Can debt repayment right be mortgaged?

In recent businesses, besides the usual forms of loan security such as mortgage or pledge of tangible assets of companies, enterprises are tending to use intangible assets such as debt repayment rights as mortgage. The right to collect debts has the advantage of helping enterprises take advantage of the receivables of the enterprise as collateral instead of having to mortgage other assets of the company. From the perspective of Vietnamese law, can debt repayment rights be mortgaged? What are the processes for mortgaging debt repayment rights? 

1. What is debt repayment right?

Currently, Vietnamese law does not specify the definition of “debt repayment right”. Based on the regulation of the Civil Code and related legal documents, debt repayment right is the right to require the obligor to perform a job, specifically to pay an amount of money to the obligee at a time agreed upon by the parties in the contract. Debt repayment right is considered a form of property right, recognized as a type of property under Vietnamese civil law. 

2. Can debt repayment right be mortgaged?

Pursuant to Article 14 of Decree 21/2021/ND-CP elaborating on the Civil Code regarding security for fulfillment of obligations, the contracted party may use the right to collect debts to ensure the performance of obligations. Thus, enterprises can mortgage their debt repayment rights. The mortgage does not require the consent of the obligor but this person must be notified by the mortgagee to know before performing the obligation as agreed or prescribed by law. 

Regarding the scope of the mortgage of debt repayment right, the mortgagor may mortgage part or all of the debt repayment right. In addition, the mortgagor may mortgage the debt repayment incurred in the present or the debt repayment incurred in the future. 

When mortgaging the debt repayment right, there will exist two contracts at the same time, the contract arising the debt obligations and the contract mortgaging the debt repayment, therefore, there will be cases where the payment term of the contract incurs obligations does not coincide with the time limit for handling the mortgage. Pursuant to Article 7.2.a, Article 7.2.b Circular 16/2014/TTLT-BTP-BTNMT-NHNN:  

• If the time for performing the debt payment obligation under the contract with grounds for the mortgagor’s right to claim debts to arise is before the time for handling the right to claim debts under the mortgage contract, the debt payment obligor shall transfer the debt amount into the debt payment obligor’s account opened at a bank designated by the mortgagee. The mortgagee may request the bank to block this account and release it for handling only when the time for disposal of mortgaged assets becomes due. 

• If the time for performing the debt payment obligation under the contract with grounds for the mortgagor’s right to claim debts to arise is after the time for handling the right to claim debts under the mortgage contract, the mortgagee may request the debt payment obligor to pay the debt amount at the time the debt payment obligation becomes due. The mortgagee may not request the mortgagor to make payment when the debt payment obligation does not become due yet, unless otherwise agreed upon. 

3. Procedures for mortgage debt repayment right  

Pursuant to Article 6.7.c of Circular 08/2018/TT-BTP, mortgage transactions of debt repayment rights must register the security transaction. The requester will carry out the procedures for registration of security transaction through the online security transaction registration system or submit original copies directly at the competent security transaction registration agency (Article 13.1 of Decree 99/2022/ND-CP). In case of direct registration of secured transactions at the registration office, the requester needs to comply with the requirements in Form 1 of Circular 08/2018/TT-BTP and prepare the contract arising from debt repayment obligations.

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