Business and Commercial Judgment Enforcement – Challenges and Solutions

With the astoundingly rapid development of the market economy in Vietnam, disputes in commercial transactions are inevitable. Assuming your side has a strong case, you can often expect a favorable judgment after the court or arbitrator decides the case.  Nevertheless, it is well-known that the resolution of commercial disputes often entails a significant investment in time and money for any business.  In addition, contrary to common thinking, obtaining a favorable verdict or award in a lawsuit is only one step in the recovery process. It does not automatically result in the Civil Judgment Enforcement Authority enforcing a legally effective judgment or arbitral award (except in cases where the Civil Judgment Enforcement Authority decides to enforce judgments on its own initiative). Should a favorable judgment or arbitral award be obtained, enterprises are still required to submit a written request for civil judgment enforcement due to the fact that the trial stage and the judgment enforcement stage are two separate and independent phases of litigation. Each stage has its own functions and processes.

How much time does it take for an enterprise that obtains a favorable judgement in a case to have the judgment enforced (receiving money/recovering assets)? How much does judgment enforcement cost? What are the common obstacles faced by enterprises attempting to enforce business and commercial judgments?

There are numerous enterprises that have won their lawsuits but fail to complete the enforcement process which is delayed and prolonged from year to year.

How long does it take to enforce a business and commercial judgment?

Features of business and commercial judgment enforcement

Civil Judgment Enforcement means the stage of enforcing the Court’s judgments or an arbitral award decision in order to restore the legitimate rights and interests of the parties involved. In other words, Civil Judgment Enforcement is the process of transforming a verdict into actual compensation.

According to the 2008 Law on Civil Judgment Enforcement, which was amended and supplemented in 2014 (Law on Civil Judgment Enforcement), judgment enforcement in the business and commercial fields (Business and Commercial Judgment Enforcement) are specific forms of activities carried out by the competent civil judgment enforcement authorities in accordance with the order and procedures prescribed by the law on judgment enforcement. The Business and Commercial Judgment Enforcement has all the features of Civil Judgment Enforcement, but because of its unique nature, the Business and Commercial Judgment Enforcement has some special features, specifically:

First, the parties involved in business and commercial judgment enforcement are primarily businesses. In Vietnam, the majority of commercial business activity participants are enterprises, such as limited liability companies and joint stock companies, with a smaller number of private enterprises and partnerships.

Second, there is a difference in accountability in judgment enforcement. According to the Law on Enterprises, members of a limited liability company are responsible for the debts and other property obligations of the enterprise up to the amount of capital contributed to the enterprise.  Similarly, shareholders are only responsible for the debts and other property obligations of the enterprise up to the amount of capital contributed to the Joint Stock Company. Accordingly, the responsibility for the assets of these enterprises is limited to the amount of capital contributed to the enterprise. On the contrary, if the judgment debtor is a partnership, the partnership member must be an individual, who is personally responsible with all his/her assets for the debts and liabilities of the company.  Likewise, a private enterprise is owned by an individual and is responsible with all his/her assets for all the debts and liabilities of the enterprise.

Third, in a business and commercial judgment or arbitral enforcement situation, the judgments or awards are frequently of extremely high value. Business and commercial judgment enforcement is frequently associated with the settlement of disputes over asset purchase contracts, economic contracts between legal entities, credit contracts, banks, etc. As a result, the matter seeking to be enforced is often of great value, involves a complex asset management regime, and/or is related to many economic issues, making the judgment enforcement process difficult. Further, the assets that are targeted to satisfy the judgment or award in the business and commercial context also exist in variety of forms such as bank accounts, products and goods, technology lines, etc.  Therefore, verifying, handling and transferring the assets in s business and commercial judgment enforcement action is invariably complicated and difficult.

Judgment enforcement process

Legal regulations on time limit for judgment enforcement

The current law does not specify the maximum allowable time to complete a civil judgment enforcement or a business and commercial judgment enforcement.  This is due to the fact that the speed and effectiveness of any judgment enforcement depends on several factors unique to each case.

For instance, the judgment enforcement will be completed quickly if the judgment debtor voluntarily submits the money or assets; if the judgment creditor and judgment debtor are able to reach an agreement on judgment enforcement; or if a judgment debtor’s assets are purchased immediately after being seized and auctioned. Contrary to this, if a judgment debtor’s assets are seized and auctioned but there are no auction participants and no bidders, or the seized assets are under dispute and a lawsuit must be initiated for a judicial resolution, the judgment enforcement time period will be extended. Accordingly:

  • If the judgment debtor voluntarily complies with the judgment immediately after receiving the judgment enforcement decision, it will take approximately 02 months for the enterprise that wins the case to receive the money/recover the assets;
  • If the judgment debtor has conditions and cooperates to enforce the judgment, it will take approximately 04 months to complete;
  • If the judgment debtor has conditions to enforce the judgment but refuses to cooperate and files numerous complaints, the judgment enforcement will take approximately 05 to 06 years to be completed (or longer);
  • If the judgment debtor does not have any assets, the case is classified as not yet eligible for judgment enforcement. As a result, the judgment enforcement may be extended indefinitely and it cannot be determined when the enforcement will be completed.

