In commercial transactions, it is unfortunately quite common to deal with counterparties committing violations of payment or delivery terms for goods and services. In an emerging market like Vietnam this risk is increased exponentially, especially if the collaboration with a counterparty is relatively new and the agreement has not been made with all the due and necessary information.
As a matter of fact, most Vietnamese Suppliers are not used to dealing with long credit terms, which provide offshore buyers enough time for receiving and checking the quality of the products properly before releasing the funds, as they prefer to receive pre-payments. This may lead to commercial credit recovery disputes in cases in which goods are not received by the Buyer (Creditor) and the Supplier (Debtor) is not willing to grant a refund for the payment.
Another aspect of note is that deals in Vietnam are usually based on Proforma Invoices or Agreements which lack clauses for safeguarding the rights of both parties and are missing important details, creating confusion in disputes as a result.
In such context, it may sometimes be hard to start an action for credit recovery without crucial details such as the clear identity of the Debtor and the Applicable Law of the Contract, for which some preliminary checks will be needed.
For Identifying the Debtor, it is possible to search for company details on the Vietnamese National Company Registration Portal. This step is important not only when disputes have arisen, but also prior to dealing with new Debtors. In the Portal, you can find the certain main information of a company including Enterprise Name, Status of Activity, Establishment Date, Name of Legal Representative/s, and the Lines of Business of a Vietnamese enterprise. Furthermore, for a reasonable price, it’s possible to purchase the digital version of the Business Registration License of the target company to have a clear idea on its Charter Capital and its Legal Representatives’ personal info (ID number, Position, Date of Birth, etc.).
If the Applicable Law is not specified for the transaction (there is no contract, or the contract does not include terms on applicable law), the law of the country with the closest connection will be applied, according to Vietnam’s Civil code. For example, in terms of sale contracts, it is deemed to be the law of the country in which the Debtor resides (if he/she is a natural person) or where it is incorporated (if it’s a legal person). In case the Applicable Law is not the law of Vietnam, and the Creditor needs to request the recognition and enforcement of the decision issued by a foreign court in Vietnam, then it will be necessary to apply to a competent Vietnamese court within 3 years from the issuing of the foreign decision.
After the above-mentioned checks has been fully carried out, some extrajudicial measures can be adopted, including sending a Debt collection letter via registered mail to the Debtor, to specify that the Creditor will take legal action if the debt is not paid by the due date, or starting Mediation, which is to be preferred over litigation according to Vietnamese culture and the common practice of this country. In any case, if the dispute is conducted under the law of Vietnam, the competent Court will be required to mediate between the parties.
In urgent cases where it is necessary to immediately protect the evidence or prevent serious consequences, the Creditor may request the competent Courts, in conjunction with the submission of the request to initiate the civil case, for the forced application of a series of Provisional Measures, which may result in the seizure of disputed properties, freezing of the Debtor’s property and bank accounts, or even the prohibition of the Debtor from leaving Vietnam.
In case the above-mentioned measures have not produced the desired result, the Creditor can still initiate a lawsuit at the competent Court, as long as the statute of limitations of 3 years (from the moment the Debtor fails to fulfill his obligations and the parties have no agreement to extend the term of the debt) has not expired yet.
Concerning the filing procedure, the Creditor should prepare the petition and submit it to the competent Court (by courier, in person or electronically). Afterwards, within 3 working days, the Heads of Justice of the Court will appoint the Judge which will review the petition within 5 working days. In cases in which some documents are deemed missing, or not in conformity, the Judge will give a term usually not longer than 1 month (or 1.5 months in special situations) to the Creditor for integrating the required material. If the documentation is accepted, the Judge will send a written notice to the Parties within 3 working days and the Debtor, after receiving such notification, will have 15 days to present his/her defense.
For disputes on civil transactions and contracts, the deadline for the preparation for the trial is 4 months from the day of acceptance of the case and, the deadline for challenging the sentence of first instance shall be 15 days. The case will be then submitted to an appeal process (second instance) with the sentence automatically becoming legally effective.
Although it is possible for foreign Creditors to directly file a lawsuit against their Debtors nowadays, in practice it is quite common and mostly preferable to achieve credit recovery through Mediation or a Debt Collection Letter under the support of a legal advisor or professional with a presence in Vietnam. In some cases, the use of Measures ante-causam applied in parallel to the filing of the petition can be another useful way to speed up the process and lead the Debtor to perform his/her duties to avoid the serious consequences for his business and reputation in the country.