JOINT CIRCULAR No JOINT CIRCULAR No. 03/2001/TTLT/NHNN-BTP-BCA-BTC-TCDC OF APRIL 23, 2001 GUIDING THE HANDLING OF LOAN SECURITY PROPERTY TO RECOVER DEBTS FOR CREDIT INSTITUTIONS Pursuant to Clause 2, Article 39 of Decree No. 178/1999/ND-CP of December 29, 1999 of the Government on securing of loans of credit institutions and other relevant law provisions; In order to handle the security property to recover debts for credit institutions, the Vietnam State Bank, the Ministry of Justice, the Ministry of Public Security, the Ministry of Finance and the General Land Administration hereby agree to guide the handling of loan security property in order to recover debts for credit institutions as follows: A. GENERAL PROVISIONS I. All customers borrowing capital at credit institutions are obliged to repay debts at due time or ahead of time as provided for by law. The party guaranteeing capital borrowing by customers at credit institutions are obliged to repay debts for the borrowing customers if the latter fail to perform or improperly perform their debt repayment obligations. Where the borrowing customers and the guarantors fail to perform or improperly perform the debt repayment obligations, the property used as security for repayment of debts at credit institutions (hereinafter referred collectively to as security property) shall be handled to recover debts. II. The security property shall be handled by modes already agreed upon in the credit contracts or pledge contracts, mortgage contracts, guaranty contracts (hereinafter referred collectively to as security contracts) between the credit institutions and the borrowing customers, the guarantors (hereinafter referred collectively to as the securer). Where the parties cannot handle security property by the agreed modes, the concerned credit institutions are entitled to take initiative in applying modes to handle security property. The security property shall be handled by the following modes: 1. Sale of security property: The sale of security property means the credit institutions or the securer sell or the parties coordinate in selling the property directly to buyers or authorize the third party to sell the property to the buyers. The third party authorized to sell property may be the property auction center, the property auction enterprises or functional organizations entitled to buy property for sale. 2. Taking the very security property as replacement for the performance of secured obligations: Taking the very security property as replacement for the performance of secured obligations means the credit institutions directly take the security property, use the security property prices determined upon the handling as basis for payment of debt principals, loan interests, overdue interests by the securers after subtracting other expenses (if any) and are entitled to receive such property according to the provisions of this Circular and other provisions of law. 3. Receiving money amounts or property to be paid or handed over by the third party to the securers: Receiving money amounts or property to be paid or handed over by the third party to the securers means the credit institutions directly receive the money amounts or property, which must be paid or handed over by the third party to the securers according to procedures prescribed in this Circular and other provisions of law. III. Credit institutions may transfer their right to recover debts or authorize the third party to handle the security property. The third party must be organizations having legal person status and shall be entitled to exercise the right to recover debts or handle security property according to law provisions. Where the third party is transferred by a credit institution the right to recover debts, it is entitled to apply measures to recover debts or handle the security property like the credit institution. Where it is authorized by the credit institution to handle property, the third party may handle the security property within the authorized scope. IV. The handling of security property must comply with the principle of publicity, simple procedures, convenience, promptness, protection of the parties’ rights and interests and economical expenditure. V. Where the security property owner is prosecuted for a criminal act irrelevant to the borrowing of capital of a credit institution or irrelevant to the source of formulating the security property, such person’s security property shall not be compulsorily inventoried but handled according to the provisions of this Circular, except otherwise provided for by law. VI. The competent State bodies shall have to create favorable conditions for and apply necessary measures to support, credit institutions in handling security property according to the provisions of this Circular and other provisions of law. B. SOME SPECIFIC PROVISIONS ON PROCEDURES FOR HANDLING SECURITY PROPERTY I. Handling security property as agreed upon 1. The security property shall be handled according to agreement reached between the credit institution and the securer in the credit contract or the security contract. The parties may agree to amend, supplement their agreement or reach new agreement on handling the security property. This agreement must be made in writing. 2. Before handling the security property, credit institution shall carry out the following procedures: 2.1. The credit institution shall have to notify in writing the securer of the handling of security property and register the notice on request to handle security property according to law provisions on registration of secured transactions (if such secured transactions were already registered). a/ A written notice on handling of security property contains the following principal contents: - The reasons for handling the security property; - The value of the secured obligation; - Type of to be-handled property: characteristics, quality, quantity; - Mode of handling the security property; - The time point for handling the security property. - The time limit and venue for transfer of security property (if any). b/ The credit institution shall fix the time for handling the security property in the security property-handling notice, which, however, must not be less than 7 days for pledged property and 15 days for mortgaged property, as from the date of registering the notice on request to handle security property at the secured transactions registry. For the secured transactions which require no registration or have not yet been registered due to the non-operation of the national secured transaction registry, the above-mentioned time limits of 7 days and 15 days shall be counted from the date the credit institution sends the property-handling notice to the securer. Where the security property is in danger of decay, the credit institution may handle the property immediately after the issuance of the security property-handling notice. 