Debt Collection in Vietnam

Practical Guide

The purpose of this Guide is to provide a practical tool for companies with debt collection necessities in a different country.

It is quite frequent that in commercial relationships between parties in different countries, one of them leaves one, or several, invoices unpaid. When the business is carried out over a long period of time, the situation could even become more difficult: the claiming of the invoices could be harder if the provider does not wish to interrupt the work. On one side, there are some invoices unpaid, and on the other, the client does not want to immediately ask for the sum due. Nevertheless, from that very first moment, there are some precautions that could be taken if a future claim will be started, or at least to better prepare for it. These precautions, and the clear information on the procedure in the country where the debtor seats, are considered in the following questions.

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Vietnam

Is there a minimum amount to start a legal action?

In Vietnam there is no minimum amount requirement to start a judicial process. Even so, the costs to carry it out may cause it to be inconvenient. In general, the costs of recovery through judicial proceedings are likely to be unreasonably high for claims below €15,000, at least, if full-fledged litigation would become necessary.

For lower amounts, (informal) mediation (see 4) is the norm.

It is essential to note that the ordinary statute of limitation on commercial debts is two years.

Is it mandatory to send a warning letter before taking legal action to collect a debt?

It is not mandatory, but quite common to send a warning letter prior to the filing of a debt enforcement request, an initiation of conciliation proceedings or the filing of an action for payment with the competent court.

Warning letters should be sent by registered mail and contain at least 1) the exact amount of the debt, including an accurate calculation of default interests in case such interests shall be claimed too; 2) the source of the debt (e.g. contractual non-performance); 4) a clear deadline until when the debt may be paid; 4) the payment instructions (e.g., bank account information) and 5) an announcement that the creditor will take legal action without further notice if the debt is not paid within the deadline stated in the warning letter.

In case the creditor prefers to refrain from claiming default interests in the warning letter, it is advisable to state explicitly that the creditor reserves the right to claim default interests as from the default date in case the debt is not paid within the deadline stated in the warning letter.

In order to emphasise the seriousness of a warning letter, it is helpful to have it sent by a lawyer on behalf of the creditor.

It is finally advisable to send a warning latter only after the creditor has any information and documents (e.g., evidence) required to take legal action and is also willing to do so. Unsuccessful warning letters that are not followed by further (legal) actions are often counterproductive and might further encourage noncompliance on the part of the debtor, especially when the creditor does not have any presence in Vietnam.

What are the best practices for creditors to increase the possibility to recover the debt?

Vietnamese culture and praxis tend to privilege mediation over frontal litigation.

This means that having a legal entity in Vietnam or at least someone representing the creditor on the ground would make an enormous difference, at least where there is room for negotiations.

Business culture and legal aspects thereafter in Vietnam are at the same time extremely flexible and extremely formal, almost to the point of pedantry.

Having, not just for evidentiary purposes, but also for substantial ones, a properly drafted, clear, written agreement, validly signed and stamped on behalf of both parties by persons who are registered in the commercial or companies register with signatory power for such party is fundamental.

Ideally, such written agreement should contain clear indications on the calculation of the debt (consideration, calculation of interests and damages etc.), as well a properly drafted clause on governing law and jurisdiction.

Any other written evidence that documents business relationships can be useful.

It is also important to note that, for the sake of avoiding the triggering of prescription or simply of formalistic excuses by the debtor, payment reminders and warning letters by the creditor prior to the appointment of the latter’s lawyer should be sent by the creditor’s legal representative to the debtor’s legal representative.

Evidently, in order to reduce or even eliminate the risk of non-payment, the creditor can (try to) insist on advance payments, require the debtor to provide collaterals or guarantees, insist on joint and several liability, provide for payment by a letter of credit etc..

Furthermore it may be helpful to perform a simple credit check, although company databases in Vietnam are not as accurate as in other Countries. However, very basic searches, such as on where the counterparty is based (in a residential area? In a deprived village?), or on its reputation within its industry, or even if it is listed on the local stock exchange or has an international management, could save the creditor from an ill-fated business.

