DECREE

ON SECURITY TRANSACTIONS

THE GOVERNMENT

Pursuant to the Law on Organization of the Government of September 30, 1992;
Pursuant to the October 28, 1995 Civil Code;
At the proposal of the Minister of Justice,

DECREES

Chapter I

GENERAL PROVISIONS

Article 1.- Application scope

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2. In cases where it is not otherwise provided for by law, this Decree shall also apply to the pledge and mortgage of, and guaranty with assets as security for the performance of obligations in economic and commercial transactions.

3. The signing and performance of contracts for mortgage or the land use right and the disposal of the mortgaged land use right shall comply with the provisions of the land legislation. In cases where the land legislation contains no relevant regulations, this Decree�s provisions shall apply.

4. This Decree shall also apply to the pledge and mortgage of, and guaranty with assets as security for the performance of obligations in civil, economic and commercial transactions involving foreign elements, except otherwise provided for by international treaties which Vietnam has signed or acceded to or by Vietnamese laws.

Article 2.- Interpretation of terms

In this Decree, the following terms and expressions shall be construed as follows:

1. "Security transaction" is a contract for pledge or mortgage of, or guaranty with assets whereby the securer pledges with the securee to use assets as security for the performance of civil obligations.

2. "Securer" is an asset pledgor or mortgagor or a guarantor on assets.

3. "Securee" is an asset pledgee or mongagee or a guarantee on assets.

4. "Secured obligation" is an obligation, of which the performance is secured by pledge, mortgage of, or guaranty with assets.

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6. "Security assets" are assets put by a securer in pledge, mortgage or guaranty to secure the performance of obligation(s) toward the securee.

7. "Assets formed in the future" are movables and/or immovables which are formed after the signing of the security transaction and would be owned by the securer, such as: yields, profits and/or assets formed from loan capital, projects under construction and other assets that the securer has the right to receive.

8. "Goods circulated in the production and business processes" include machinery, equipment, raw materials, materials, fuels, consumer goods and other movables or immovable to be exchanged or traded in association with the production and/or business functions of the securer.

Article 3.- The principles for signing and performance of security transactions

1. The involved parties may agree on the signing and performance of contracts for pledge or mortgage of or guaranty with assets, as well as the disposal of security assets, which, however, must not contravene the law and social ethics.

2. The legitimate rights and interests of the parties involved in security transactions shall be respected and protected by law.

Article 4.- The scope of security for the performance of obligations

1. The parties may agree on the pledge or mortgage of, or guaranty with assets as security for the performance of current obligations or future obligations.

2. An obligation may be either partly or fully secured under the mutual agreement between the parties or the provisions of law. In cases where it is neither otherwise agreed by the parties nor prescribed by law on obligation shall be fully secured, including the obligations to repay interests and compensate for damage.

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Article 5.- The conditions for security assets

Security assets must meet the following conditions:

1. Being under the securer's ownership:

The land use right may be mortgaged to secure the performance of obligation(s) according to provisions of the land legislation.

Assets assigned by the State to State enterprises for management and use may be pledged, mortgaged or used in guaranty as security for the performance of obligations according to provisions of the legislation on State enterprises and other relevant legal documents;

2. Being permitted for transactions and undisputed;

3. The securer has purchased insurance for assets, which, under provisions of law, must be insured.

Article 6.- Assets to secure the performance of many obligations

1. One asset may be used as security for the performance of many obligations in the following cases:

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b/ The asset, though not subject to ownership registration under the provisions of law, must be registered for its security transaction at security transaction registry office.

2. For cases specified in Clause 1 of this Article, the value of security assets must be higher than the total value of the secured obligations, except otherwise provided for by law or agreed upon by the parties.

