WHEN CARRYING OUT THE PROCEDURE TO CONVERT FOREIGN DEBT INTO INVESTMENT CAPITAL, ARE THE PARTIES LIMITED IN THE AMOUNT OF MONEY TRANSFERRED?
QUESTION
Dear TLK Law Firm, I currently have a question and hope to hear from you as follows: Last year I implemented an investment project but due to lack of capital I borrowed from a water company outside. Currently, I do not have enough ability to repay that loan and I want to convert the loan into investment capital. However, I do not clearly understand the regulations on whether there is a limit on the amount of money converted from foreign loans into investment capital? Looking forward to your company's answer. Thank you!
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Thank you for your trust and sending questions to TLK Law Firm. Based on legal regulations and practical solutions, we would like to send you the following consulting content:
LEGAL BASIS
1. Investment Law No. 61/2020/QH14 passed by the National Assembly on June 17, 2020;
2. Circular No. 12/2022/TT-NHNN issued by the State Bank of Vietnam on September 30, 2022 providing guidance on foreign exchange management for foreign borrowing and debt repayment of enterprises;
3. Other legal documents providing relevant guidance.
CONSULTATION CONTENT
In recent years in Vietnam, in order to have capital to serve business operations and expand investment projects, many businesses have chosen to mobilize capital by borrowing capital from many different sources. In addition to domestic loans, businesses have sought to access and borrow capital from abroad through foreign loans. However, not every business can repay the loan and then the parties can agree to convert the loan into investment capital. However, when converting debt into investment capital, are the parties limited in the amount of conversion? This is a question that many customers sent to TLK Law Firm.
Therefore, through this article, we will answer your questions about "When carrying out the procedure to convert foreign debt into investment capital, are the parties limited in the amount of money transferred?"
Photo 1. When carrying out the procedure to convert foreign debt into investment capital, are the parties limited in the amount of money transferred?_Hotline: 0972118764
I. SOME IMPORTANT LEGAL ISSUES RELATED TO THE AMOUNT OF CONVERSION OF FOREIGN DEBT INTO INVESTMENT CAPITAL
1. What is a foreign loan? What is loan conversion?
Pursuant to Circular No. 12/2022/TT-NHNN, foreign loan is a common phrase used to pay for foreign loans not guaranteed by the Government (hereinafter referred to as self-borrowed and self-paid loans) and foreign loans guaranteed by the Government in all forms of foreign loans through loan contracts, deferred payment import contracts, loan entrustment contracts, financial leasing contracts or issuance of debt instruments on the borrower's international market.
Converting loan debt into contributed capital means that instead of recovering the money owed to the company by the lender, the lender will use that receivable debt to "buy" the company's own shares/capital contribution. At that time, the lender will become the owner/shareholder/member of the company.
2. Forms of debt repayment are not done through foreign loan or debt repayment accounts
Pursuant to Circular No. 12/2022/TT-NHNN, forms of debt repayment not through foreign loan accounts include:
(1) In the form of providing goods and services to the lender;
(2) Through the lender and the borrower agreeing to convert the outstanding debt into shares or capital contribution in the borrower;
(3) Through the lender and the borrower agreeing to exchange the loan balance into shares or capital contribution owned by the borrower;
(4) Approve medium and long-term foreign loans through clearing receivables directly with lenders;
(5) Through the borrower's account opened abroad (in case the borrower is allowed to open an account abroad to make a foreign loan).
Thus, for economic organizations that cannot make debt repayments, they can negotiate with lenders on forms of debt repayment that do not go through foreign debt repayment accounts as above according to the provisions of law.
3. Some notes on the amount of money when carrying out the procedure to convert foreign loan debt into investment capital
Pursuant to Circular No. 12/2022/TT-NHNN, after the parties agree on the conversion of foreign loan debt into investment capital, the borrower is responsible for notifying and sending supporting documents in 5-days deadline for the bank. When carrying out this foreign loan conversion procedure, the parties are not limited in the amount of money converted from loan capital into contributed capital, this amount is entirely agreed upon by the parties themselves, but the parties must prove that loan is legal and in accordance with regulations.
=> See more: Can foreign investors withdraw from Vietnam by transferring 100% of the project to Vietnamese investors?
