Under Decree 155/2020, from January 2021, registration of security interests over listed shares in Vietnam will be made at the Vietnam Securities Depositor Center (VSD) instead of the National Registration Agency of Secured Transaction (NRAST). Following the issuance of the Decree 155/2022, the Ministry of Finance (MOF) and VSD have issued detailed regulations on registration of security interests over listed shares. The detailed guidance has streamlined the registration and enforcement of security interests over listed shares. For example, the VSD is now able to transfer the listed shares without consent of the securing party as long as the security agreement clearly provides that the lender can take over or sell the secured shares without consent of the securing party. This is different from the previous procedures which requires written consent of the securing party in the transfer dossiers.

However, the regulations on taking security over listed shares do not appear to address the following issues properly:

·         Security over associated rights: The regulations on taking security over listed shares (such shares, secured shares) do not clearly cover taking security over rights attached to listed shares (e.g., rights to receive dividend, rights to subscribe for new shares, or rights to vote). Technically, unless such rights are considered as “securities” under securities regulations, the regulations on taking security over listed shares may not apply to security interests created over such rights.

·         A lender usually takes security over both the listed shares and the rights attached to them. It may be prudent for the lender to register the security created over the rights attached to listed shares with NRAST to establish its ranking. However, there is a risk that NRAST may refuse to register such security if it considers such security is a security created over listed shares and is not within the “jurisdiction” of NRAST.

·         Requirement for securities account and trade code: The application to register security interests over listed shares must submitted to VSD via one of its member which is usually a securities company or a custodian bank. Accordingly, a lender taking security interests over listed shares will have to open a securities account with an VSD member. If the lender is a foreign company then this will involve obtaining a Securities Trading Code. All of these procedures could take time and efforts.

·         Blocking of security: In addition to the registration of a security over listed shares, the VSD will also “block” (phong tỏa) the relevant secured shares. It seems that this requirement is intended to prevent the securing party from selling or transferring the secured shares during the security period. However, it is not clear if the “blocking” measure will also apply to other distribution that the securing party receives during the security period. In addition, it is also not clear if failure to block the secured shares could impact the validity of the relevant security interest.

·         No registration of enforcement notice: Unlike NRAST, the VSD does not have a procedure for a lender to register an enforcement notice when the lender enforces the security interest over listed shares. This may cause certain issues. For example, if at the time of enforcement, the secured shares are to be sold on a stock exchange, before the sale of the secured shares, the lender will need to request the VSD to “unblock” the secured shares. However under the VSD regulations, unblocking the secured shares could also mean deregistering the security interest over such shares. This would mean the lender could no longer be considered having an security interest over the secured shares. In practice, the risk may not be material, if the lender, the borrower, the securities broker, and the custodian where the secured shares are deposited can enter into a contract which allows the securities broker and the custodian to sell the secured shares immediately after the secured shares are unblocked. However, in theory, a lender may be uncomfortable if it is not considered as a secured party when the secured shares are unblocked. To mitigate those risks, the lender may need to enforce the security by way of transferring the secured shares to a securities account controlled by it. But the procedures for doing so at VSD could take substantial time.

·         Enforcement of security: If at the time of enforcement, the secured shares are to be sold on a stock exchange, the relevant security company which conducts the sale will require an irrevocable instruction by the borrower. To be safe, the irrevocable instruction will need to be handed over to the lender at the time of creation of the security. However, there may be risk concerning the validity of the “irrevocable instruction” since the law requires a sell instruction to have certain specified information which may not be available at the time of creating the security.

This post is written by Nguyen Quang Vu with research assistance by Nguyen Hoang Duy.