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Convertibility of foreign short-term loan into shares or contributed capital in the debtor

06-04-23 MTParners

• Pursuant to Decree number 219/2013/ND-CP dated 26^th December 2023 in terms of management, payment of foreign loan which is not guaranteed by State.
• Pursuant to Circular number 12/2022/TT-NHNN dated 30^th September 2022 instructing the forex management in terms of borrowing and paying the foreign loans of businesses.

Foreign short-term loan which is borrowed and paid by the debtor itself is the loan has a due date for the total duration to pay the principal amount is below 1 years. Simultaneously the short-term loan is not subject to the mandatory registration at State Bank.

Pursuant to Clause 2 and 3, Article 34 of Circular 12/2022/TT-NHNN in terms of cases paying loan which are not requested to be carried out through loan account, payment of foreign loan have the following regulations:

“2. Cases of debt repayment without going through loan accounts, foreign debt repayment:

a) Repay under the form of providing goods, services to the lender;

b) Repay through the agreement between the lender and the borrower to convert the outstanding debt into shares or capital contribution in the borrower;

c) Repay through the agreement between the lender and the borrower to swap the outstanding debt into shares or capital contribution owned by the borrower;

d) Repay medium and long-term foreign loans through offsetting direct receivables with the lender;

e) Repay through the account of the borrower opened abroad (in case the borrower is allowed to open an account abroad to implement foreign loans).”

3. “Within 05 working days from the date of capital withdrawal or debt repayment according to the cases prescribed in Clause 1, Clause 2 of this Article, the borrower has the responsibility to notify and send documents proving that they have implemented capital withdrawal, debt repayment according to forms not using loan accounts, foreign debt repayment for the bank providing account services to know and continue to monitor the borrower’s foreign loans.”

Thus, based on Clause 2 (b) of Article 34 above, the Borrower and the Lender have the right to convert the Short-term Loan into shares or capital contribution in the Borrower according to the following order:

Step 1: The Borrower and the Lender make an agreement on debt repayment through the conversion of outstanding debt into shares or capital contribution in the Borrower.

Step 2: Within five (05) days from the date of making the agreement at Step 1, the Borrower notifies and sends along the agreement to convert the Short-term Loan for the bank providing account services to know.

Step 3: The Borrower carries out procedures at the investment registration agency, business registration agency to record the adjustment of increasing capital contribution corresponding to the Short-term Loan.

MT&Partners hope that this article will bring useful knowledge to the readers.