Currently, many financial transactions require collateral? So what is collateral? What does Vietnamese law say about collateral? Let’s answer this question with Lawyer X in the article below.
Legal grounds:
– Civil Code 2015
– Decree 163/2006/ND-CP
– Decree 11/2012/ND-CP
Consulting content
According to the provisions of Article 295 of the Civil Code 2015, the security property must satisfy the following conditions:
– The security property must own by the securing party, except in the case of holding the property or retaining the ownership.
– Collateral can describe in general but must be identifiable.
– Collateral can be existing assets or assets formed in the future.
– The value of the collateral may be greater than, equal to, or less than the value of the secured obligation.
Collateral must own by the securing party
The security property must still be owned by the securing party and only two security measures are excluded, namely, the lien and the retention of ownership.
We can explain that, when the property becomes the subject of security measures, the guarantor must have full rights to the property – the right to possess, use and dispose of the property.
In which the right of disposition will allow the securing party to use the property to mortgage or pledge it to the secured party and at the same time allow the transfer of the security property to the purchaser or the secured party in the event of asset disposal. guaranteed product. This provision removes some of the risks for the secured party.
Some exceptions that do not need to meet the above three conditions often occur in practice: land use rights, rights to exploit natural resources, properties under the management and use of state-owned enterprises. . These properties still have the right to mortgage in some specific cases or have the approval of the competent state agencies.
Assets can describe generally but must be identifiable
Because the collateral can be an existing asset or an asset formed in the future, it is not possible for the law to specify that type of asset- because it has not yet formed or formed synchronously but must be identifiable- that is, there is a mechanism to handle the exact type of asset when the problem of handling collateral arises.
Example: Collateral for an apartment building X under project Y under construction in a mortgage transaction. In the object part of the mortgage contract, the parties must describe the apartment, the project, and where it is located… That apartment must specifically identify by the design diagram, area, and location…
The value of the collateral may be greater than, equal to, or less than the value of the secured obligation
Normally, the value of the collateral must be greater than the value of the secured obligation so that when disposing of the security asset, the proceeds from the sale of the security asset pay other financial obligations such as expenses maintenance, and property handling costs.
However, the parties may agree that the value of the collateral is equal to or less than the value of the security obligation. In this case, if the property disposes of, the secured party may suffer damage when the securing party has no other assets to pay.
Collateral can be existing assets or future-forming assets
The Civil Code 2015 allows assets formed in the future to use as collateral. Assets formed in the future assets owned by the securing party after the time when the obligation established or the secured transaction entered into.
Note: In addition, Clause 2, Article 1 of Decree No. 11/2012/ND-CP dated December 22, 2012, of the Government amending and supplementing several articles of Decree No. 163/2006/ND-CP contains “Security property is an existing property or an asset formed in the future that is not prohibited by law from trading”.
Thus, the property must be “not prohibited from trading” to be used as security. The handling of security assets can lead to the transfer of security assets, so “no prohibition on transactions” is a suitable condition for security assets.
Related article:
- Transactions require registration of a security in Vietnam
- Handle debts of Management Company of credit institutions in Vietnam
Frequently asked questions:
A secured transaction is considered a sub-contract that secures the main obligations, but the validity is no longer dependent on the main obligation.
– The object is the property.
Pledge property; mortgage property; deposit; deposit bets; or deposit reserve the right of ownership; guarantee; mortgage; hold property
Collaterals can be existing assets or assets formed in the future. Existing assets are assets that have been formed at the time the security transaction is entered into. Future assets are assets owned by the securing party after the time the obligation is established, or secured transaction is entered into. Assets formed in the future include assets already formed at the time of entering into security transactions; but after the time when the transaction is concluded, it is owned by the securing party.
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