Registration of security is often seen as a procedure that follows a credit contract. But in essence, this is one of the institutions that determines the safety of the capital market. Assets are only truly valuable as collateral when lenders can establish and publicize their rights, third parties can recognize the existence of those rights, and the order of priority can be determined with relative certainty when disputes arise or asset disposal.
There are papers that still have to be submitted even though the corresponding information can be exploited from the state database.
After nearly four years of implementation, Decree 99/2022/ND-CP on security registration (Decree 99) has created a relatively unified framework for this activity. However, rapid changes in the law on land, aviation, intellectual property, electronic transactions and new types of assets are making some provisions of Decree 99 no longer keep up with reality. The Draft dossier amending Decree 99 of the Ministry of Justice[1] (Draft) also records many problems in terms of dossier composition, online registration, asset description, authority and how to handle specific cases arising in practice.
From small problems to big problems
Some of the inadequacies of Decree 99 are quite technical at first glance.
There are papers that still have to be submitted even though the corresponding information can be exploited from the state database. Some components of the dossier such as construction permits and design drawings are no longer suitable in some cases. The regulations on certification of registered contents on the Request Form are also not favorable for the provision of full-process online public services.
In practice, there are still situations where Decree 99 has not been guided or the guidance is not clear enough, such as: (i) mortgage of land use rights between individuals and individuals or with economic organizations other than credit institutions; (ii) mortgage of planted production forests and perennial trees; (iii) registration related to aircraft; (iv) or the description of some types of collateral.
But the more important issue is: where is the boundary between registration and transaction appraisal? If the registry examines too deeply into the civil relations between the parties, registration risks becoming a form of "licensing" for secured transactions. The registry then not only records and discloses information, but also has to assess the legality of the transaction. This both prolongs the procedure and increases the risk of inconsistent legal application.
Conversely, if the registry only receives information mechanically, the data quality of the system may deteriorate.
The draft chooses a relatively clear approach: the registration applicant must be responsible for the truthfulness, completeness and accuracy of the information; the registry shall settle the request on the basis of the dossier and data that it has the right to exploit.
This is a point that needs to be properly recognized. Registration of security interests is first of all a mechanism for publicizing rights, not a mechanism for the State to guarantee the entire legality of the transaction. The problem is therefore not whether the registry checks or not, but how much it checks. The registry needs to control the necessary conditions to ensure the integrity of the system, such as: registration authority, ability to identify subjects, assets and completeness of information. But it is also not recommended to judge on behalf of the parties or the jurisdiction on the validity of the content of civil transactions. Reform, in that sense, is not about reducing inspection but about determining the right scope to be checked.
Reducing paperwork is just the first step
The draft continues to promote the simplification of procedures. Accordingly, the Decree is expected to abolish 3 procedures, amend and supplement 18 procedures and promulgate 5 new procedures. Some papers are excluded from the composition of the dossier; the registrant also does not have to provide information again if state agencies can exploit it from electronic data.
But if it only stops at reducing paperwork, this reform has not solved the end of the problem. A procedure that is not really "digital" if the enterprise fills out an electronic form but still has to upload copies of the documents that another state agency already holds. It also cannot be considered a substantive reform if the dossier is submitted online but the processor still has to manually compare between data systems that are not connected to each other.
Therefore, the more interesting change of the Draft lies in the data. The Draft separately supplements the mechanism for databases, connection, sharing and exploitation of data for registration of security interests; towards connecting data managed by the Ministry of Justice with information on property ownership, use rights and circulation rights in other systems. This may be the most long-lasting change of the new Decree if adopted.
Because the value of the registration system does not lie in the number of digitized records, but in the ability to reliably answer a question of the market: whose rights is this asset bound by?
From case management to rights data governance
If the data connection mechanism is properly operated, the subscription model will change dramatically.
Instead of each agency holding a piece of information and citizens having to act as a "carrier" of data from one agency to another, information can be mined directly between systems.