2.2. The securer shall coordinate with the credit institution in applying measures to prepare for the handling of security property such as the hand-over of security property to the credit institution, the hand-over of papers relating to the security property at the request of the credit institution (in cases where the securer or the third party keeps the papers, the security property), creation of conditions for the buyers to take a look at the property, and take other necessary measures to handle the security property. Where the securer or the third party keeps the papers and/or the security property (hereinafter referred collectively to as the security property- keeping party), the credit institution shall fix the date for handing over such papers and property for handling in the notice on the handling of security property; if the security property-keeping party declines to observe it, the credit institution may request competent bodies to apply measures to force the security property- keeping party to hand over the papers and the property as provided for in Section XI of Part B. 3. The credit institution shall make record on the handling of security property, which must clearly state the hand-over and reception of security property, the mode of handling the security property, the rights and obligations of the parties and other agreements (if any). Where the credit institution applies measures to compel the security property-keeping party to hand over the security property to it for handling, the former shall make the record on the seizure of the property according to the provisions at Point 3.3 of Clause 3, Section XI of Part B. 4. After the realization of the notice on handling of the security property, the rights of the credit institution and the obligations of the securer and the third party which keeps the security property are prescribed as follows: 4.1. The rights of the credit institution: a/ To request the securer to coordinate with the credit institution in applying necessary measures to prepare for the handling of security property according to the provisions at Point 2.2, Clause 2, Section I of Party B; b/ To exploit, use the security property or permit the securer or authorize the third party to exploit, use the security property as provided for in Section VI, Part B; c/ To request the securer or the third party not to exploit, use the security property if the exploitation and use thereof threatens to cause the loss or decrease of the property value; d/ To pay debts for the yields, benefits earned from the exploitation and use of the security property after subtracting necessary expenses for the exploitation and use thereof; e/ To demand the property- keeping party hand over the security property, if the latter commits one of the following acts: - Failing to hand over the security property at the request of the credit institution; - Failing to apply or having inadequately applied measures to preserve the security property; - Making at its own will the sale, exchange, donation, lease, lending, contribution as joint-venture capital, disbursement, damage or loss of security property; - Other acts causing the danger of damaging, losing the security property. Where the property-keeping party declines to hand over the property at the request of the credit institution, the latter may request competent State bodies to force the former to hand over the property as provided for in Section XI, Part B. e/ Other rights as prescribed by law. 4.2. Obligations of the securer: a/ To coordinate with the credit institution in applying necessary measures to prepare for the handling of security property when so requested by the credit institution as provided for at Point 2.2, Clause 2, Section I, Part B; b/ Not to sell, exploit, use, lease or lend the security property at their own will without the approval of the credit institution; c/ Not to destroy, disburse, exchange or donate the security property, use the security property to contribute capital to joint venture, to damage or lose the security property or to commit other acts which cause damage to the security property; d/ To preserve and keep the security property, to hand over the security property and papers related thereto upon receiving the request of the credit institution; e/ Other obligations as prescribed by law. 4.3. Obligations of the third party that keeps the security property: The security property- keeping third party shall have the obligations to preserve and hand over the security property to the credit institution as prescribed for the securer at Items b, c, d and e of Point 4.2, Clause 4, Section I, Part B. 5. Security property-handling modes of agreement 5.1. Sale of security property a/ The sale of security property shall comply with the provisions of Clause 1, Article 34 of the Government’s Decree No. 178/1999/ND-CP of December 29, 1999 on securing loans of credit institutions (hereinafter referred generally to as Decree No. 178). The parties shall agree to value the security property for sale according to the provisions in Section VII, Part B. b/ The property sale-purchase contracts shall be made in writing between the party entitled to sell the security property and the party buying the security property. Where the securer and the credit institution do not have or fail to reach any agreement on the security property-selling party, the credit institution shall decide on the selling party according to one of the cases prescribed in Clause 1, Article 34 of Decree No.178. 5.2. The credit institution receives the security property as replacement for the performance of the secured obligations a/ The credit institution and the securer shall make record on the reception of the security property as replacement for the performance of the secured obligations. The record must clearly state the hand-over, the reception, the valuation of the security property for handling and the payment of debts arising from the handling of security property according to the provisions of this Circular. b/ After receiving the security property as replacement for the performance of the secured obligations, the credit institution may carry out the procedures to accept the transfer of the rights to own, to use the security property, or sell, assign the security property to the property buyer or transferee according to law provisions. 