The provisions of the Law on Securities 2006 (amended and supplemented in 2010) are prescribed in Clause 1, Article 6 of the Law on Securities 2006;
d) Corporate bonds are regulated in Article 2 of Decree No. 52/2006/ND-CP dated May 19, 2006 of the Government on "Issuance of corporate bonds"... [37]
According to the actual regulations, with valuable papers, the law recognizes the use of mortgage measures. Article 19 on “Rights of the mortgagee in case of mortgage of bills of lading, savings cards, valuable papers”, Decree No. 163/2006/ND-CP on Secured Transactions stipulates:
3. In case of accepting a pledge of valuable papers, the pledgee has the right to request the issuer of the valuable papers or the Securities Depository Center to ensure the pledgee's right to supervise such valuable papers.
In case the issuer of valuable papers or the Securities Depository Center violates the commitment to ensure the mortgagee's right to supervision, causing damage to the mortgagee, it shall be responsible for compensating the mortgagee for the damage, unless otherwise agreed.
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In case the pledged assets are securities subject to registration and depository, the pledge registration at the secured transaction registration agency shall be carried out in accordance with the provisions of law on registration of secured transactions and the securities registration and depository at the Securities Depository Center shall be carried out in accordance with the provisions of law on securities. [13, Article 19]
In fact, in short-term lending transactions in Vietnamese Dong between the State Bank and credit institutions, if the assets are valuable papers, the law also recognizes the application of mortgage measures. Clause 2, Article 2 on “Interpretation of terms
"Circular No. 17/2011/TT-NHNN dated August 18, 2011 of the State Bank regulating loans secured by mortgage of valuable papers of the State Bank of Vietnam for credit institutions stipulates as follows:
2. Pledge of valuable papers means that the State Bank holds the original valuable papers or requests the credit institution to transfer the valuable papers to the State Bank's account opened at the Vietnam Securities Depository Center to ensure the performance of the debt repayment obligation for one or more mortgaged loans of the credit institution at the State Bank. [18, Clause 2, Article 2]
In essence, with a transaction of pledging valuable papers, the actual assets that the parties are aiming for are material values that have been materialized or not; but this material value is not directly transferred to each other by the parties, but in reality, they only transfer to each other "evidence" that determines this material value.
For example, in the case of pledging valuable papers such as shares, in the common understanding, according to the provisions of Clause 1, Article 85 on "Shares", Enterprise Law 2005: " Shares are certificates issued by a joint stock company or book entries confirming ownership of one or more shares of that company. Shares may be registered or unregistered." [30, Clause 1, Article 85]
Or according to the provisions of Clause 1, Article 120 on "Shares", Enterprise Law 2014: " Shares are certificates issued by a joint stock company, book entries or electronic data confirming ownership of one or more shares of that company " [37, Clause 1, Article 120]
Accordingly, shares will represent the shareholder's ownership of a part of the assets of a joint stock company. According to the basic understanding as stated, if a credit institution accepts a mortgage of shares issued by a joint stock company, that credit institution has accepted a mortgage of a part of the assets of that joint stock company. Of course, this part of the assets cannot be transferred visually, so the mortgagee can only transfer it to the mortgaged credit institution "by
"proof" of this ownership; but in this case, the mortgaged property is a type of capital security that has essentially been formed in reality.
In the case of pledging bonds, because they are debt securities, the material value that the parties are aiming for is usually not yet fully formed in reality. In a certain sense, it can be understood that the parties are aiming for a right to receive a certain amount of material from the payment obligation of the bond issuer. This is different from the case of pledging capital securities.
Depending on each basis for classifying valuable papers, we will have diverse perspectives on how to evaluate and compare the legal nature of the transaction of pledging this type of asset; but for the most part, with transactions of pledging valuable papers, similar to the case of pledging savings cards, the parties do not transfer a specific physical asset (corresponding to the value of the valuable paper) to each other but transfer "evidence" of ownership of the material value.
Regarding collateral assets such as shares and stocks, from the perspective of credit institutions' loan security activities, not all types of shares and stocks can be secured. Clauses 5 and 6, Article 126 on "Cases where credit is not granted", the Law on Credit Institutions 2010 stipulates 2 cases where credit institutions are not allowed to secure shares and stocks as follows:
- Credit may not be granted on the basis of receiving security in the form of shares of the credit institution itself or its subsidiary.
