Handling bad debt from overlapping regulations

Mr. Do Giang Nam

After two years of implementing Resolution 42, how has the handling of bad debts changed?

After two years, VAMC found that dealing with bad debts was not only the responsibility of the banking industry but also receiving great concern from the Government, the Party and the State. Resolution 42 brought many advantages to the work of handling bad debts. For the first time, Resolution 42 stipulated specifically the responsibilities of the ministries, sectors and localities in coordinating with the banking industry to handle bad debts; allow credit institutions and VAMC to take measures to seize collateral to recover debts, at the same time allow credit institutions and VAMC to sell these collateral assets to organizations and individuals that were not debt trading company, thereby contributing to the formation and development of the bad debt trading market in the future. In particular, Resolution 42 has raised customers' sense of debt repayment. Specifically, VAMC was established in 2013 but in the two years since Resolution 42 became effective from August 2017 until now, the accumulation of debt recovery accounted for 56% of the total accumulated debt since the establishment of VAMC.

From the practice of handling bad debts under Resolution 42, in your opinion, what were the shortcomings that needed to be solved?

Although Resolution 42 had created a lot of advantages to accelerate the recovery of bad debts, there were still many cases of handling bad debt that had not been coordinated by local authorities. In particular, the handling of bad debts, debt recovery and debt trading still faced difficulties due to overlapping legal documents. For example, APG Investment Co., Ltd acquired the assets of Tan Thanh Production Construction Investment Joint Stock Company in the form of an auction. The parties fulfilled their financial obligations under the sales contract and handed over the assets from May 2018. Subsequently, the company submitted a dossier to carry out procedures for the transfer of land use rights and assets attached to the land. But so far, the company has not been able to transfer the land use rights certificate, although VAMC and the company have sent a lot of documents to related agencies, they have not been resolved.

There were two reasons leading to the above case. The first reason was due to a problem between the Auction Law and the Real Estate Business Law. According to the Auction Law, when organising an auction, the implementing unit was not responsible for evaluating the bidder's capacity. However, the Law on Real Estate Business required that when carrying out real estate investment business, it must has certain conditions, so it cannot be done when implementing the work of transfering name procedure. The second reason is the coordination responsibility of the local authorities in the work of transfering name procedure, currently, the auction unit has received a document from the Department of Natural Resources and Environment of Ba Ria - Vung Tau province stating the reason that this project was under the inspection as conclusion given by the Permanent Committee of the Provincial Party Committee since 2014. However, this conclusion had not been issued, the Department of Natural Resources and Environment of Ba Ria - Vung Tau Province based on this reason to deny the transfer of name to the auctioneer.

Besides that, the handling of bad debts under Resolution 42 still faced difficulties in paying tax obligations. Resolution 42 specificed provisions on the order of priority for payment. It means that when banks or VAMC handled the asset, they were prioritized to use that money to fulfill their obligations of debt payment before fulfilling their tax obligations. At present, the Ministry of Finance had a document to direct, however, when carrying out procedures for transfering name and property, some local tax departments still required the person who won tendering or credit institution, VAMC to fullfill the tax obligation for the mortgage party. This greatly affected the bad debt handling process of banks.

In order to handle bad debts to achieve better results, in the future, what are your recommendations?

The most important thing in dealing with bad debts, besides the efforts of VAMC and credit institutions, is the coordination of local authorities in the implementation of changing names to auction owners. Moreover, the positive awareness of local authorities and the improvement of related legal documents to support the handling of bad debts also needs to be promoted.

Thank you so much!