Completing the legal framework for handling bad debts of banks

In recent years, the issue of bad debts of credit institutions (CIs) were identified as the key task of the banking sector, the Government was interested in directing, ministries and relevant agencies to coordinate the implementation. However, the process of bad debt still facing many difficulties and problems due to the lack of legal provisions; by provisions of the law do not fit; because the regulations are not uniform, making it difficult to implement.
1. Lack of legal provisions
One of the biggest disadvantages for processing security assets by means of lawsuits, enforcement is time prolonged, costly for banks; no specific regulations, tight on the steps of the proceedings of the Code of Civil Procedure (Code TTDS) and the provisions relating to the disposal of security assets, namely:
a) There are no guidelines for the order, procedures and time limits for the Court to resolve the case as the reasons for suspension no longer
TTDS Code Article 191 provides that “the Court continued to resolve the case as the reasons for suspension no longer exist.” However, the Code TTDS well as Resolution No. 05/2012 / NQ-Judicial not specified manually procedures and time limits for settlement of cases are suspended continue to resolve how, led to delays in the resolution of the case.
b) There are no regulations on the order of civil proceedings shortened
In many cases, borrowers are now, the bankrupt, the workers stopped work, business owners fled; individual borrowers are often changed contacts without notifying banks, uncooperative, not involved in the process of court settlement. In this case, the convening of a defendant to participate in mediation is impossible and unnecessary. The enactment of civil proceedings Compact stakeholders would help save costs, accelerate debt recovery through litigation route.
c) There are no specific provisions on mediation time
TTDS Code and the guidelines of the Supreme People’s Court (SPC) has no regulations on the duration of each mediation, the mediation was being postponed. Therefore, time is often prolonged mediation, affecting the interests of the stakeholders.
d) There are no specific instructions on the procedure partial unwinding
During the disposal of collateral, some customers paying mortgage payments, requesting partial collateral, some customers suggested separation to split the collateral is real estate for sale. However, because the law does not contain provisions on procedures for partial acceptance, should banks face difficulties in implementing the procedures on.
e) There are no regulations on business conditions for service operations debt trading
As stipulated in the Investment Law 2014, the service business is debt trading business conditions. However, the current law has no provisions on the conditions for this business line. Therefore, enterprises can not conduct business registration occupations, affect the sale of credit debt because no business is purchased debt.
2. Legislation inappropriate
First, the provisions on enforcement expenses unreasonable
Under the provisions of the Law on Execution of Civil Judgments, the judgment enforcement fee payable at 3%. This provision invisible encourage debtors overdue project, not voluntary enforcement, prolong enforcement, infringement of rights of judgment creditors. Given enough credit irrevocable debt enforcement fee would cause further financial difficulties for banks.
Secondly, the provisions on distraint assets are pledged or mortgaged
As stipulated in Article 90 Enforcement of civil judgments, cases where judgment debtors have no assets or other assets, but not enough to enforcement, enforcement officers have the right to distraint and asset disposal judgment debtor is pledged or mortgaged if the value of such assets is greater than the secured obligations and enforcement costs judgment. However, the inventory of the assets are pledged or mortgaged to fulfill the obligation to implement other projects, in terms of reality would infringe the legal rights of the guarantor and the secured party, as follows : (i) the CI to recover debts before maturity result in a revenue loss CI should be obtained in accordance with the credit agreement, affecting the business plan of the credit; (Ii) assets under distraint pledge or mortgage will lose the main source of profit from the collateral, as revenue of the guarantor and source of repayment for the credit; distraint also reduces the value of the collateral at banks; (Iii) After enforcement agencies distraint collateral in credit, borrowers often have no motivation to comply with the credit agreement was signed, leading to bad debts incurred.
Third, the provisions of the order of priority of payment of money judgment
Paragraph 3 of Article 47 of the Law on civil judgment execution in 2008 stipulates: “The proceeds from the sale of the pledged property, mortgage or sell property that judgments and decisions to declare distraint order to ensure implementation of an obligation Priority specific payment obligations guaranteed that after deducting the cost of enforcement. ” However, in many cases, the treatment of collateral which the collateral after deducting the costs of enforcement insufficient for credit repayment and the defendant in court costs unexecuted and agencies enforcement priorities often require banks levy before the court fee (to fulfill obligations of state budget revenues) results have not recovered enough credit debt principal to be penalized very much related costs.