Article 7.- Pledged assets

Assets eligible for pledge include:

1. Machinery, equipment, raw materials, fuels, materials, consumer goods, precious metals, gems;

2. Vietnamese currency, foreign currencies;

3. Bonds, shares, credit bills, time bills, deposit certificates, commercial bills and other papers with pecuniary value;

4. Property rights deriving from the author's right, industrial property rights; right to claim debts, right to receive insurance indemnity, and other property rights deriving from contracts or other legal grounds;

5. Right over capital contributed to enterprises, including foreign-invested enterprises:

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7. Sea-going vessels as specified in the Vietnam Maritime Code, aircraft as specified In Vietnam’s Civil Aviation Law, in cases where they are allowed to be pledged;

8. Profits and rights deriving from the pledged assets;

9. Other assets as provided for by law.

Article 8.- Mortgaged assets

Assets eligible for mortgage include:

1. Residential houses and construction works affixed to land, including appurtenances to such residential houses and construction works and other assets appended to land;

2. The land use right which can be mortgage under the land legislation;

3. Yields, profits, insurance indemnity and rights deriving from the mortgaged immovables among the mortgaged assets, as agreed upon by the parties provided for by law;

4. In cases where immovables with appurtenance are entirely mortgaged, such appurtenances shall also constitute part of the mortgaged assets. In cases where immovables with appurtenances are partly mortgaged, such appurtenances shall constitute part of the mortgaged assets only if it is so agreed by the parties;

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6. Other assets as provided for by law.

Article 9.- Assets for guaranty

The guarantor and the guarantee may agree secure the performance of the secured obligations in assets specified in Articles 7 and 8 of this Decree.

Chapter II

SIGNING AND PERFORMANCE OF CONTRACTS FOR PLEDGE OR MORTGAGE OF, OR GUARANTY WITH ASSETS

Article 10.- Form of contracts for pledge mortgage of, or guaranty with assets

1. A contract for pledge or mortgage of, guaranty with assets must be made in writing, either in a separate document or incorporated or incorporated in the principal contract.

2. Contracts for pledge or mortgage of, or guaranty with assets shall be notarized by the State notary office or certified by the competent People's Committee, if it is so agreed by the parties. In cases where Vietnamese laws require the notarization or certification, the parties shall have to comply therewith.

Article 11.- The principal contents of a contract for asset pledge or mortgage

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a/ Secured obligation(s);

b/ Description of pledged or mortgaged assets;

c/ Value of pledged or mortgaged assets, if so agreed by the parties or prescribed by law;

d/ Pledged or mortgaged asset holder;

e/ Rights and obligations of the parties;

f/ Cases and method(s) of disposing pledged or mortgaged assets;

g/ Other agreements.

2. For cases of pledge or mortgage of future assets, when the pledgor or mortgagor have the ownership right over such assets, the parties may agree to make a contract appendix which describes the assets and states the value thereof, if it is so agreed by the parties or prescribed by law.

Article 12.- The principal contents of a contract for guaranty with assets

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a/ The guarantor's commitment to perform obligation(s) on behalf of the guaranteed;

b/ Guaranteed obligation(s), guaranty scope and the guaranteed;

c/ Guaranty assets; and the value thereof, if it is so agreed by the parties or prescribed by law;

d/ Rights and obligations of the guarantor, the guarantee and the guaranteed;

e/ Cases and method(s) of disposing the guaranty assets;

f/ Other agreements.

2. For case of guaranty with future assets, as soon as the guarantor has the ownership fight over such assets, the parties may agree to make a contract appendix which describes the assets and states the value thereof, if it is so agreed by the parties or prescribed by law.

Article 13.- Registration of security transactions

1. The parties to a security transaction may agree that either the securer or the securee shall carry out the registration thereof.

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1. In cases where the parties agree to use one asset as security for the performance of many obligations as prescribed in Article 6 of this Decree, the securer shall have to notify the subsequent securee of the previous times of security; failing to do so, the former shall have to compensate for damage caused to the damage sufferer.

2. Each pledge or mortgage of, or guaranty with one asset as security for the performance of many obligations must be made in writing and registered at the security transaction registry office.

3. The priority order for settlement among the parties secured by the same asset shall be determined according to the security transaction registration order.

In cases where the joint securees agree to change the settlement priority order, they shall have to register such change at the security transaction registry office.