- Accordingly, credit institutions are not allowed to accept as collateral shares issued by the credit institution itself or its subsidiaries.
According to the provisions of Clause 30, Article 4 on "Interpretation of terms", Law on Credit Institutions, a subsidiary of a credit institution is determined to fall into one of the following cases:
+ Credit institutions or credit institutions and related persons of credit institutions owning more than 50% of charter capital or more than 50% of voting shares;
+ The credit institution has the right to directly or indirectly appoint the majority or all members of the Board of Directors, Board of Members or General Director (Director) of the subsidiary;
+ Credit institutions have the right to amend and supplement the charter of subsidiaries;
+ Credit institutions and related persons of credit institutions directly or indirectly control the adoption of resolutions and decisions of the General Meeting of Shareholders, Board of Directors, and Board of Members of subsidiaries.
- It is not allowed to lend to contribute capital to another credit institution on the basis of receiving collateral in the form of shares of the credit institution receiving the capital contribution.
This case aims to limit the risk that may lead to cross-ownership between credit institutions, in which case lending for the purpose of contributing capital to another credit institution, the law prohibits the use of collateral as shares or stocks of the credit institution receiving the capital contribution.
Credit institutions may themselves regulate cases in which they are not allowed to accept mortgages of shares and other stocks based on their actual operations.
2.2.2.2. Validity of transactions pledging valuable papers
- In normal cases:
Most of the transactions of pledging valuable papers are effective from the time the pledged assets are transferred to the credit institution receiving the pledge according to the general regulations on the effectiveness of the pledge transaction, according to the provisions of Article 328 on "Effectiveness of property pledge", Civil Code 2005 and Point b, Clause 1, Article 10 on "Effectiveness of secured transactions", Decree 163/2006/ND-CP on Secured Transactions as stated above.
The issue that needs to be further determined here is when is determined to be the time of transfer of the mortgaged property. With mortgaged property being valuable papers in the form of certificates, the time when the parties hand over the certificate to each other is the time of transfer of the mortgaged property.
But in case the mortgaged property is a valuable paper in the form of a book entry, determining the time of transfer of the mortgaged property is not easy.
- In special cases:
For example, in the case of accepting collateral as securities that have been centrally deposited at the Vietnam Securities Depository (VSD).
Securities are deposited at VSD according to the securities depository principles in Article 21 on "Principles of securities depository", Decision No. 87/2007/QD-BTC dated October 22, 2007 of the Minister of Finance on promulgating the Regulation on registration, depository, clearing and payment of securities (amended and supplemented by Circular No. 43/2010/TT-BTC dated March 25, 2010 of the Minister of Finance on amending and supplementing the Regulation on registration, depository, clearing and payment of securities attached to Decision 87/2007/QD-BTC:
1. The depository of customers' securities at VSD is carried out according to the principle: customers deposit securities at depository members and depository members re-deposit customers' securities at VSD. [1, Article 21]
Transactions pledging deposited securities must be registered at VSD according to the provisions of Clause 1, Article 31 on "Pledge and release of pledge of securities", Decision No. 87/2007/QD-BTC:
1. The pledge of securities centrally deposited at the Securities Depository Center is carried out based on the pledge contract and must be registered for trading at the Securities Depository Center in accordance with current legal regulations on registration of secured transactions. [1, Clause 1, Article 31]
Also according to the provisions of Clause 4, Article 31 on “Pledge and release of securities pledge”, Decision No. 87/2007/QD-BTC, the transaction of pledging deposited securities is only effective from the time VSD makes a book entry to transfer securities from the securities trading account of the pledging party member to the pledged securities account of the pledging party member. Specifically:
4. The securities pledge shall only be effective after the Securities Depository Center makes a book entry to transfer the securities from the securities trading account of the pledger member to the pledged securities account of the pledger member. [1, Clause 4, Article 31]
Here, it can be understood that this recognition by VSD is essentially a recognition of the blockade of collateral assets which are deposited securities, these securities are not freely transferable.
