In case the GTCG is issued by another organization, the credit institution receiving the guarantee shall request the issuing organization to make payment of the GTCG of the GTCG owner to the credit institution receiving the guarantee (when the GTCG has reached the payment deadline) or transfer the ownership of the GTCG to the credit institution receiving the guarantee (if the GTCG has not reached the payment deadline). The credit institution's right to handle the GTCG according to these methods has a basis for implementation in practice because at the time of receiving the GTCG as collateral, the credit institution requested the GTCG issuing organization to commit to supporting the credit institution in exercising the right to handle the GTCG.
For GTCG in custody, the handling of GTCG is performed directly by the credit institution or by authorizing the custodian company. At the time of receiving the GTCG security in custody, the credit institution, the guarantor and the credit institution have a written agreement authorizing the custodian company to automatically deduct from the GTCG transaction account of the guarantor to collect principal and interest for the credit institution when handling GTCG. When the credit institution requests to handle GTCG to recover debt, the custodian company will carry out the procedure to sell GTCG. Valuable papers are placed for sale at the lowest price of the most recent trading sessions, and are carried out by the custodian company from the most recent trading session until the sale of GTCG is completed. The custodian company must immediately notify the guarantor and the credit institution of the results of the handling of GTCG. The proceeds from the sale of GTCG after paying the full transaction fee to the custodian company and the fees arising from the handling of GTCG (if any) will be transferred by the custodian company to the credit institution to perform the obligation to pay the principal, interest and other costs of the borrower to the credit institution. In case the proceeds from the sale of GTCG are not enough to repay the loan, the credit institution has the right to request the freezing and further handling of other GTCG (if any) in the borrower's GTCG trading account at the custodian company to recover the loan. In case the proceeds after paying the debt are still in excess, the credit institution will return the excess to the guarantor.
Handling secured assets to recover debt by selling secured assets is the right of the credit institution receiving the guarantee, which has been recognized by law and is in accordance with the agreement of the parties in the secured asset contract. In particular, when the secured asset is listed
When the listed price of GTCG is decreasing, if credit institutions do not sell GTCG to ensure full debt recovery, credit institutions are forced to "urge" the borrower and the guarantor to find a way to repay the loan before the due date. In many cases, the guarantor must proactively request the depository organization to sell GTCG to replace the borrower in paying the loan to the credit institution. However, when the price of GTCG is decreasing, if credit institutions and guarantors "dump" GTCG, it will further reduce the value of GTCG. There were times (in 2007) when the stock market continuously declined, gradually losing liquidity due to the fact that credit institutions continuously sold GTCG in a "massive" and unorganized manner, so the State Bank and the Vietnam Banking Association (VNBA) had to send official dispatches to credit institutions requesting credit institutions to seriously implement measures to stabilize the stock market, calling on credit institutions to stop "dumping" GTCG. However, many credit institutions still have to sell GTCG when the price of GTCG drops sharply to "collect" capital and avoid bad debts.
2.6. Disputes and dispute resolution regarding loan security using valuable papers at credit institutions
Maybe you are interested!
-
Disputes and Dispute Resolution on Loan Security by Debt Collection Rights at Credit Institutions -
Land Dispute Resolution - 15 -
Loan security with assets formed from loan capital - 1 -
Contents of the Law on Loan Security Using Valuable Papers at Credit Institutions -
Some Solutions to Overcome the Disjointedness and Lack of Constraints in the Relationship Between the Loan Contract and the Security Contract
Disputes over loan guarantees using GTCG in practice often arise from the guarantor having disputes over the transaction of buying and selling GTCG with the seller or the organization issuing the GTCG. The dispute over the mortgage of shares of a major shareholder of Viet A Commercial Joint Stock Bank as mentioned below is a typical example of the troubles that can occur when using GTCG not owned by the guarantor as collateral.
Quoted from the Vietnam Law Online newspaper about the case of VietA Bank: Major shareholders mortgaged their shares as follows:
All shares of Viet Phuong Company and Mr. Phuong Huu Viet within about 1 year after signing the contract to buy with VietAbank were continuously mortgaged at many different banks. Before the two major shareholders had not paid the money, they proceeded to
Mortgaging and transferring shares, VietAbank believes that this is an act that violates the agreement in the contract of principles for issuing shares to increase charter capital in 2010 of VietAbank.