Article 15.- Cases where the pledgor holds the pledged assets

The parties may agree to let the pledgor hold the pledged assets in the following cases:

1. The ownership right over the pledged assets has already been registered;

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registry office.

Article 16.- Effect of security transactions

1. A security transaction shall take effect from the time the last party signs the transaction document. In cases where a security transaction must be registered at the security transaction registry office, such transaction shall take effect from the time of registration.

2. An invalidated security transaction shall not affect the effectiveness of the secured obligation, except for cases where such security transaction is

one of the conditions for effectiveness of the secured obligation.

Article 17.- Rights and obligations of the securer in cases where such party holds the security assets

1. The securer that holds security assets shall have the following rights:

a/ To exploit and use the security assets, enjoy yields and/or profits therefrom, except otherwise agreed;

b/ For security assets being goods circulated in the production and business processes, the securer may sell such assets provided that he/she/it notifies the securee of the sale and the right to demand the settlement. The sale proceeds or assets gained from the use of such proceeds shall constitute security assets in replacement of the circulated goods volume already sold;

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a/ To maintain and preserve the security assets;

b/ Not to exploit the utility of the security assets, if such assets are in danger of damage due to such exploitation;

c/ Not to sell the security assets, except for cases specified at Point b, Clause 1 of this Article and Article 358 of the Civil Code.

Article 18.- Rights and obligations of the securee in cases where the securer or the third party holds the security assets

1. In cases where the securer or the third party holds the security assets, the securee shall have the following rights:

a/ To directly check and inspect the security assets;

b/ To request the security asset holder to supply information on the current state of such assets;

c/ To request the security asset holder to apply necessary measures as agreed upon to preserve the value of security assets, which are in danger of damage due to exploitation and use;

d/ To request the security asset holder to hand over such assets to him/her/it for disposal, except otherwise agreed upon or prescribed by law.

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Article 19.- Rights and obligations of the parties involved in security transactions with assets formed in the future

The securee has the right to conduct supervisions and inspections in the course of forming the security assets. As soon as the security assets are formed placed under the securer�s ownership, the parties shall have the rights and obligations according to the Civil Code�s provisions on pledge, mortgage and guaranty and this Decree.

Article 20.- The liabilities of the security asset holder in cases such assets are lost or damaged

In cases where the security assets are lost or damaged, the settlement shall be as follows;

1. If the securer holds such assets, he/she/its shall have to immediately notify the securee thereof; and supplement or replace the security assets supplement or alter the security measures. If not, securee may request the securer to fulfill the obligation ahead of time, except otherwise agreed upon;

2. If the securee holds such assets, he/she/its shall have to immediately notify the securer thereof and compensate the securer for the damage, or reach an agreement with the latter on the obligation clearing. The parties may also agree on the supplement or replacement of the security assets, or addition or alteration of the security measures;

3. If a third person holds such assets, he/she shall have to promptly notify the securer and the securee thereof and compensate the securer for the damage. The compensation amount shall be used for clearing obligations between the securer and the securee, except otherwise agreed upon. The securer and the securee may also agree on the supplement replacement of the security assets or on the addition or alteration of the security measures.

4. In cases where the security assets are insured, the securee may request the securer to coordinate in carrying out the necessary procedures to receive the insurance indemnity from the insurance organization. The indemnity amount paid by the insurance organization shall be used to settle the obligation to the securee. The party may agree on the supplement replacement of the security assets or the addition or alteration of the security measures.