Fourth, the provisions on payment of corporate income tax, personal income tax
According to regulations of the Ministry of Finance, the tax authorities often withhold taxes immediately before making the payment priority for credit debts and VAMC. In fact, for banks as collateral settlement, proceeds from the sale of the collateral is not enough to pay the debt. Even in cases where the guarantee owed VAT / corporate income tax and other taxes not related to the sale of the collateral but when banks sell the collateral, the tax authority required to pay back taxes in advance to confirm that Financial Services to transfer assets. Regulations on the taxpayer prior to the obligation secured as inappropriate by the credit debt as collateral debt, have priority over the tax debt is debt without collateral. If you have to pay taxes before making payment priority obligation to the secured party is the credit will affect the number of banks to recover debts.
Fifth, the conflict between the Code and the Civil Code TTDS on statutes of limitations
As stipulated in Article 159 TTDS Code, the statute of limitations from the time the calculation is on personal, agencies and organizations know their rights and their legitimate interests are infringed upon. However, Article 427 of the Civil Code provisions on the statute of limitations shall be calculated from the time the legitimate rights and interests of individuals, legal persons or organizations are infringed upon. Regulation at the appropriate TTDS Code and ensure that the interests of stakeholders. However, if the Court applied the statute of limitations stipulated in the Civil Code, will affect the petitioner’s right to credit institutions.
3. The provisions asynchronous
The disposal of bad loans are not only experiencing difficulties due to the legal basis of incomplete and inadequate, but also encounter the difficulties and shortcomings by the interpretation and application of law by the competent authorities, especially Court, Procuratorate. Practice has shown, many security transactions of credit institutions to comply with the provisions of the law but at risk of being declared invalid due to incorrect interpretation of some courts.
First, the court misinterpreted legislation on civil transactions with themselves in an individual capacity of up to two security contracts
Paragraph 5 of Article 144 of the Civil Code stipulates: “The representative is not set, perform civil transactions with themselves or with third parties that I was the representative of that person, unless otherwise provided by law Other provisions “.
At the same time, the law on secured transactions allows a user of its assets to secure performance of obligations to others. In the credit-granting activities, cases of corporate representatives (the guarantor) personal property used to secure the performance of obligations of enterprises represented by them (borrowers), after signing security contract, the parties generally agreed that the three parties signed guarantees include the guarantor, the secured party and borrowers to ensure transparency. The signing of the tripartite agreement is not contrary to the provisions of Paragraph 5 of Article 144 of the Civil Code as security transactions are transactions between the guarantor and the secured party, borrowers do not have the rights and obligations of the security contract , rights and obligations of the loan are shown in the credit agreement.
However, in practice many court cases suggest that representatives of businesses use personal assets to secure the obligation to represent their businesses due to loans that violate provisions of Paragraph 5 of Article 144 CC 2005 and declared null and void the contract of credit resulting from loan guarantees become unsecured.
Second, the court does not apply temporary emergency measures prescribed
As stipulated in the Code TTDS, banks have the right to request the Court to apply temporary emergency measures. However, the application of these measures is often dependent on the will of the judge. Hence, in fact, during the court hearing a civil case, the defendant has the property of dispersing behavior to evade the repayment obligation. But the banks may request the Court to apply temporary emergency measures as provided for in Article 102 of the Code TTDS is very difficult, resulting in cases not yet well done plaintiff is entitled to prevent the defendant from dispersing assets Is.
Third, the court improperly applied the provisions of overdue interest and contractual penalties in the credit agreement
The CI and customer agreements delinquency rate for violations principal repayment obligations, penalties for late payment interest and penalties owed other obligations under the contract is consistent with the provisions of the Civil Code and the legal documents of the State Bank. The agreement of these measures are absolutely necessary to protect the legitimate rights and interests of each party participating in the credit agreement, bringing different purposes.
However, in practice the courts have different interpretations of late payment penalties. Accordingly, the Court can not accept the credit and client agree to apply the interest rate on overdue principal and fines for violations of the credit agreement for the unpaid interest obligations, which the Court accepted agreement This agreement, making it difficult for banks in the process of debt settlement.