Photo 2. When carrying out the procedure to convert foreign debt into investment capital, are the parties limited in the amount of money transferred?_Hotline: 0972118764
II. SUMMARY OF THE ANSWER SECTION: WHEN IMPLEMENTING PROCEDURES FOR CONVERTING FOREIGN DEBT INTO INVESTMENT CONTRIBUTED CAPITAL, ARE THE PARTIES LIMITED ON THE AMOUNT OF CONVERTING FOREIGN DEBT INTO INVESTMENT CONTRIBUTED CAPITAL?
Dear Customers, from the above synthesis and analysis, TLK Law Firm would like to give the following answer:
During the business process, businesses can borrow capital from domestic and foreign businesses to invest in business activities. In case the borrower cannot repay the debt, the two parties can agree to convert the foreign loan debt into investment capital and there will be no limit on the amount of foreign loan conversion into capital contribution.
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An organization providing quality and reputable legal services should have the following criteria:
First: Must be an official legal organization with a legal operating license;
Second: It is better if the Board of Directors must be lawyers, experienced and have high degrees;
Third: Have a team of lawyers and a systematic, professional, and thoroughly trained human resources system;
Fourth: Friendly, dedicated and make every effort for the benefit of customers. Consider customer satisfaction and work quality as your own honor;
Fifth: Professional, thoughtful, flexible and logical service provision process to optimize work performance and save customers' time;
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Finding a comprehensive, professional and reputable legal consulting organization is what every customer wants. Because no one wants to risk losing both money and time while the results are not as expected. However, finding such an organization is not easy because the number of service providers in the Vietnamese market today is very large with varying quality.
A suggestion for you: Although our TLK Law Firm does not dare to claim to be the company providing the best legal services on the market, we satisfy all of the above criteria and more will definitely be a good choice for you.
=> See more: Fast and reputable investment capital reduction service for foreign companies.
IV. SOME QUESTIONS RELATED TO THE AMOUNT OF CONVERSION OF FOREIGN DEBT INTO INVESTMENT CAPITAL
Question 1: In what cases does the document confirming loan change registration automatically expire?
Reply:
Pursuant to Circular No. 12/2022/TT-NHNN, the document confirming loan change registration will automatically expire in the following cases:
(1) After 06 months from the last day of the capital withdrawal period confirmed by the State Bank, the borrower does not withdraw capital and does not register to change the loan withdrawal plan according to Circular No. 12/2022/TT-NHNN;
(2) After the document confirming the registration or registration of changes to the foreign loan automatically expires but still wants to continue making the loan, the borrower must re-implement the foreign loan registration procedure. within 30 days from the date the parties agree in writing to continue making the loan.
Thus, if the borrower fails to meet the deadline, the document confirming the loan change registration will automatically expire according to the provisions of law.
Question 2: What transactions are collected on foreign loan and debt repayment accounts in foreign currency used to perform?
Reply:
Pursuant to Circular No. 12/2022/TT-NHNN, foreign loan and debt repayment accounts in foreign currency can only be used to perform collection transactions as follows:
(1) Collection of foreign loan withdrawals;
(2) Proceeds from purchasing foreign currency from licensed credit institutions to transfer debt repayment (principal, interest) of foreign loans or debt receipts between the borrower and the non-resident guarantor, payment fees according to the loan agreement;
(3) Foreign currency conversion revenue from foreign loan capital withdrawal in case the currency disbursed from the lender is not the currency of the foreign loan or debt repayment account;
(4) Revenue from the borrower's foreign currency payment account opened at a licensed credit institution in Vietnam, the borrower's foreign currency account opened abroad;
(5) Collect allowable revenues from derivative transactions related to foreign loans;
(6) Interest is received on the account balance in accordance with current law.
Thus, accounts used to borrow and repay foreign debt in foreign currency can only be used by the parties to carry out the above revenue transactions according to the provisions of law.
Question 3: Does repayment of medium and long-term foreign loans through clearing receivables directly with the lender have to be done through foreign loan and debt repayment accounts?
Reply:
The answer is No.
Pursuant to Circular No. 12/2022/TT-NHNN, repaying medium and long-term foreign loans through clearing receivables directly with the lender is a form of debt repayment through foreign loan and debt repayment accounts. The lender and the borrower can agree to offset each other's loans registered with the State Bank in accordance with the law.
=> See more: Conditions for converting loans into project capital?
Above is some general advice that we would like to offer to our customers. As a service provider, we always understand and are ready to accompany and solve the needs and difficulties that customers are facing. If you still have questions or need more in-depth advice, please contact the hotline: 0972118764 to receive direct advice from a lawyer (completely free consultation).
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