Article 21.- Security transactions in cases the securer is a reorganized enterprise

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Chapter III

DISPOSAL OF SECURITY ASSETS

Article 22.- Cases where security assets are disposed

Security assets shall be disposed in the following cases:

1. When the time for performing the obligation becomes due but the securer still fails to perform or improperly performs such obligation;

2. The securer breaches his/her/its own obligation, thus leading to the pre-mature performance of such obligation which, however, has not been performed or been improperly performed;

3. The law prescribes that security assets must be disposed so that the securer can perform other due obligations;

4. The securer is an enterprise which has been declared bankrupt by the court or dissolved by a decision of the competent State agency;

5. Other cases as agreed upon by the parties or prescribed by law.

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The disposal of security assets must comply with the following principles;

1. The securee may directly dispose or authorize a third party to dispose such assets in cases specified in Article 22 of this Decree, except where the parties agree that the securer shall carry out the disposal;

2. The security assets shall be disposed by mode agreed upon by the parties, except otherwise prescribed by law; in cases where no agreement is reached or no relevant law provision is available, the securee may request the auction of security assets;

3. The competent State agency(ies) shall have to apply necessary measures for disposing security assets according to provisions of law.

Article 24.- Modes of disposing security assets

Security assets shall be disposed by the following modes:

1. Sale of security assets;

2. The securee shall receive the security assets as substitute for security for the performance of the secured obligation;

3. The securee may directly receive money amounts or assets handed over by the third party the securer.

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The securee may decide the time for disposal of security assets, 7 days for pledged assets, and 15 days for mortgaged assets after the notice requesting the disposal is registered, except for cases specified in Clause 2, Article 30 of this Decree.

The time for disposal of security assets must not be earlier than the time for the securer to perform the obligation, except otherwise agreed upon by the parties or prescribed by law.

Article 26.- Notification of disposal of security assets

1. Before carrying out the disposal of security assets, the securee shall have to notify in writing the securer of the asset disposal and register the notice request the asset disposal at the security transaction registry office.

2. In cases where one asset is used to secure the performance of many obligations, the security transaction registry office where the security, assets disposal request has been registered shall have to notify in writing the joint securees of such assets disposal.

3. A written notice of security assets disposal shall contain the following principal details:

a/ Reason(s) for the asset disposal;

b/ Assets to be disposed;

c/ Disposal mode(s);

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e/ Time for disposal of security assets.

Article 27.- Rights of the securee over security assets after the disposal requesting notice is registered

After the asset disposal requesting notice is registered, the securee shall have the right to apply or to request the securer to apply necessary, measures as prescribed by law to protect the security assets.

Article 28.- Obligations of the securer

As from the time of receiving the written notice of security asset disposal, the securer must neither destroy, disperse nor sell the security assets, except where it is so agreed upon by the securee.

Article 29.- Hand-over of security assets to the securee in cases where the securee does not hold such assets

1. Upon receiving the security asset disposal notice, the securer or the third party holding the security assets shall have to hand over such asset and relevant title deeds to the securee, except otherwise agreed by the parties.

2. The asset hand-over shall be effected within the time limit and at the place determined by the securee in the written notice of asset disposal, except otherwise agreed by the parties.

3. In cases where the securer or the third party holding the security assets fails to hand them over, the securee may request the competent State agency to apply necessary support measures to compel the hand-over of such assets.

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Article 30. - Sale of security assets

1. Security assets shall be sold at the time of disposal stated in the written notice. Security assets shall be either sold directly to purchasers or put on auction by the parties.

2. In cases where the security assets are in danger of damage, right after sending the security asset disposal notice, the securee may sell such assets.

3. In cases where the security asset purchaser or assignee must satisfy the conditions prescribed bylaw, the sale or assignment of security assets must comply with such prescriptions.

Article 31.- Disposal of security assets being the right to claim debts or the right to request payment

1. Past the time limit stated in the written notice of disposal of security assets being the right to claim debts or the right to request payment, the securee may request the third party that is obliged to repay debts or make payments to the securer to pay money to him/her/it according to the agreement.

2. In cases where the third party delays the payment to the securee, the latter may demand the interest on the delayed payment according to the over-due debt interest rate prescribed by the State Bank corresponding to the delayed period of time at the time of payment.

Article 32.- Disposal of the mortgaged land use right

The mortgaged land use right shall be disposed by mode agreed upon by the parties; in cases of no agreement, the mortgagee may request an auction to settle the obligation.

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1. In cases where the parties agree to dispose security assets by mode the securee takes over such security assets as substitute for the performance of the obligation, the securer shall have to hand over such assets and relevant title deeds to the securee.

