure Code and Law on Commercial Arbitration
The Civil Procedure Code (“CPC”) and the and Law on Commercial Arbitration (“LCA”) govern the jurisdiction of Courts and Arbitration bodies, assisting creditors in selecting the appropriate agency for filing a debt collection lawsuit. The CPC and LCA also establish the litigation principles that parties must strictly adhere to if they choose these methods of dispute resolution. Additionally, these laws detail the orders and procedures for conducting litigation in Courts and arbitration, from preparing the petition documents to attending hearings and receiving judgements or decisions, followed by the appellate process if parties have grounds to believe that the Court’s or arbitration’s judgment or decision does not comply with legal regulations.
Law on Civil Judgement Enforcement
The Law on Civil Judgement Enforcement (“LCJE”) grants creditors the right to request the enforcement agency to issue decisions and organise the enforcement of legally effective judgements, compelling debtors to repay their debts according to the issued judgement or decision. The LCJE stipulates the guaranteeing, enforceable measures that the enforcement agency can apply to enforce the creditor’s right to debt collection. These measures include, but are not limited to, freezing accounts, assets, deducting money from accounts, deducting from income, seizing and handling assets, etc. The LCJE also clearly outlines the procedures and orders for parties to carry out these enforcement activities.
The Criminal Code and Decree on administrative fines
Current laws provide regulations that allow creditors to legally collect debts through negotiation, mediation, or litigation. However, in many cases, due to a lack of legal understanding, many creditors resort to illegal methods of debt collection, such as using violence, threats, or coercion against the debtor, which can result in the creditors themselves being subject to administrative penalties or criminal prosecution according to legal provisions.
The Criminal Code stipulates penalties for crimes resulting from illegal debt collection activities. These can include offences such as intentionally causing injury or harm to another’s health, humiliating others, illegal arrest, detention or imprisonment, trespassing, extortion, disturbing public order, and other related crimes.
For illegal debt collection actions that do not warrant criminal prosecution, the individuals committing such violations may be subject to administrative penalties. The decree on administrative penalty outlines various forms of punishment, primarily fines for illegal debt collection activities that infringe on the rights and legitimate interests of others and disrupt social order. These fines apply not only to individual creditors who violate the law but also to organisations, including credit institutions such as banks and financial companies.
From the above analysis, it is clear that when applying the provisions of the Civil Code, the Law on Commercial, or other specialised laws, if creditors still cannot collect their debts, they have the right to file a lawsuit with the Commercial Arbitration or the competent Court to obtain a decision compelling the debtor to pay the debt. In cases where the debtor refuses to comply with the court’s effective judgement or decision, the creditor can request assistance from the enforcement agency to facilitate debt collection. If the creditor engages in illegal activities during debt collection, they may be subject to corresponding administrative or criminal liabilities. Therefore, legal documents such as the Civil Procedure Code, the Law on Commercial Arbitration, the Law on Civil Judgement Enforcement, the Criminal Code, and Decree on administrative penalties are all legal sources regulating debt collection activities in Vietnam.
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Rights and obligations of creditors and debtors in Vietnam
The rights and obligations of creditors and debtors in Vietnam are governed by the terms of the contract and the relevant legal provisions. In commercial business activities, traders often clearly and comprehensively detail payment obligations in contracts. Beyond basic terms such as the payment amount, deadline, and method of payment, they also agree on provisions related to fines for breaches, interest on late payments, and other sanctions. In such cases, both parties are aware of their rights and obligations concerning payment in the contract. If the debtor fails to fulfil their payment obligations, this act is considered a deliberate breach of the agreement, and the creditor may enforce the sanctions stipulated in the contract, including filing a lawsuit against the debtor with the competent commercial arbitration or court to protect their rights.
However, in everyday life, parties involved in transactions sometimes lack legal knowledge or trust each other too much, leading to many transactions, from small transactions to huge ones, not being clearly documented in writing. Even if there is a contract, the terms regarding payment obligations are often unclear. In such cases, the rights and obligations of the creditor and the debtor will primarily be determined and regulated by legal provisions.
In general, creditors have the right to demand repayment, and debtors have the obligation to repay the debt. The debt includes the principal amount and interest as agreed upon or as stipulated by law. Creditors can pursue debt collection through various methods such as sending a letter of demand the execution of payment obligation, negotiation, mediation, or filing a lawsuit with the competent authority to obtain a decision compelling the debtor to pay. However, in all cases, creditors are not allowed to use illegal debt collection methods that infringe upon the health, mental well-being of the debtor, or social security, public order.
In summary, the current debt collection laws of Vietnam are a compilation of legal provisions found in various documents and across different branches of law, regulating multiple aspects of this activity. The rights and obligations of creditors and debtors are clearly established in legal regulations and are often detailed in commercial contract terms. However, with the recent prohibition of debt collection service businesses, other debt collection activities are not yet clearly defined from a legal perspective, and public awareness of the legalities surrounding this issue remains low. Therefore, it is crucial for individuals to be extremely cautious with their loans, ensuring that their legal rights and interests are adequately protected.
Above is a detailed analysis and explanation on the methods for Debt collection laws of 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] This Decree expired on 01 January 2021
[2] Article 280.1 of the Civil Code 2015
[3] Article 357 of the Civil Code 2015
[4] Article 357.1 of the Civil Code 2015
[5] Article 317 of the Law on Commercial 2005