05 notes for a Vietnam-based enterprise guaranteeing a loan for a foreign enterprise

Currently, Vietnamese laws allow a Vietnam-based enterprise to guarantee aboard if meeting some conditions.

Through this article, BLawyers Vietnam would raise some notes for Vietnam-based enterprise’ guarantee for a loan of a foreign enterprise. 

1. Applicable law

To determine the applicable law to the guaranteed transaction, the parties must check whether any international treaties of which Vietnam is a member, applied for such transaction. If international treaties have different regulations from Vietnamese law, such treaties are applied pursuant to the laws of Vietnam.

If the parties chose a country’s law as the applicable law in advance, that law will be applied. Otherwise, the parties have no choice in the applicable law. Then, the applicable law is the law of the country that is closely associated with the transaction. However, the applicable law shall not contrast with the basic principles of Vietnamese law.

2. Approval of Prime Minister on allowing Vietnam-based enterprise to guarantee

By law, a Vietnam-based enterprise must obtain the written approval of the Prime Minister before guaranteeing a foreign enterprise’s loans. However, there has been no official document guiding the procedures for obtaining such approval so far. Up to now, there has also been no public information on which Vietnam-based enterprise has obtained the Prime Minister’s approval to guarantee for foreign enterprises.

In 2020, the State Bank of Vietnam has prepared a draft decision on regulations on the order and procedures for the Prime Minister to consider and approve for economic organizations to lend abroad, guarantee for non-residents without overseas investment projects (the “Draft Decision”) but it hasn’t been approved yet.

As such, Vietnam-based enterprises should consider guaranteeing for the foreign enterprise during the Draft Decision has not been adopted. Without Prime Minister’s approval, the enterprise cannot transfer money to fulfill guaranteed obligations as well as the guarantee transaction may be invalidated.

3. Obligations and scope of the guarantee

Vietnam-based enterprise is responsible for fulfilling the guarantee obligations according to the beneficiary’s request within a certain period upon agreed if the foreign enterprise falling the following cases:

(i) Failing to perform the due payment of guaranteed obligations;

(ii) Failing to perform the guaranteed obligation or before the deadline as agreed;

(iii) Failing to adequately fulfill guaranteed obligations;

(iv) Failing to correctly fulfill guaranteed obligations;

(v) Lacking the capacity for fulfilling guaranteed obligations; or

(vi) Other cases as agreed between parties.

Vietnam-based enterprise can undertake to guarantee for the foreign enterprise with a part or full liabilities, including interest, penalties, and compensation for any damage and interest on late payment or others as agreed.

4. Using security with assets for the guaranteed obligation

In addition to the guarantee of the loan, the parties can agree on other security with the assets of the Vietnamese enterprise or foreign enterprise (e.g., mortgages, mortgages, or asset holdings) to ensure the guarantee obligations.

However, the parties must register the security with the competent authorities in the following cases:

(i) Mortgage of land use rights;

(ii) Mortgage of property on land whose ownership has been stated in the certificate of rights to use land, ownership of house and property on land;

(iii) Pledge or mortgage of aircraft; or

(iv) Mortgage of seagoing ships.

5. Recovery of the guarantee debts from the foreign enterprise

After fulfilling the guaranteed obligation, the Vietnam-based enterprise has the right to request the guaranteed foreign enterprise to repay the fulfilled guarantee. This procedure is named “recovery of guarantee debts” and will be proceeded via a guaranteeing account.

Should you have any questions about the above contents, please revert to BLawyers Vietnam at consult@blawyersvn.com. We are more than happy to hear from you!

Date: 07 April 2022

Writer: Thu Tran

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