Because before that, on July 7, 2010, VietAbank signed a contract in principle to issue shares with Viet Phuong Company and Mr. Phuong Huu Viet. In which, Viet Phuong Company signed a contract to buy 36 million shares and Mr. Phuong Huu Viet bought 15 million shares, equivalent to 17% of VietAbank's charter capital. The agreed issuance price is 10,600 VND/share and is paid in 3 installments, specifically: before July 31, 2010, the buyer must make a deposit (instalment
I) 5% to 10%; 2nd installment before September 30, 2010 is 50% and 3rd installment before November 30, 2010 the remaining amount is from 40% to 45%.
On November 30, 2010, the deadline for the above shareholders to pay the shares to VietAbank, Ocean Commercial Joint Stock Bank (OceanBank) issued a document requesting to freeze the pledged shares of more than 34.2 million shares of Viet Phuong Company and Mr. Phuong Huu Viet at VietAbank. This document requesting to freeze the pledged shares was confirmed by Dang Huy Huan, Chief of Office of VietAbank's Board of Directors, agreeing to freeze the above shares. Of which, Viet Phuong Company has 3.750 million shares according to stock certificate 009666 dated November 1, 2010 and 16.2 million shares in the principle contract No. 167/HD-HDQT/10 dated July 7, 2010; Shareholder Phuong Huu Viet has 7.5 million blocked shares in stock certificate number 009667 dated November 1, 2010 and 6.750 million shares in principle contract number 166/HD-HĐQT/10 dated July 7, 2010.
On March 7, 2011, Global Petroleum Bank (GP.Bank) also sent 2 documents requesting VietAbank to confirm and freeze
Securities with a total of more than 14,250 million shares of Viet Phuong Company at shareholder code: 2808.
In particular, on June 24, 2011, Maritime Commercial Joint Stock Bank (Maritime Bank) issued two documents requesting VietAbank to confirm and freeze all 36 million shares of Viet Phuong Company and 15 million shares of Mr. Phuong Huu Viet. With this document, Maritime Bank, on behalf of the shareholders, carried out procedures to transfer the above securities to pay off the due debt.
The actions of these two major shareholders violated Article I, Clause 2 of the principle contract for issuing shares, which clearly states: The two parties agreed on a time limit for Party B after 24 months from the date of completion of the procedures for issuing shares to Party B and registering business according to the provisions of law; Party B can transfer the above shares to other partners in need. VietAbank believes that the transfer of shares by the two major shareholders to Maritime Bank is contrary to the agreement in the principle contract for issuing shares to increase charter capital in 2010 of VietAbank.
Although VietAbank has confirmed in the document freezing the mortgaged shares of OceanBank, VietAbank argued that: "Although the document states that the above shares are not subject to transfer restrictions, prohibited from transferring, pledging, mortgaging part or all of the mortgaged assets above, here we only confirm that Phuong Viet Company and Mr. Phuong Huu Viet have the number of shares in accordance with the number of shareholders who have contributed. As for what the document says and how to do it, that is the commitment between these two shareholders and OceanBank [8].
Through the above incident, it can be seen that the shares of Viet Phuong Company and Mr. Phuong Huu Viet are in the period of restricted transfer (24 months).
from the date VietABank completed the procedures for issuing shares to Viet Phuong Company and Mr. Phuong Huu Viet and registered the business in accordance with the provisions of law) according to the agreement in the Principle Contract signed on July 7, 2010 between VietAbank and Viet Phuong Company and Mr. Phuong Huu Viet personally. However, these shares were continuously mortgaged for loans at many banks, leading to difficulties in handling shares to recover loans because the transfer of shares to the buyer to pay off due debts is being restricted.
Disputes over loan guarantees using GTCG in reality also arise from the fact that credit institutions "sell off" GTCG to recover debts when the market price of GTCG decreases compared to the initial valuation. Although, when the guarantor uses GTCG to secure the borrower's loan repayment obligation, the GTCG guarantee contract has an agreement on the credit institution's right to "sell off" GTCG to preserve the loan capital if the market price of GTCG decreases, causing the total value of the borrower's loan to be greater than a certain limit compared to the total value of GTCG (for example, greater than 65% or 70% of the total value of GTCG). However, determining the exact value of GTCG is often not easy, leading to the determination of the decrease in value of GTCG in many cases being inaccurate. Disputes may arise when the credit institution and the guarantor cannot agree on the limit for selling GTCG. The psychology of the guarantor is often to try to keep the asset and wait for the price to increase before selling, especially in cases where the guarantor is not the borrower.
