The decree, now in its seventh draft, has been designed to specify the 2005 Civil Code’s provisions on security for performance of civil obligations, create a sound legal framework for civil transactions, and ensure the harmony between Vietnamese laws and international laws so as to boost civil transactions involving foreign elements.

While Decree No. 165/1999/ND-CP governed pledge of property, mortgage of property, and guarantee, the draft decree, composed of 88 articles arranged in five chapters, provides for the formation and enforcement of measures to secure the performance of civil obligations stated in the 2005 Civil Code, including pledge of property, mortgage of property, deposit, collateral, escrow account, guarantee, and pledge of trust. This would help clarify the legal rights and obligations of parties to these transactions, particularly in determining liability in case the deposit is lost, destroyed or devalued while in the custody of the deposit holder.

Property used as security for the performance of obligations may be under the ownership of the obligor or the third party (the securing party), be existing objects or objects to be formed in the future.

The draft decree further stipulates that involved parties may agree upon on the use of a single property as security for the performance of several obligations and that the value of such property may be higher than, equal to, or lower than the total value of secured obligations.

In this case, in order to prevent risks, these transactions must be publicized through the transfer of the property to the secured party or the registration of security transactions. Payment priority will be established according to the order of registration, i.e., the transaction which is registered first would enjoy priority over others.

Regarding the notarization, authentication and registration of security transactions, the draft says that in principle, notarization and authentication will be agreed upon by involved parties, except where notarization or authentication is required by law.

Registration of security transactions would be required in cases where security property are land-use rights, forest-use rights, rights to own production forests being planted forests, aircrafts or seagoing vessels. Registration would also be required for transactions involving pledge of property, use of a single property as security for the performance of several obligations, reservation of ownership in case of deferred or installment payment. 

The draft decree is expected to be approved by the Government this year.

Vinanet