“The risks of entering Loan Agreements under the 2015 Civil Code”
The Civil Code No. 33/2005/QH11 (“2005 Civil Code”) is currently being in effect and will be replaced by the Civil Code No. 91/2015/QH13 (“2015 Civil Code”) from January 01st 2017. Basically, civil laws respect the freedom of contract of the parties, but the parties must comply with the general regulations of the law. Accordingly, although the loans are non-regular activities of the enterprises, they may bring about more legal and commercial risks for the enterprises.
1. No mandatory interest
It is misconceived by some enterprises that the Loan Agreements require the interest rate, resulting in the aversion in getting loan from partners or customers. Having interest or not is dependent on the agreement of the parties when getting loan. Therefore, enterprises can absolutely enter interest-free Loan Agreements.
2. Limitation on interest rate
In case where there is an interest rate in the Loan Agreement, such rate is limited by law. The limitation of interest rate is in accordance with laws as follows:
The new regulation also adds the sanctions that if the agreed interest rates exceed 20%/year, such rates do not come into effect, and the rate stipulated by law will be applied.
3. Interest on late payment is obligatory
When the enterprises providing loan without interest mainly with the purpose of support and assistance to the borrower, hence it is rare that the parties agree on the payment of interest on the late payment when the loan is due. However, the parties should be noted that even if there is no agreement, the laws still regulate the late payment amount, in case the loans are without interest:
4. Apply the late payment interest rate according to the agreement
Regarding the case where the enterprises provide loans with interests, the regulations change into the direction which is more favorable for the lenders as follows:
It is noted that the interest which the borrower must pay in accordance with the 2015 Civil Code is more than the interest stipulated in the old provisions because the agreed interest between the parties is usually higher than the base rate of the State Bank.