The concept of “bad debts” can be understood as receivable debts that are past the due date for payment, even though the enterprise has applied to handle measures such as reconciliation, confirmation, prompting for payment or receivable debts that are not yet due for payment but the debtor is an economic organization that has fallen into bankruptcy, is undergoing dissolution procedures, the debtor is missing, absconding, etc.
To handle bad debts, enterprises need to pay attention to the statute of limitations for initiating lawsuits, interest applied during late payment, or initiating lawsuits at the Court to protect their legitimate rights and interests.
1. Statute of limitations
According to the provisions of the current Law on Commercial, the statute of limitations for initiating lawsuits to request the Court to settle disputes related to bad debts arising from the contract is 02 years from the date the legitimate rights and interests are violated.
If the 02-year period expires and the enterprise does not initiate a lawsuit at a competent court, it will lose the right to sue.
In practice, when it comes time to pay, the debtor often cites reasons such as third parties have not paid, are in the approval process to pay, their production and business are not effective, etc. to delay the performance of obligations under the Contract.
On the other hand, businesses with the mentality of waiting for the debtor to pay are often hesitant to remind the debtor, thereby not paying attention to the statute of limitations. Therefore, when the statute of limitations for lawsuits has expired, it also means that businesses lose the right to ask the Court to settle.
This establishment can be done through a debt reconciliation record between the two parties, a debt agreement or debt certificate, or any document showing that the debtor has fulfilled part of its obligations to the enterprise such as VAT Invoice on debt payment, transfer information for payment of debts of debtors, etc.
When the debtor is late in payment, the enterprise has the right to request the debtor to pay interest corresponding to the amount payable from the time the debtor is obliged to the time of payment.
If in the contract, there is an agreement of the parties on the interest rate applied when late payment, this interest rate will be applied.
If the agreement on the interest rate is not stated in the contract, when the debtor is late in payment, the enterprise has the right to request the payment of interest on the total debt corresponding to the late payment period according to the average delinquent interest rate on the market at the time of payment.
When determining the late payment interest rate for the amount of late payment, the Court shall base on the average overdue debt interest rate on the market of at least 03 (three) commercial banks (Joint Stock Commercial Bank for Foreign Trade of Vietnam, Joint Stock Commercial Bank for Industry and Trade of Vietnam, Bank for Agriculture and Rural Development of Vietnam, etc.) that have a head office, branch or transaction office in the province or centrally-run city where the Court is settling or adjudicating based at the time of payment (the time of first instance trial) to decide the late payment interest rate, unless otherwise agreed by the parties or otherwise provided for by law.
3. Lawsuit Procedure
Enterprises need to initiate lawsuits at competent agencies to avoid losing the right to sue. Depending on the nature of the case, the enterprise may initiate a lawsuit at the District People’s Court or the Provincial People’s Court where the debtor has its head office (if it is an organization) or where the debtor resides or works (if it is an individual).
When initiating a lawsuit at a competent court, enterprises need to prepare the following documents:
- Documents proving the legal status of the enterprise such as Enterprise Registration Certificate, Investment Certificate; etc.
- Documents related to the dispute: contracts, invoices, warehouse receipts, delivery slips, minutes confirming debts between the two parties, dispatches or notices of debt reminder, etc.
Please note that the above-mentioned documents must be notarized copies, legally authenticated or provided, and confirmed by competent agencies and organizations. The contract is one of the important documents to prove the origin of the debt. However, if the business contract between the two parties has been lost, the enterprise still can recover that debt if there are documents proving that the two parties have performed the contract such as invoices, freight forwarding minutes, working minutes, debt reconciliation, etc. Therefore, enterprises still have a working base to solve and collect the said difficult debt in case the signed contract between the parties is lost.