Fourth, the court misunderstanding of Mortgage measures and measures to guarantee
In fact, some courts, the granting Procuratorate also less accurate interpretations of measures and guarantee mortgages. During a trial, a number of judges, prosecutors said that measures to secure mortgage obligations others are measures of guarantee and declare void the mortgage contract to secure obligations other person whether contracts This mortgage has been public servants, mortgage registration prescribed by law, resulting from the credit agreement has no collateral and collateral into risk invalidating Mortgage series LUR contract of third parties in the whole system of credit institutions.
The Court ruled mortgage contract of land use rights of a third party between the mortgagor and the mortgagee void is inconsistent with the provisions of the law on mortgage of land use rights by third parties, This has and will cause a major disturbance in the society and detrimental to the CI.
Fifth, the court incorrectly applied provisions on the handling of third-party collateral when businesses go bankrupt
Pursuant to the provisions of Article 355 of the Civil Code, in cases where the due implementation of the civil obligation which the obligor fails to perform or improper performance obligations, the collateral is treated in a manner agreed upon or Auction under law to perform its obligations. The disposal of the collateral irrespective of the collateral of the borrower or the third party.
However, the case now bankrupt borrowers, banks require collateral Court’s handling of the third party, the court refused and suggested sue in a separate case. Once you have decided to declare bankruptcy of enterprises, continue to sue banks require collateral settlement of a third party in order to recover capital have not accepting the court with reasons obligation (debt) is no longer available (by now no longer exists and the law has been discharged). This has deprived the legitimate rights and cause damage to banks, which should be soon removed.
Friday, the court concerns not properly understand the provisions of the Civil Code on a property can guarantee a lot of credit obligations
Pursuant to the above provisions, the parties agreed guaranteed obligations, including obligations incurred in the future (the obligations in the credit contract was signed after signing the security contract) is fully consistent with the law.
When a dispute arises concerning the requirements for sale of collateral to secure obligations of the credit agreement was signed after the signing of the mortgage contract, the judge did not accept the grounds that the mortgage contract only guaranteed the credit agreement was signed at the time of the mortgage contract. The judges did not accept a collateral for the obligations of the credit agreement was signed after signing the mortgage contract is not consistent with the provisions of Article 344 of the Civil Code stipulates: “The duration of the mortgage by the parties agreement, if there is no agreement, the mortgage with a term until the termination of the obligation secured “and Item 5, Article 3 of the Decree 163/2006 / ND-CP of the secured obligations, including obligations picture future.
Saturday, held auctions require the auction of security assets must have written authorization auction
Paragraph 4 of Article 58 of Decree 163/2006 / ND-CP (which was amended and supplemented by the Decree No. 11/2012 / ND-CP) stipulates: “The handling of assets based on the contents agreed in the security contract to conduct disposal of collateral without written authorization to handle the assets of the guarantor “.
However, the auction centers still require the sale of the collateral must have consent of the guarantor. Therefore, if customers fled, no cooperation, no signed contracts authorized auction, the CI could not authorize contract auction with auctioneer Center. Therefore, the auction can not be done, affecting the recovery of credit debt.
Eighth, problems in the transfer of ownership or rights to use assets
Under the provisions of Paragraph 2, Article 12 Joint Circular 16/2014 / TTLT-BTP-BTNMT-NHNN dated 06/6/2014 guiding some issues about the handling of collateral (Joint Circular No. 16), the beneficiary shall be signing contracts, papers and documents to transfer ownership or rights to use assets if secured berths involuntary sign these papers. However, in fact, some notaries still require credit institutions may sign a contract with the seller as collateral if there is legal authorization documents of the property owners and the price to be agreed Owner’s. This made it difficult for banks because customers often do not cooperate and did not agree to sign the authorization document can lead to property not to name the buyer.
Joint Circular 16 also stipulates the cases received collateral to replace the implementation of the guarantee obligation, the security contract or other written agreement of the collateral received to replace the implementation of obligations the guarantor is used instead of contracts, papers and documents to transfer ownership, the right to use the collateral. However, the competent authorities issue certificates of ownership / use of property rights does not accept the papers to transfer ownership / rights to use assets signed by the secured party in the case to ensure that no voluntarily signed the papers that required by contract between the secured transfer and the secured party.
