Debt sale and purchase is a crucial solution for credit institutions to handle non-performing loans, mitigate financial risks, and enhance operational efficiency. Credit institutions can concentrate their resources on strategic business activities by transferring debts to other organizations or individuals. Debt sales and purchases by credit institutions must adhere to the procedures prescribed by banking laws and comply with the principles of debt trading. This ensures transparency, legality, and protection of the rights of all parties involved.
In this article, the author outlines the procedures, methods, and practices for trading debts arising from the lending activities of credit institutions.
1. Forms of Debt sale and purchase by Credit Institutions
According to Article 10 of Circular 09/2015/TT-NHNN, as amended by Clause 5, Article 1 of Circular 18/2022/TT-NHNN, credit institutions may choose one of the following methods for debt trading:
- Agreement: Direct negotiation between the debt seller and buyer or indirectly through brokers.
- Auction: The debt seller enters into a property auction service contract with an auction organization under the laws governing property auctions.
2. Procedures for Debt sales and purchases
Regardless of the method chosen, debt trading typically follows these steps:
Step 1: The debt seller establishes a Council of Debt Sales and Purchase in compliance with legal regulations, corporate charters, and internal policies regarding debt trading.(1)
Step 2: Debt valuation.(2)
The debt seller may self-determine or hire an appraisal company to value the debt. If self-determined, the debt valuation is based on one or more of the following:
- Book value of the debt, including principal and interest, at the valuation date; classification of debt groups; collateral (if any); financial status of the borrower; and other factors influencing the debt’s value.
- Regulations and guidance from the Ministry of Finance on debt valuation standards.
Step 3: Contract signing. The debt seller and buyer execute a debt sales and purchases contract, which must include:
- Contract signing date.
- Names and addresses of the contracting parties.
- Names and titles of representatives of the contracting parties.
- Names and addresses of the debtor and related parties (if any).
- Details of the debt: loan amount, loan period, purpose, and book value at the time of transaction.
- Security measures for payment obligations (if any).
- Debt sale price, payment methods, and deadlines.
- Timeline, methods, and procedures for transferring debt documents, including collateral records (if any).
- Effective date of debt rights and obligations transfer.
- Rights and obligations of the contracting parties.
- Liability for contractual breaches.
- Dispute resolution mechanisms.
Step 4: Notification of the debt sales and purchase transaction. According to Point a, Clause 2, Article 17 of Circular 09, the debt seller must notify the debtor and related parties in writing about the debt sale within 5 working days from the contract signing date or upon amendments to the contract. In specific cases, the debt seller may notify the debtor before signing the contract.
Step 5: Transfer of rights and obligations.
The debt seller transfers and the debt buyer assumes, all rights and obligations related to the debt, including collateral rights and obligations, as per the contract and legal regulations.7
Step 6: Reporting obligations.
The debt seller (including debt trading via subsidiaries or affiliates) and the debt buyer (if a credit institution or foreign bank branch) must report debt sales and purchase activities to the State Bank of Vietnam.8
Note: Before engaging in debt trading, both parties must ensure compliance with legal requirements (refer to Apolat Legal’s article on conditions for debt trading arising from lending activities of credit institutions).
(1) Article 11 Circular 09/2015/TT-NHNN amended and supplemented by Provision 7 Article 1 of Circular 18/2022/TT-NHNN
(2) Article 12 Circular 09/2015/TT-NHNN amended and supplemented by Provision 1 Article 8 of Circular 18/2022/TT-NHNN.
(3) Article 14 và 17 of Circular 09/2015/TT-NHNN.
(4) Article 22 of Circular 09/2015/TT-NHNN.
Disclaimers:
This article is for general information purposes only and is not intended to provide any legal advice for any particular case. The legal provisions referenced in the content are in effect at the time of publication but may have expired at the time you read the content. We therefore advise that you always consult a professional consultant before applying any content.
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Apolat Legal is a law firm in Vietnam with experience and capacity to provide consulting services related to Finance and contact our team of lawyers in Vietnam via email info@apolatlegal.com.