How much does judgment enforcement cost?

Judgment enforcement charge

Judgment enforcement charge refers to a sum of money payable by an enterprise following the receipt of money and assets pursuant to a successful judgment or award by the Court. The judgment enforcement charge is calculated starting at 3% of the amount of the value of the property received. Then, there are progressive calculation categories depending on the amount, with the enforcement charge increasing according to the money or the value of the property received. Specifically:

  • 3% of the money or value of property received if it exceeds double the base salary for cadres, civil servants, officials, and armed forces specified by the State, but not exceeding VND5,000,000,000.
  • VND150,000,000 plus 2% of the money or value of property in excess of VND5,000,000,000 if the money or value of property received exceeds VND5,000,000,000 but does not exceed VND7,000,000,000.
  • VND190,000,000 plus 1% of the money or value of property in excess of VND7,000,000,000 if the money or value of property received exceeds VND7,000,000,000 but does not exceed VND10,000,000,000.
  • VND220,000,000 plus 0.5% of the money or value of property in excess of VND10,000,000,000 if the money or value of property received exceeds VND10,000,000,000 but does not exceed VND15,000,000,000.
  • VND 245,000,000 plus 0.01% of the money or value of property in excess of VND 15,000,000,000 if the money or value of property received exceeds VND 15,000,000,000.

Expenses for coercive judgment enforcement

According to the law on civil judgment enforcement, judgment debtors must bear all expenses for coercive judgment enforcement.  These comprise a long list and include expenses for notification of coercive judgment enforcement; expenses for purchase of materials and fuel, hiring of protection, medical and fire and explosion prevention and equipment, and other measures and equipment necessary for judgment enforcement; expenses for asset valuation, assessment and auction; expenses for asset revaluation, except for cases when judgment debtors request revaluation or revaluation due to violation of valuation regulations; expenses for rent, safekeeping and preservation of assets; expenses for loading, unloading and transportation of assets; expenses for employment of workers for cost of building partitions or dismantlement; expenses for hired measurement and placement of landmarks for coercive judgment enforcement; expenses for seizure of assets and papers; and payments to persons directly participating in and protecting the coercive judgment enforcement process.

Expenses for coercive judgment enforcement will be advanced from the State budget. However, the approved operating budget of the civil judgment enforcement authority is very limited. In some cases, the Enforcement Authority will request the enterprise who won the lawsuit to support this expense in advance so that the Enforcement Authority can promptly sign contracts with service providers.

Common challenges and solutions in business and commercial judgment enforcement

Common challenges

Due to the specific nature of business and commercial judgment enforcement, the enterprise that wins the case often encounters the following challenges or obstacles during the judgment enforcement process:

First, there is no effective information sharing system between the authorities and the Judgment Enforcement Authority, resulting in the collection of necessary information being slow or incomplete.

For instance, requests for capital contributions as well as information concerning business accounts from banks and related businesses are frequently delayed or incomplete.  In particular, there are cases where, as a result of long-standing business relationships, there is an ‘implicit’ agreement between banks and their business clients. In this situation, the bank may intentionally provide misleading information that is detrimental to the verification and seizure of assets by the civil judgment enforcement authorities, which directly affects the progress and quality of the judgment enforcement.

Second, many properties have been discounted several times (in accordance with the Law on Civil Judgment Enforcement) but remain extremely difficult to sell. This is partially due to psychological apprehension when purchasing assets related to judgment enforcement, and partly caused by an unfavorable land and housing location for production and business. As a result, seized assets are frequently unable to be sold immediately, resulting in price reductions through many unsuccessful auctions, and prolonging the time and directly affecting the enforcement progress as well as the rights of the person whose assets have been seized.

Third, in many cases, auctions have been successful but the property has not yet been delivered. The reason for this is that the parties involved are vehemently opposed and need to be coerced into handing over the sold assets at auction. This results in lengthy judgment enforcement and a backlog that will not be completed for many years.