Finally, should all other procedures fail, it is advisable to resort to arbitration (naturally a proper arbitration clause should be drafted beforehand in the written contract), as Vietnam is a signatory to the New York Convention on the recognition of foreign arbitral awards. Vietnam is furthermore home to various international arbitration centres, such as the eponymous Vietnam International Arbitration Centre, where foreign arbitrators render their services.

In case no arbitration clause is (validly) included in the contract, internal norms on governing jurisdiction will apply and it will be essential to determine whether Vietnamese courts have jurisdiction over the case.

How can a foreign creditor start a procedure for international debt collection?

Assuming:

  • no valid arbitral clause is present and enforceable; 
  • the Vietnamese debtor does not have assets abroad that can be more easily attacked,

then two possibilities arise:

  • instating legal procedures in the jurisdiction of the creditor; 
  • instating legal procedures in Vietnam.

In the first instance, the creditor should rely on the Vietnamese debtor’s will to comply with the foreign sentence, since the enforcement of foreign judicial decisions in Vietnam, regulated by bilateral treaties, may be particularly hard. Still, it is an option, especially in case the succumbing debtor adheres to the provision of the judicial decision, with no need of enforcement.

This is why an arbitral clause is preferred, since it is easier to enforce even a foreign award. Besides, local arbitration centres tend to be more specialised and composed of arbitrators with, on average, broader international exposure.

In the second instance, the judicial system is relatively similar to the French one, thus with a distinction between commercial and civil courts. Hence, it is essential for the lawyer to identify the right court.

The procedure starts with a “petition” where the creditor illustrates the facts, evidence and claims. It is fundamental that the formal aspects better described in point 4 are satisfied.

The judge will examine the petition, may ask for supporting evidence and will ask the debtor to submit his counterpetition.

The judge has quite some flexibility in fixing additional court hearings and asking for more legal and factual evidence. On average, however, the case ends within one year.

The succumbing party may appeal the adverse decision and the appellate phase usually takes a few months to complete.

Which documents are necessary for debt collection in Vietnam?

In principle, Vietnam law does not prescribe a specific form for most kinds of contracts. Exceptions are, e.g., surety agreements and contracts for sale of real estate. Specific obligations contained in some kinds of contracts or an assignment of claims also require written form. Having said that, as already mentioned in the above points, the conclusion of written contracts is advisable for evidentiary reasons anyway. Most legal documents in Vietnam need to be both signed and stamped with the company chop for them to be valid. This is true not only for contracts, but also, for instance, for invoices.

Considering the strict formalistic approach adopted in Vietnam, it is essential that all documents representing the foreign creditor be duly notarised in the creditor’s home Country and legalised by the Vietnamese consular office or by that of the creditor’s diplomatic representation in Vietnam. This applies, for instance to the creditor’s certificate of incorporation, legal representative’s passport etc..

To avoid confusion in the judge and hence the risk of inadmissibility of the petition, is also essential that changes in the creditor’s trade name and/or shareholding composition and/or director(s) be clearly illustrated and possibly stated by the creditor’s diplomatic representation with a note to the department of foreign affairs of the Province whose court has jurisdiction over the case. The department then forwards such note to the court.

The filing of a debt collection case does not require specific documents per se, apart from the above-mentioned ones used to identify the creditor. However, it is not only highly advantageous, but de facto essential for the creditor to present a written, validly signed acknowledgement of debt issued by the debtor, a contract, written correspondence, valid invoices, delivery documentation etc.. Oral evidence is generally inadmissible.

If the recovery was not possible for any reason, is there any other action that the creditor could take to write off such debt in its accountancy?

Vietnamese law does not designate specific documents allowing a creditor to write off a claim in the financial books.

If the creditor loses the case, it can naturally use the sentence in the debtor’s favour as a valid document in its jurisdiction.

If the creditor’s laws require particular documents, a lawyer can assist in retrieving them, usually with a stamp by the embassy.

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