For banks and funding institutions, this means more than saving a few days of procedures. The ability to accurately identify the asset, its owner, registration status and established rights to the asset can directly reduce the cost of due diligence and the legal risk of the loan.
On the other hand, the more connected the data, the higher the data quality requirements. An incorrect information in a paper record can only affect one transaction. An incorrect data in an interconnection system has the potential to be reused in many transactions and various procedures.
Therefore, digital transformation in secured registration is not just a technological issue. It requires three factors at the same time: (1) clearly defining responsibility for input data; (2) mechanism for correcting errors; and (3) the ability to trace data sources when disputes occur.
The draft has set aside provisions for the correction of erroneous information in the registered content. This is a necessary direction as registration data increasingly becomes a part of the legal information infrastructure on property. However, data connection also raises more difficult questions: if the source data is inaccurate, which agency is responsible, where should the registrant request correction, and how are the interests of third parties who have relied on that data handled? The more paperwork is reduced and data exploitation increased, the more the law must clarify the responsibility for data. Otherwise, the procedure may be faster, but the risk is only transferred from paper records to databases.
Source: Facebook page of the Department of Secured Transactions Registration and State Compensation
Registration validity: technical details but great economic consequences
Another group of revisions worth noting is the clarification of the validity of the registration.
The draft stipulates the effective time according to each registration mechanism; at the same time, it more clearly handles the consequences of registration of changes and deregistration. Notably, registration of change in principle does not change the effective time of the previous registration; when an asset secures many obligations, the deregistration of one obligation also does not automatically invalidate the registration for the remaining obligations.
This is not a purely technical matter. In collateral disputes, the problem often does not stop at whether the mortgage contract exists or not, but also at the time when the security right arises as a countervailing force - one of the important grounds for determining the legal position and priority between subjects.
Just a single uncertainty about the time of registration, change or deregistration can also be transformed into a dispute over the right of priority to an asset of great value. Therefore, the less discretionary at the registration stage, the higher the ability of the parties to the transaction to anticipate legal risks.
The new mechanism needs to accompany a new principle
The form system of the Draft shows that the scope of registration ranges from land use rights and land-attached assets; the right to use sea areas and assets attached to sea areas; aircraft; ships to assets in the transaction and property registration system of the Ministry of Justice.
This diversity also raises a longer-term question for the registry system: is the management mindset for each asset type and each set of records still relevant as assets and property rights become more diverse?
In the long run, the more important criterion should be: what information is really needed to identify the property, identify the security right, and disclose that right to a third party? This should also be a measure by which to evaluate each future records request. A document should only be required if it is absolutely necessary for the registration function, not simply because the regulator may ask people to provide it.
What is most needed is a reliable system
From that perspective, the new Draft Decree is not only a "cleanup" of the inadequacies of Decree 99. The more expected point lies in the shift from the management of registration dossiers to the management of information on rights to property: reducing papers that the State already has data; more clearly delineating the responsibilities of the registrant and the registry; clarifying the validity of the registration; and at the same time building a mechanism for connecting and exploiting data.
But this very move also sets higher requirements. The addition of a data connection mechanism does not mean that problems will be automatically solved. The effectiveness of the new model also depends on the ability to uniformly identify assets between databases, the quality of source data, responsibility when data is inaccurate, and the mechanism for handling conflicts between information in different systems. If these problems are not solved synchronously, the system can reduce paperwork but not necessarily reduce legal risks. When registration data becomes the basis for banks to decide to grant credit, businesses to decide on transactions and third parties to assess risks, what the market needs is not only a faster system, but a more reliable system.
A good registration system not only helps to register faster; it must help the market determine quickly, accurately and at a reasonable cost who the assets belong to, which obligations are being secured and which rights are prioritized. When that is achieved, the amendment of the new Decree 99 goes beyond the scope of administrative procedure reform to become a reform of the legal infrastructure of Vietnam's capital market.
Lawyer Nguyen Van Phuc
HM&P Law Firm
