On March 19th, 2021, the Government promulgated Decree No. 21/2021/ND-CP guiding on enforcing the Civil Code on security for performance of obligations which took effect on 15th May 2021, replacing Decree No. 163/2006/ND-CP on secured transactions and Decree No. 11/2012/ND-CP on amending and complementing several articles of Decree No. 163/2006/ND-CP. This article shall explain several updated points of Decree No. 21/2021/ND-CP in comparison with Decree No. 163/2006/ND-CP.
Decree No. 163/2006/ND-CP contained only one article regulating collaterals. In this new Decree, collateral is prescribed in one Chapter (Chapter II) to regulate collateral in detail, which has a few notable points as follows:
1. List specific types of collateral
- Land use rights and assets attached to land;
- Properties formed from surface rights, usufructuary rights;
- Auxiliary objects, synchronous objects, distinctive objects;
- Valuable instruments, securities, deposit balance;
- Property rights arising from contracts;
- Properties formed from capital contribution;
- Rights to exploit natural resources;
- Property rights incurred from intellectual property rights, information technology or science and technology activities;
- Investment projects and assets of investment projects;
- Commodities circulating during manufacturing, business, and storage processes.
2. Complementary and detailed provisions on securing collateral for performance of obligations
- Existing properties or off-plan properties, except for cases that the Civil Code or other relevant laws forbid sale, transfer or other change of ownership at the time of establishing security contracts, security measures;
- Properties sold under property sale agreements with retention of title;
- Properties considered as subjects of obligations under infringed bilateral contracts in case of lien measures;
- Properties under the general public’s ownership in cases prescribed by relevant laws.
(Heretofore, collateral only comprised existing properties or off-plan properties)
3. Description of collateral
Description of collateral is agreed between securing party and the secured party in accordance with the following regulations:
- In case the collateral is real estate or movable properties obliged to be registered by Law, the information described in the agreement must be consistent with the information on the Certificate.
- In case the collateral is property rights, the information described in the agreement must comprise the name and legal basis of the arisen property rights.
4. Effect of security contracts
- Security contracts notarized according to provisions of the Civil Code, relevant laws or requests take effect from the date of notarization.
- Security contracts not in the above case take effect from the date of the agreement. In cases without agreements, security contracts take effect from the contracting date.
- In the case of collateral withdrawal according to the agreement, the contents of security contracts relating to withdrawal of collateral are no longer valid.
- Security interests that have not yet arisen antagonistic effects against third party do not alter or terminate the effect of security contracts.
5. Antagonistic effect of security interests against the third party – new provisions
- Security interests against the third party only arise in the event security contracts have taken effect.
- In case the security interests are obliged to be registered in accordance with the Civil Code or relevant laws or registered under the agreement or at the request of secured party, the time of registration at competent state agencies in compliance with the relevant laws is the effective time of the antagonistic effect of the security interest against the third party.
- In case of not being obliged to be registered, the antagonistic effect of pledge of property, deposit, security collateral measure against third party arises from the time the secured party holds collateral. In case the collateral pertaining to such security interests is assigned to another person to manage, the antagonistic effect of security interest against the third party takes effect from the time:
- Pledgee, deposit or receiving collateral party holds collateral;
- Property manager directly receives collateral from pledgor, depositor or putting up collateral party;
- Security contracts take effect in case another person is directly managing property used for pledge, deposit or security collateral interest.
The antagonistic effect of escrow deposit interest against third party takes effect from the time such escrow deposit is sent to escrow accounts at credit institutions where the escrow deposit is made.
6. Investment in mortgaged properties
Herein fore, the Government only regulated cases which are entitled to invest in mortgaged properties. In this new Decree, to protect rights and interests of the parties, the Government has brought about conditions to implement investment in mortgaged properties as follows:
- There must be the approval of the mortgagee when third party invests in mortgaged properties;
- There must be the approval of mortgagee when mortgagor invests in the mortgaged properties thereby raising new properties not included in the mortgaged properties which were agreed in the mortgage contract.
- Mortgagee has the right to request to end the investment if it reduces the mortgage value.
In ‘Chapter IV’ of Decree No. 21/2021/ND-CP guiding on the realization of collateral, notice on the realization of collateral in case collateral is used to secure multiple obligations is prescribed as follows:
- In case a property is used as security for multiple obligations or held by another person, a letter of notice must be simultaneously sent to securing party, co-secured parties (if any) and individuals holding collateral;
- In cases a property is used as security for multiple obligations with multiple secured parties, not only by informing method, but it also can be implemented through registration for notice on the realization of collateral method in accordance with regulations and Law on registration for security measures.
The duration of informing the realization of collateral to the securing party is according to the agreements in security contracts or other agreements. In cases where there is no agreement, it must be for a reasonable duration, but before at least 10 days over real estate or before at least 15 days over movable properties until the time of realization of collateral. Except for cases properties are in danger of being damaged, causing the deterioration in value or loss of the whole value, it must be realized immediately.
In general, the new Decree has clearer and detailed provisions on issues of secured transactions for the purpose of implementing such transactions more effectively as well as best protecting the rights and interests of parties in such kind of transactions.