Fourth, many businesses involved business and commercial judgement enforcement cases related to bank credit are insolvent, so they deliberately oppose and delay the enforcement process in several ways (changing the status of the mortgaged property, hindering the verification of judgement enforcement conditions, valuation of assets, auction of assets for judgment enforcement). For moveable property such as cars, excavators, etc. the judgment debtor may attempt to move it out of the locality or move it to mountainous areas in other provinces so that it cannot be traced. There are even cases of taking advantage of religious issues to block judgment enforcement. In other cases, the mortgaged property is the only house the judgement debtor possesses with many people living together, including the elderly and young children, leading to many difficulties in the coercive handover of property.

Fifth, judgment debtors purposefully file complaints or denouncements to obstruct the judgment enforcement process.

Sixth, in some cases, the Enforcement Authority violates the procedures for organizing judgment enforcement, affecting the time and efficiency of judgement enforcement.  Some examples are when the Enforcement Authority violates the time limit for notifying and serving judgment enforcement decisions/notices; the time limit for voluntarily compliance expires but the Enforcement Authority fails to conduct the verification, or in the case where the judgment debtors do not have yet have the conditions for judgment enforcement but the Enforcement Authority fails to periodically verify it; or the verification has not been carried out even though there is information on judgment enforcement; after the verification results are available, the Enforcement Authority is slow to take action, etc.

Seventh, many cases are classified as ineligible for judgment enforcement because the judgment debtor actually has no assets for enforcement, or when an enterprise that is a judgment debtor borrows the address for establishing the company then moves out of their business address and goes somewhere unknown, etc. This causes difficulties in the judgment enforcement process, affecting the rights of the enterprise seeking to enforce the judgment. The current law on judgment enforcement has no provisions or sanctions for these cases.

Solutions

First, the enterprise that wins the case should actively collect information, obtain the conditions for judgment enforcement of the judgment debtor, and promptly support the Enforcement Authority in the process of verifying the conditions for judgment enforcement.

Second, the enterprise that wins the case should request the auction organization to increase or improve its activities for introducing and providing information about the property up for auction by a variety of means so that the property can be easily traded. If possible, the enterprise should consider a request to take back the property in order to satisfy the debt after many unsuccessful auctions.

Third, if the property has not yet been delivered to the successful bidder/the winning enterprise that receives the property to satisfy the debt, the winning enterprise needs to actively coordinate with the Enforcement Authority and competent authorities in mobilizing and persuading the parties involved to cooperate and voluntarily hand over the property. If the persuasion is unsuccessful, the Enforcement Authority should be requested to forcibly transfer the property in accordance with regulations.

Fourth, when there is information about the judgment debtor’s assets, the winning enterprise must promptly request that the Enforcement Authority apply measures to secure the judgment enforcement in order to prevent the judgment debtor from changing the property’s status, dispersing or destroying property, or otherwise evading their judgment enforcement obligations.

Fifth, for the judgment debtor’s groundless complaints and denunciations, the winning enterprise needs to understand the provisions of the law on civil judgment enforcement and promptly make objections.  A request to the Civil Judgment Enforcement Authority must be made to quickly and completely settle the groundless complaint, thereby speeding up the judgment enforcement process.

Sixth, the winning enterprise needs to actively monitor, contact and request the competent Civil Judgment Enforcement Authority to issue the judgment enforcement decision on time. If the Enforcement Authority violates the time limit for organizing the judgment enforcement, such as violating the time limit for verifying the conditions for judgment enforcement, being slow to perform coercive judgment enforcement, etc., the winning enterprise needs to file a written complaint and report it promptly to the Heads of the Civil Judgment Enforcement Authorities and the Procuracies of the same level.  The winning enterprise must request the competent Procuracies to inspect the organization of the judgment enforcement and request the Heads of the Civil Judgment Enforcement Authorities to direct the Enforcement Authority to remedy the violations and organize the judgment enforcement in accordance with the law.

Seventh, right from the beginning when signing a commercial contract, the parties should clearly understand the each other’s operations, processes, and business efficiency as well as the financial ability of the partner to comply with and satisfy a judgment enforcement action should it become necessary.

Related Practices: Civil & Commercial Judgements

Conclusion

In the process of business and commercial judgment enforcement, there are many parties involved who intentionally delay, seek to circumvent the law, find ways to disperse their assets, or refuse to hand over assets for judgment enforcement. In some cases, the Enforcement Authority has not been energetic and resolute in coercive seizures, resulting in prolonged and delayed enforcement, affecting the interests of the winning enterprise. We hope that the information we have shared will assist your business to overcome obstacles in business and commercial judgment enforcement, speed up judgment enforcement, and minimize delay and prolonged enforcement.

This article contains legal knowledge and professional terms, readers who have questions or need to discuss expertise related to business and commercial judgment enforcement, please contact our Judgment Enforcement Lawyers at info@letranlaw.com.