According to the provisions of Clause 3, Article 31 on “Pledge and release of pledged securities”, the Regulations on Securities Depository Activities issued together with Decision No. 38/QD-VSD dated April 25, 2012 of the General Director of the Vietnam Securities Depository Center: Confirmation of pledged securities shall only be performed at VSD in cases where the pledgee is a credit institution recognized under current regulations. [25, Clause 3, Article 31] ; that is, VSD only performs the confirmation of securities pledge registration (secured transaction registration) for transactions in which the pledgee is a credit institution.
With this regulation of VSD and the reality with the regulation in Decision No. 87/2007/QD-BTC, it can be understood that assets that are deposited securities are only allowed to be mortgaged to legally operating credit institutions.
Currently, Decision No. 87/2007/QD-BTC has been replaced by Circular No. 05/2015/TT-BTC dated January 15, 2015 of the Minister of Finance guiding the activities of registration, depository, clearing and payment of securities transactions. Circular No. 05/2015/TT-BTC does not directly regulate the validity of securities pledge transactions as in Decision No. 87/2007/QD-BTC; regarding the freezing and unfreezing of pledged securities, Circular No. 05/2015/TT-BTC stipulates at Point a, Clause 2, Article 33 on “Freezing and unfreezing of securities” as follows:
2. Blocking and releasing securities of investors, depository members, and organizations opening direct accounts:
...
In case an investor uses his/her securities as collateral for loans at credit institutions, the depository member where the investor opens a securities depository account is responsible for freezing and releasing securities in the customer's pledged securities account, and at the same time sending a request file.
Block and release pledged securities to VSD for corresponding accounting at VSD. [5, Clause 2, Article 33]
Accordingly, it can be determined that for securities mortgage transactions between customers of securities companies and credit institutions, securities companies (depository members at the Vietnam Securities Depository Center) are obliged to carry out notification procedures and send documents on mortgage transactions to the Vietnam Securities Depository Center to record mortgaged securities from the customer's trading account to the mortgage account.
In this case, it is not easy to determine the effective time of the mortgage transaction based on the time of property transfer; forcing the two parties in the mortgage contract to agree to clearly define this time.
2.2.2.3. Handling of mortgaged assets
- In case the mortgaged property is an unregistered valuable paper:
The characteristic of unregistered valuable papers is that the subject who has the right to enjoy material benefits is the holder of the valuable paper. Therefore, if accepting this type of valuable paper as collateral, the credit institution will have advantages in handling the collateral to recover the loan debt. The credit institution can proactively choose the method of handling such as selling, receiving the collateral itself in lieu of the debt repayment obligation or other methods as prescribed by law to recover the debt.
- In case the mortgaged property is a registered valuable paper:
Similar to other types of real estate that must be registered, the handling of mortgaged assets that are registered valuable papers must normally go through a civil transaction (usually a transfer or sale transaction) to establish the basis for transferring ownership of the valuable papers, from which the credit institution receiving the mortgage can recover the loan. According to the commitment and agreement of the parties in this transaction, the issuing organization will proceed to record the ownership of the transferee (transferee) to the property that is the valuable paper.
- In case the collateral is deposited securities:
With depository securities, all transactions of securities owners are carried out through the common trading floor, in which VSD plays the role of the final receiving and recording organization of securities transactions; this is the clearing and settlement function of VSD.
To perform clearing and settlement of transactions, all data on securities transaction results of the Stock Exchanges are transferred to VSD after the end of the trading session. Securities payment clearing is carried out for each member according to each market. For transactions of stocks, fund certificates, corporate bonds listed and registered for trading on the Stock Exchanges, members' transaction payment will be transferred on the basis of VSD's general clearing between the amount received and the amount payable for transactions with the same time and payment method at the Stock Exchanges. [39]
With such a role, the handling of mortgaged assets in this case must also comply with certain regulations as required by VSD. Normally, the transfer of ownership of listed securities will be carried out in 02 ways: Through the securities trading system at the Stock Exchange and Not through the securities trading system at the Stock Exchange.
In the case of handling mortgaged assets by securities trading through the securities trading system at the Stock Exchange, in the securities mortgage contract, the mortgaged credit institution often requires confirmation (or possibly commitment) from the securities companies where the mortgagee opens a securities trading account regarding the freezing of the mortgaged securities and the implementation of the request to sell the mortgaged securities to recover the debt of the mortgaged credit institution. At the same time, in the mortgage contract, the mortgagee also commits and authorizes the securities company to place an order to sell the securities on its behalf.