Auctions of assets from bad debts and collateral of bad debts

Question: What are the conditions on bad debts?

What are the methods of auction and determination of initial price of auctioned assets?

Answer:

The Ministry of Justice on September 8, 2014 issued Circular 18/2014/TT-BTP guiding asset auctions as prescribed in Decree 53/2013/ND-CP.

Accordingly, bad debts must meet the following conditions:

• The credit institution’s bad debts, including those related to the granting of credit, purchase of corporate bonds, the trusted purchase of corporate bonds and trusted credit granting and other activities as prescribed by the State Bank;
• Bad debts with collateral;
• Bad debts and collateral must be legal with valid documents and papers;
• Debtors still exist; and
• The balance of bad debts or outstanding loan repayments of the borrowers is not lower than the level prescribed by the State Bank.

Methods of auction

Under Circular 18, the auction of assets can be carried out by two methods, including an auction conducted by professional auction organizations or through the VAMC.

For auctions conducted by professional auction organizations, VAMC shall announce the selection of auction organizations within 5 working days on the website of the State Bank of Viet Nam and the website of VAMC in order for professional auction organizations to apply.

VAMC shall issue, conduct and be responsible for considering and deciding on the process for selection of professional auction organizations to hold the auction.

If VAMC implements the auction, a senior representative of VAMC shall conduct the auction.

Determination of initial price of the auctioned assets

The initial price of the auctioned assets shall be determined before VAMC signs a contract to hire a professional auction organization to hold the auction or before VAMC holds the auction itself. VAMC shall decide and take responsibility for the initial price of the auctioned assets.

For auctioned assets are bad debts, Circular 18 prescribes the method for determination of the initial price based on the previous transfer price including (1) in case VAMC purchased bad debts from a credit institution at market value, they shall hire an assessment company to evaluate the bad debts or assess the bad debts by itself in order to determine the initial price; (ii) should VAMC purchased bad debts from a credit institution at book value with special bonds, they shall negotiate with such credit institutions on the initial price.

For auctioned assets which are the collateral against the bad debts, VAMC shall (i) negotiate with the owner of such collateral on the initial price of the auctioned assets; and (ii) negotiate with the pledger on the initial price in case of auction of land use rights./.