Paragraph 5 of Article 12 Joint Circular 16 allows notarization and authentication of contracts and transfers of ownership and use rights before the deregistration of the mortgage. However, in practice the office LUR require banks to mortgage deregistration before. The deregistration of the mortgage before the transfer of credit resulting from loans have no collateral to the collateral.
Ninth, bailiffs not to comply with the provisions on the period of enforcement
Civil Law 2008 judgment had regulations on the time limit for a decision on enforcement of civil judgments, term decision to implement a decision to apply temporary emergency measures (Article 36), the period of notice judgment (Article 39), the enforcement period (Article 46). However, in practice for many different reasons, remain in the case, executors not comply with the rules on time limits in civil judgment execution has led to very late , long.
In addition, participation in the proceedings, banks are facing many other difficulties due to incorrect application of the law as the Court declared temporary suspension of settlement of the case is not prescribed; The court returned the petition, suspend the case for grounds incorrect legal basis; Courts require banks providing addresses of those who currently use the collateral at the time of filing lawsuits CI; Courts require parties to provide documents and evidence to prove the matters which are not required by law to prove; Enforcement agencies refuse collateral distraint law incorrectly.
3. Some recommendations
From the problems and shortcomings mentioned above, we would like to make some recommendations in order to improve the legal framework, contribute to improving the processing efficiency of the banks bad debts are as follows:
– To overcome the shortcomings that arose, affecting the handling of credit debt, the Civil Code should be supplemented and amended the following provisions: (i) Specific provisions than the authorization holder and is authorized as individuals and legal entities; (Ii) Additional provisions specific guidance on the criteria determined Households Household members in Article 106 of the Civil Code and consistent with relevant legal regulations (Law on Land); (Iii) Additional specific provisions allowing the guarantor (the mortgagor, mortgage) may use its assets to guarantee the performance of another obligation.
– To ensure that the disposal of collateral is rapid, convenient, need additional TTDS Code provisions on (i) The order and procedures for courts to continue resolving the case when the reason for suspension in Article 191 is no longer; (Ii) The order and procedures for settling the case with the order and summary procedure; (Iii) The duration of each mediation, the mediator delays in civil procedure in Article 184; (Iv) Responsibilities of the judge in the case did not apply temporary emergency measures prescribed lead to damage to the requirements of Article 99; (V) Regulations on legal authorization, inheritance rights and obligations in the proceedings.
– To encourage the banks shall handle bad debt and encourage the cooperation of the guarantor when involved in asset disposal, civilian law enforcement need to be amended and supplemented as follows: (i) Fixed Paragraph 3 of Article 47 change direction: The proceeds from the sale of the pledged property, mortgage payments should be a priority for the secured obligation before deducting expenses of the enforcement of judgments; (Ii) To amend the provisions of Article 90 in the direction of distraint assets are pledged or mortgaged only be done when the obligation is secured due, proceeds from the sale of collateral to the payment priority means service of the guarantor; (Iii) amend the provisions of Article 60 in the direction of regulation debtors bear all charges for court judgment while imposing further sanctions against cases deliberately prolong enforcement as required to pay interest on deferred payment …
– Additional provisions in Decree 163/2006 / ND-CP on secured transactions provides for partial unwinding procedures for assets are land use rights and assets attached to land.
– Ministry of Finance to consider amending the provisions of Article 17 of Circular 78/2014 / TT-BTC, Article 26 of Circular 111/2013 / TT-BTC in the direction of the proceeds from the sale of the collateral will be paying taxes later when payment obligations to the secured party.
– The Government should urgently promulgate a decree on the conditions for business debt trading services to create a legal basis for the registration of business enterprise for this sector, while creating the legal basis for the introduction and operation of debt trading exchanges.
– Improve operational efficiency over civil judgment execution. Which organization should focus enforcement of judgments and decisions have legal effect, conditional implementation of the CIs. The effective enforcement will help reduce bad debts of banks substantially.
Doan Thai Son – PC