2. In cases where the value of security assets exceeds that of the secured obligation, the securee shall have to pay to the securer the excessive value; if the value of security assets exceeds that of the secured obligation, the securee may request the securer to pay for the deficit, except otherwise agreed.

Article 34.- Disposal of assets as security for the performance of many obligations

In cases where a security assets must be disposed so as to perform a due obligation, the other obligation, although not yet due, shall also be considered due and all the joint securees shall be entitled to take part in the disposal. The securee that has registered the asset disposal notice shall be responsible for disposing the assets, if it is not otherwise agreed by the other joint securees.

Article 35. - Disposal of guaranty assets

1. In cases where the guaranty contract does not specify the asset(s) used to guarantee, the parties shall have to agree on the kind of assets to be disposed of.

2. For cases where the guaranty assets are sold, the guarantee shall be given priority to get paid from the sale proceeds.

Article 36.- Exploitation and use of security assets

In cases where the security assets have not yet been disposed of for the obligation performance, the securee may exploit and use such security assets. The proceed from the exploitation and use of security assets shall be used to settle the obligation, after subtracting necessary and reasonable expenses for such exploitation and use.

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1. The proceeds from the sale of security asset shall be managed by the securee, except otherwise agreed by the parties.

2. The proceeds from the sale of security asset shall be settled according to the following order:

a/ After subtracting expenses for preservation and sale and other necessary expenses related to the disposal of security assets, the remainder shall be used to settle the obligation toward the securee; in case where the secured obligation is a debt, the secure shall be paid in the following order: principal, interest, fine, compensation for damage (if any), and remaining sale proceeds shall be returned to the securer. If the sale proceeds is not enough, the securer shall have to pay for the credit;

b/ In cases where one asset is used to secure the performance of many obligations, the sale proceeds shall be settled according to the security transaction registration order.

Article 38.- Transfer of the asset ownership right or the land use right

1. The security asset purchaser and persons who take over security assets as substitute for the performance of the securer's obligations toward themselves shall have the right to own such assets.

2. In cases of assets over which the ownership right or use right must be registered as prescribed by law, the competent State agency shall have to register the ownership right and/or use right for purchasers or persons who take over security assets within 7 days, for movables; and 15 days, for immovables, after receiving complete and valid dossiers, except otherwise prescribed by law.

3. The mortgaged land use right transferee shall have rights and obligations like the land use right transferor and be granted the land use right certificate.

Article 39. - Right to request the arbitration or the court to settle disputes.

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In the course of dispute study and handling by the arbitration or the court, the parties shall have to apply measures to protect the assets, not to sell, exchange, donate or relocate them in any form, except for cases where the arbitration or the court issues a decision thereon.

Article 40.- Deletion of registration at the security transaction registry office

After the security assets involved in security transactions, which have already been registered at the security transaction registry office, are disposed, the securee shall have to request the registration deletion according to the provisions of the Decree on registration of security transactions.

Chapter IV

IMPLEMENTATION PROVISIONS

Article 41.- Effect of the Decree

1. This Decree takes effect 15 (fifteen) days after its promulgation; the following documents and regulations shall cease to be effective:

a/ Article 2 of Decree No.17-HDBT of January 16, 1990 of the Council of Ministers detailing the implementation of the Ordinance on Economic Contracts;

b/ Other regulations on pledge, mortgage and guaranty, which are contrary to provisions of this Decree.

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Article 42.- Implementation guidance

1. The Ministry of Justice, the State Bank of Vietnam, the ministries, the ministerial-level agencies and the agencies attached to the Government shall, within the ambit of their respective functions, tasks and powers, have to guide the implementation of this Decree.

2. The ministers, the heads of the ministerial-level agencies, the heads of the agencies attached to the Government and the presidents of the People's Committees of the provinces and centrally-run cities shall have to implement this Decree.

ON BEHALF OF THE GOVERNMENT
FOR THE PRIME MINISTER
DEPUTY PRIME MINISTER



Nguyen Tan Dung