5.3. The credit institution shall receive the money amounts and/or property which the third party has to pay or hand over to the securer. a/ The credit institution or the securer shall have to notify the third party of its eligibility to receive the above-mentioned money amounts and/or property, and at the same time request the third party to hand over those money amounts and/or property to the credit institution. The hand-over of such money amounts and/or property to the credit institution must be effected according to the time limit and location stated in the security property- handling notice, except for cases prescribed in Article 320 of the Civil Code. For the security property prescribed at Points b, c, d, e and f of Clause 1.1, Section II, Chapter II of Circular No. 06/2000/TT-NHNN1 of April 4, 2000 of the State Bank Governor guiding the implementation of Decree No. 178, the credit institution is entitled to receive the security property and the rights arising therefrom. The third party is obliged to hand over the money amount and the property and transfer the rights arising from the security property to the credit institution. b/ The credit institution shall make record on the reception of money amounts and/or property among the credit institution, the securer and the third party. The record on the reception of money amounts and/or property must clearly state the hand-over and reception of such money amounts, property, the valuation of the property and the payment of debts arising from the handling of property. 6. After the security property is handled to recover debts, the credit institution or the securer shall delete the property handling registration as well as the secured transaction registration according to the law provisions on secured transaction registration. II. Handling security property according to the provisions in Clause 2, Article 34 of Decree No.178 1. When handling the security property according to cases prescribed at Clause 2, Article 34 of Decree No.178, the credit institution and the securer shall have to comply with the procedures prescribed at Clauses 2 and 3 of Section I, Part B; the rights and obligations of the parties as provided for at Clause 4, Section I, Part B. 2. The credit institution may take initiative in applying one of the following modes of handling the security property: 2.1 The credit institution shall directly sell the security property (except for the security property being the land use right and other properties which, as prescribed by law, must be sold at specialized auction organizations). a/ The credit institution shall have to publicly announce the security property sale which shall be conducted after the time limit prescribed at Item b, Point 2.1, Clause 2, Section I, Part B. b/ The property sale-purchase contract between the credit institution and the property buyer shall be made in writing. The credit institution decides the sale prices of security property as provided for at Section VII, Part B. 2.2. The credit institution shall authorize the property auction center or the property auction enterprises (hereinafter referred collectively to as the property auction organizations) to sell the security property. a/ Cases of auction authorization: - The credit institution shall opt for the security property- selling mode of authorizing the property auction organizations; - The security property is the land use right as prescribed in Section III, Part B and other properties which, as prescribed by law, must be sold at specialized auction organizations. b/ The property auction authorization contract shall be signed between the credit institution and the property auction organization. The credit institution and the securer may agree to let the securer to request the security property auction. c/ The property auction procedures shall comply with the law provisions on property auction. 2.3. The credit institution shall authorize or transfer the security property handling to organizations functioning to buy property for sale. a/ Organizations functioning to buy property for sale shall be: - Debt-management and mortgaged property exploitation companies of the commercial banks, set up under Decision No. 305/2000/QD-NHNN5 of September 15, 2000 of the Governor of the Vietnam State Bank; - Companies set up to manage and settle bad debts of credit institutions under the provisions of law. b/ Organizations to which the credit institutions entrust or transfer the security property handling are entitled to handle the security property according to the provisions of Section III, Part A and other relevant provisions of law. For the land use right and assets affixed to land, the organizations to which the credit institutions entrust or transfer the security property handling, when effecting the mode of selling the security property, must put them on auction. The auction order and procedures shall comply with the provisions in Section III, Part B. 2.4. The credit institution shall receive such very security property as replacement for the performance of the secured obligations (except for the property being the land use right, assets affixed to land): In this case, the credit institution needs not to re-discuss with the securer. The procedures for receiving the very security property as replacement for the performance of the secured obligations shall comply with the provisions at Point 5.2, Clause 5, Section I, Part B. 2.5. The credit institution receives money amounts and/or property which the third party has to pay or hand over to the securer. a/ The reception of money amounts and/or property, which the third party has to pay or hand over to the securer shall comply with the provisions of law or the agreement reached between the parties in the security contract. The order and procedures for reception of such money amounts and/or property shall comply with the provisions at Point 5.3, Clause 5, Section I, Part B. b/ Where the third party declines to hand over the above-mentioned money amounts and/or property at the credit institution’s request, the latter may request competent State bodies to apply measures to force the third party to hand over the property according to the provisions in Section XI, Part B, or initiate a lawsuit at court. 3. After handling the security property, the credit institution or the securer shall effect the deletion of property handling registration as well as the deletion of secured transaction registration according to the law provisions on secured transaction registration. 4. In the process of handling the security property by modes prescribed in Clause 2, Articl

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