Out-of-court walkouts: More debt settlement options for credit institutions

The workshop is one of the important contents in the program of building a draft framework for debt restructuring out-of-court on bad debt settlement of credit institutions. The draft document was developed by VNBA in coordination with IFC and members based on international standards and current Vietnamese laws to apply to credit institutions in handling bad debt in Vietnam.

Speaking at the opening of the workshop, Dr. Nguyen Quoc Hung - Vice Chairman cum General Secretary of VNBA said that in the past, debt settlement work still had legal problems, processes, litigation procedures and lengthy execution of judgments. There were cases where the settlement went through many levels and many organizations but was still not thorough and not very effective.

Meanwhile, in many countries around the world, out-of-court walkouts (OCW) plays an important role in limiting bad debt and making an essential contribution to the sustainability of the financial system. This is a civilized debt settlement process between credit institutions (lenders) and enterprises (borrowers). Implementing OCW will help increase debt recovery rates, reduce bad debt rates for credit institutions; help indebted enterprises avoid bankruptcy, overcome temporary financial difficulties, and bring benefits to related parties.

Therefore, Dr. Nguyen Quoc Hung hopes that credit institutions need to refer to good experiences of countries around the world in debt settlement, apply them according to actual conditions, and be both drastic and civilized. "In cases where customers deliberately delay paying their debts, credit institutions still have to bring them to court or economic arbitration," Dr. Nguyen Quoc Hung affirmed.

In reality, a customer can borrow from many credit institutions. Therefore, the Banking Association is ready to act as a connecting unit for credit institutions to discuss solutions and agree on effective debt collection plans.

Dr. Nguyen Quoc Hung highly appreciated the coordination of IFC experts as well as member credit institutions, and hoped that at the workshop, delegates would increase discussions and experts would share more deeply international practices and practical experiences, in order to help VNBA member credit institutions update new knowledge and experiences in handling bad debts.

At the workshop, Ms. Nina Mocheva - Senior Financial Specialist of the International Finance Corporation (IFC) under the World Bank (WB), introduced the WB's toolkit for OCW, with two main objectives: Providing policy makers with tools to build a framework and culture of corporate restructuring in the economy; Supporting the implementation of informal corporate restructuring principles to rescue struggling businesses. According to Ms. Nina Mocheva, in Vietnam, bad debt settlement is currently only bilateral and has not yet formed a "multilateral bad debt settlement culture" through OCW. Therefore, it is necessary to build OCW, creating a foundation for parties to voluntarily participate in the bad debt settlement process. Although OCW is not legal, the final agreement in the implementation process under OCW must be binding and effective for the parties to implement. Thereby, facilitating the implementation of out-of-court debt restructuring and forming a negotiation culture with the rights of the parties in out-of-court debt settlement.

At the workshop, lawyer Nguyen Hung Quang, Chairman of the Vietnam International Commercial Mediation Center, said that debt settlement with multiple creditors before proceeding with litigation (also known as out-of-court debt settlement) is a humane settlement process between credit institutions (lenders) and enterprises (borrowers) to settle debts and help restore business operations.

Debt settlement before proceeding with litigation is of great significance, helping credit institutions reduce bad debt ratios; helping indebted enterprises avoid bankruptcy and overcome temporary financial difficulties; bringing benefits to other related parties (employees, customers, suppliers, investors, etc.) by reducing losses and helping the court reduce pressure in resolving bankruptcy cases.

In addition, debt settlement before litigation has a certain significance for economic and social development, contributing to ensuring the sustainability of the financial system, promoting economic growth, and reducing unemployment rates arising from the bankruptcy of borrowing enterprises.

Therefore, the draft OCW is designed to establish a framework for debt settlement and help debtors recover their business effectively.

Lawyer Nguyen Hung Quang added that the basic condition for debtors to be able to restructure debt and open debt restructuring procedures is to stipulate a minimum threshold for the total value of debts payable by the debtor to the lenders, and have at least 2 lenders; The debtor is not in a case where bankruptcy proceedings must be opened. At the same time, the debts must be at least 4 months old until the due date, the debt repayment period, etc.

Lawyer Nguyen Hung Quang said that the set of guidelines on debt restructuring is only for recommendation and reference purposes and has no mandatory legal value.

In addition, the structure of the OCW document includes a number of main contents, such as: (i) Definition of terms; (ii) Conditions for the debtor to carry out debt settlement; (iii) Opening debt settlement procedures; (iv) Time for debt settlement negotiations; (v) Implementation of the debt settlement contract; (vi) Appendix on the application for opening procedures and agreement on opening debt settlement procedures.

At the workshop, delegates listened to international experts share more practical experiences from Malaysia, Thailand..., including the real situation of the Thai petrochemical industry, mentioning the practical OCW experience with the approach and early action of Bangkok... In addition, representatives of BIDV, VietinBank, TPBank, Shinhan Bank... also asked many questions to IFC experts as well as shared about the real situations that credit institutions in Vietnam have encountered and are facing, thereby referring to more international practices and practical experiences to be able to apply to credit institutions in Vietnam, effectively implementing the OCW framework.

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