RISK OF DEBT AND HOW TO MINIMIZE IT
We can all see that, at the moment, the Covid-19 pandemic has been controlled relatively well. Still, the consequences left so far have not been completely overcome, especially the rising unemployment rate. Not to mention the significantly low ability to recover the financial position of the enterprises. Therefore, the risk of incurring debts during this period may still occur. In this article, we will present some special notes when performing transactions in commercial business, specifically as follows:
1. Being careful with every transaction
Before entering into a transaction with any partner, whether a long-term partner or a new customer, you need to learn and collect in detail the information and business situation of the partners and the customers.
As we presented at the beginning, the consequences of the Covid-19 pandemic have seriously impacted the enterprises’ business execution, which is a negative change. Therefore, in order to prevent and minimize foreseeable risks, you can learn about the business execution of the partners and the customers with whom you intend to enter into an agreement. Especially the partners and the customers who are affected or show signs of being affected when the Covid-19 pandemic in many aspects, such as finance or human resources (these subjects may have to medical isolation as required by the State).
According to our experience, you need to consider your cooperation and transactions with the new partners (the partners you have never dealt with before). In fact, these may be business entities with a lot of unpaid debts that lead to being unable to borrow or not being trusted by the former partners to continue their cooperation. These new partners will always be looking for new enterprises to sign the Contract and continue to repeat borrowing like a cycle, which poses a risk to your business partnering with these partners.
Therefore, in order to minimize the risk of debt arising, you can conduct a preliminary verification of the business situation of business partners. Besides, other aspects such as the situation of human resources, finance, and salary should also be focused on because the above elements will be directly affected by the business situation of an enterprise; from then, you can exercise judgment in deciding to conduct transactions with business partners.
2. Be careful when setting up and making the transaction
(i) Establish a transaction
First, you need to pay attention to the authority to establish transactions of your partners and customers as well as the terms and contents of the contract. According to the provisions of law, the person competent to sign the contract is the legal representative. In case the legal representative authorizes another person to sign the contract, you need to request a Power of Attorney for this authorization to avoid the event that the transaction is invalid due to the wrong authority. In addition, you should pay attention to asking the partner for a deposit and/or adding payment security terms in the Contract.
Besides, suppose you are engaged in purchasing and selling goods, you may consider stipulating the provision on temporary suspension of goods supply when the partners have not yet completed payment of due debts because it may be the beginning of financial hardships.
(ii) Making the transaction
When making a transaction, you could ask your partners to pay via bank transfer due to the advantage of managing and storing transaction documents. At the same time, when a dispute occurs, the Bank can assist in extracting records as valid evidence to clarify a party’s breach of obligations. At the same time, each Party needs to sign and seal delivery documents, debt reconciliation minutes, and official letters between the Parties.
3. Risk identification and dispute resolution
During the transaction, you need always to be alert, comply and monitor the compliance of the partner’s contract. Especially in this current sensitive context, you also need to mentally prepare for disputes that may arise at any time so as not to fall into a passive position leading to embarrassment and confusion. Based on our experience, the following tips are necessary for businesses to consider and actively implement:
(i) In case your partners violate the payment obligation, you need to send a written request for payment as soon as possible after the expiration of the payment period under the Contract. The advice of receipts from the documents referring to the debt which are sent to your partners should be collected in order to track the situation of the documents, and they are also the basis of reply from your partners; or
(ii) You need to actively store relevant documents so that when there are signs of a dispute, you can synthesize and prepare necessary documents for negotiation or lawsuit settlement at the Court or Commercial Arbitration in the future.
4. In case the risk occurs
In case the partners fail to make the payment or repay the debt on time, you should also pay attention to legal regulations to avoid illegal acts and reduce the goodwill of the related party to settle disputes, such as:
(i) Unauthorized disclosure of the obligor’s photo or personal information;
(ii) Infringing upon the honor and dignity of the obligor;
(iii) Threats to use force or use force against the obligor;
(iv) Performing acts of soliciting debt by telephone harassment towards the family or acquaintances of the obligor
(v) Transactions with a third party providing debt collection services to request the obligor to pay the debt;
(vi) Unauthorized coercion to recover the obligor’s property;
Instead, you can look to law-practicing organizations for advice or representation to participate in resolving disputes and at the same time, avoid unnecessary violations of the law.
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