Agreements on transfer of debt repayment obligations under current legal regulations

In the course of business operations and transactions, borrowing between individuals and organizations is an important and common practice. However, in some cases, the borrower may no longer be able to fulfill their debt repayment obligations. To address this issue, Vietnamese law provides for the transfer of debt repayment obligations among parties. An agreement on the transfer of debt repayment obligations not only protects the interests of the parties involved but also ensures the legality and fairness of financial transactions.

This article by NPLAW will analyze the current legal regulations related to agreements on transferring debt repayment obligations.

I. Understanding agreements on transferring debt repayment obligations

In many cases, borrowers or businesses cannot continue to fulfill their repayment obligations due to financial difficulties, insolvency, or unexpected events such as economic recessions, pandemics, or changes in business strategies. At that time, an agreement on the transfer of debt repayment obligations allows them to transfer the debt repayment responsibility to a third party (such as an individual who agrees to assume the debt) instead of facing the risk of asset loss, bankruptcy, or litigation. This provides a reasonable solution to reduce the financial burden on the debtor.

While transferring the debt repayment obligation helps the debtor lessen their financial strain, the creditor can also protect their interests through this agreement. If the creditor agrees to the transfer arrangement, they can ensure that the debt will still be paid fully and on time by the transferee. This minimizes the risk of loss if the debtor becomes unable or shows signs of being unable to fulfill their obligations.

II. Legal regulations on agreements on transferring debt repayment obligations

1. What is an agreement on the transfer of debt repayment obligations?

An agreement on the transfer of debt repayment obligations is understood as a legal arrangement in which the party obligated to repay the debt (the borrower or debtor) agrees to transfer their obligation to a third party (the transferee) instead of fulfilling it themselves. This can only be done with the creditor’s consent and must comply with current laws.

2. Is it permissible to make an agreement on the transfer of debt repayment obligations? If so, under what circumstances?

According to Article 370 of the Civil Code 2015 on the transfer of obligations:

- The obligor may transfer the obligation to a substitute obligor if the obligee agrees, except for obligations associated with the obligor’s personal identity or where otherwise provided by law prohibiting the transfer of obligations.

- Once the obligation is transferred, the substitute obligor becomes the obligor.

Accordingly, the obligor (debtor) may transfer their obligation to another person (a third party) to perform on their behalf, but only with the consent of the obligee (creditor). However, this transfer is not applicable in the following cases:

- Obligations closely linked to the personal identity of the obligor, meaning personal obligations that cannot be separated from the debtor.

- Obligations that the law explicitly prohibits from being transferred to others.

3. How are agreements on transfer of obligations handled if they violate the law?

When an agreement on the transfer of debt repayment obligations violates legal provisions, the parties will face legal consequences depending on the nature and extent of the violation. Handling of such agreements will follow the provisions of the Civil Code 2015 and related laws.

- Agreements that violate laws or social ethics: If an agreement on the transfer of obligations violates legal prohibitions, public order, or social ethics, it shall be deemed invalid under Article 122 of the Civil Code 2015. The consequence of an invalid agreement is that the parties cannot demand performance of the contract, and if obligations have already been performed under the agreement, the parties must return what they have received. If the transferee has already repaid the debt to the creditor, they may request reimbursement from the transferor.

- Agreements without the creditor’s consent: Under Article 370 of the Civil Code 2015, transferring debt repayment obligations requires the creditor’s consent. If such an agreement is made without the creditor’s approval, it shall have no legal effect on the creditor. The creditor may reject the transfer and demand that the original debtor directly fulfill the repayment obligation. In this case, the agreement may be considered invalid with respect to the creditor, and the parties will have to resolve disputes or adjust the agreement according to legal requirements.

III. Questions about agreements on transferring debt repayment obligations

1. What is the scope of agreements on the transfer of debt repayment obligations?

According to Article 370 of the Civil Code 2015 on the transfer of obligations: The obligor may transfer the obligation to a substitute obligor if the obligee agrees, except where the obligation is closely linked to the personal identity of the obligor or prohibited by law from being transferred.

Thus, the scope of such agreements does not include obligations associated with the obligor’s personal identity or those that the law prohibits from being transferred.

2. Is a written agreement required?

The law does not require agreements on the transfer of debt repayment obligations to be in writing. However, to protect the interests of the parties and avoid legal risks, it is advisable to prepare a written agreement, especially for large transactions or those involving valuable assets.

3. What should parties do to protect their interests when making such agreements?

To protect their interests when entering into agreements on the transfer of debt repayment obligations, parties should:

- Prepare a written contract: Clearly state the parties’ information, the transferred obligations, the amount, and payment conditions.

- Obtain the creditor’s consent: The creditor must sign and agree to the obligation transfer arrangement.

- Check the financial capacity of the transferee: Ensure the transferee can fulfill the repayment obligations on behalf of the transferor.

- Include protective clauses: Clearly outline the responsibilities and obligations of all parties to prevent disputes.

4. When does the agreement take effect and what conditions must be met for legal validity?

An agreement on the transfer of debt repayment obligations is essentially a contract. According to Clause 1, Article 401 of the Civil Code 2015: A legally concluded contract becomes effective from the time of its conclusion, unless otherwise agreed or provided by law.

Thus, the agreement takes effect from the time of conclusion unless otherwise agreed or stipulated by law.

The conditions for legal validity under Article 117 of the Civil Code 2015 include:

- Parties must have civil legal capacity and civil act capacity appropriate to the transaction;

- Parties must voluntarily enter into the transaction;

- The purpose and content must not violate prohibitions of the law or contravene social ethics.

5. How do the rights and obligations of the parties change when the repayment obligation is transferred?

According to Articles 370 and 371 of the Civil Code 2015, when the debt repayment obligation is transferred:

- The transferee (substitute obligor) becomes the obligor. The obligee has the right to demand that the transferee fulfill the debt repayment obligation of the transferor.

- If the obligation has a security measure, it will terminate unless otherwise agreed.

IV. Legal consulting services on agreements on transferring debt repayment obligations

The above is all detailed information provided by NPLaw to support our clients regarding agreements on the transfer of debt repayment obligations. If you have any further questions related to this matter or other legal issues, please contact NPLaw for direct advice and assistance.