In addition, disputes over secured loan transactions using GTCG also originate from disputes over ownership of GTCG between the guarantor and other entities, especially disputes over ownership between the guarantor being an individual and their spouse in determining common property and separate property for GTCG. These disputes have had a significant impact on secured transactions using GTCG and have caused difficulties for credit institutions in handling GTCG to recover debts. In fact, there have been disputes occurring at PG Bank as follows:
On January 20, 2008, Mr. Nguyen Van A submitted a loan application to PG Bank, requesting a loan based on collateral including a number of long-term valuable papers, mainly bonds issued by other credit institutions (including those with the owner's name as Mr. Nguyen Van A and those without).
On February 1, 2008, PG Bank agreed to lend Mr. A a 6-month loan (from February 3, 2008 to August 3, 2008), the loan amount was 200 million VND, with principal and interest to be paid at the end of the term on August 3, 2008. Because it was determined that the valuable papers were solely owned by Mr. A, PG Bank staff established and signed a valuable papers mortgage contract with Mr. A (only Mr. A signed the contract, no authorization letter was attached).
By August 3, 2008, Mr. A did not fulfill his obligation to pay principal and interest on time. PG Bank sent debt reminder notices many times in accordance with the agreement in the signed contract, but Mr. A still did not cooperate. Exercising the right in accordance with the agreement in the contract, PG Bank sent a notice to Mr. A about PG Bank's handling of the mortgaged valuable papers and PG Bank sent a document requesting the organization issuing the valuable papers to carry out the procedure of transferring ownership of the valuable papers to PG Bank. However, the issuing organization refused to cooperate because Ms. B (Mr. A's wife) requested the issuing organization not to transfer the ownership to PG Bank, Ms. B claimed that Mr. A used her money to invest in valuable papers, so the valuable papers belonged to her. Ms. B did not sign the mortgage contract with PG Bank, nor did she authorize Mr. A, so that contract was invalid, PG Bank had no right to handle it. Therefore, the parties had a dispute. However, the matter was later resolved through negotiation [15, Clause 3.3 Section 3].
Although in reality, the number of disputes over loan guarantees using GTCG at credit institutions is quite common, but almost all parties seek the path of negotiation and conciliation to resolve arising disputes, cases brought to court for settlement are almost non-existent. According to the synthesis of civil cases from 2008 to 2011 by the Statistics - Synthesis Department of the Supreme People's Court, there has not been any dispute related to loan guarantees using GTCG resolved in court (no lawsuit). This comes from the urgency and timeliness in resolving disputes related to GTCG, which is a type of asset with high liquidity, the value of which fluctuates every day according to the market, so if the dispute is resolved by "the path" of the court, it will take a lot of time when the law does not have regulations on a shortened settlement procedure specifically for this type of dispute. Secondly, because the enforceability of legal provisions related to GTCG still has shortcomings, is not unified, and is not clear, choosing a court to resolve disputes over loan guarantees seems to be something that the disputing parties always "avoid". The settlement at Commercial Arbitration is also almost not "concerned" by the parties because the parties are not used to agreeing to choose arbitration, moreover, arbitration proceedings are often costly.
Securing loans with GTCG at credit institutions is one of the important measures to ensure the borrower's debt repayment obligation to credit institutions. If the guarantee of loans with GTCG at credit institutions is implemented under conditions and procedures that are too strict, it will help credit institutions "feel secure" in recovering the loaned capital, but the lending efficiency will be low, and it will also affect the interests of the borrower and the guarantor. On the contrary, if this measure is implemented too loosely and the procedures are too easy, the borrower will have many opportunities to "access" the loan capital, but the lending activities of credit institutions are prone to risks and capital losses when credit institutions do not have enough basis or are weak in
The handling of GTCG to recover debt is caused by the fact that credit institutions are too "lenient" in the process of accepting GTCG as collateral. Therefore, the law on loan security using GTCG at credit institutions in Vietnam must have provisions suitable to reality, and must "harmonize" the interests of the parties in the relationship of loan security using GTCG at credit institutions. The law must achieve the goal of promoting the development of lending activities secured by GTCG at credit institutions, but must still ensure safety in the operations of credit institutions and ensure the rights of borrowers in borrowing capital, and the rights and legitimate interests of the guarantor when using GTCG as collateral.