Debt collection in construction sector in Vietnam

During business operations, companies often have to face late payment debts from their customers, clients or business partners, which increasingly affects the survival of business, particularly in the construction sector. The situation of overdue debt and capital appropriation in this field are increasingly serious and prolonged, making thousands of constructors and sub-constructors go bankrupt or on the verge of bankruptcy. Consequently, requests for debt collection in construction sector in Vietnam at the present time are very urgent and enormous.

I. Status of outstanding debts among large construction corporations in Vietnam

According to the consolidated financial statements of Coteccons (Stock code: CTD) at the end of the third quarter of 2019, short-term receivables was more than VND 7,672 billion, of which provision for doubtful short-term receivables was VND 214.5 billion.

With regard to Hoa Binh Construction Group Joint Stock Company (Stock code: HBC), short-term receivables as of the end of September 2019 amounted to more than VND 11,891.4 billion, with provision for doubtful short-term receivables up to nearly VND 387.6 billion. According to calculations, HBC’s short-term receivables were up to 3 times equity and receivables turnover is up to nearly one year.

Another large construction company, Vinaconex, also has receivables of up to VND 5,542 billion, of which nearly VND 4,000 billion is receivable from customers, accounting for 60% of the company’s revenue in the year. As of September 30, 2018, Vinaconex also had to make provision for bad debts up to VND 427 billion.

Compared to the three giants aforementioned, the situation of Ricons is not too alarming. By the end of the third quarter of 2019, the total short-term receivables of Ricons reached VND 2,894 billion. Although it has decreased by more than 1,100 billion VND compared to the beginning of 2019, according to the calculations, the receivable turnover of Ricons also reached more than 7 months.

II. Reasons for Outstanding debts in the construction sector

Currently, a great number of construction companies in Vietnam registered the charter capital of several hundred billion VND, but the number of outstanding debts in their construction projects have reached thousands of billion VND. In this sector, there are a lot of reasons for outstanding debts. Followings are some main causes:

• The contractors have completed the construction works, but the employers do not want to make full payment as committed in the construction contract or as agreed between the two parties for the purpose of capital appropriation;
• The employers intentionally try to delay signing acceptance or taking over of construction works, leading to disagreements and delay in payment.
• The involved parties have not made clear payment terms and conditions specified in the construction contracts leading to disputes afterwards.
• Construction is a complicated field, if a related disagreement or dispute arises, the parties will have to take lots of time for resolution. The constructors will be easily short of cash to pay for labor and material costs during the time of dispute. 
• The employers do not raise enough capital to pay for the volume of construction work completed by the contractors.
• The cost increases in materials and labor also lead to disagreements on final completion and taking over.
• One of the reasons for outstanding debt situation is from the incomplete legal system, lack of specific and practical regulations to limit the outstanding debt in construction. The sanctions or penalties are not strong enough to force employers to make payments to contractors as agreed in signed contracts. It is understood that the contractors are entitled to file a lawsuit at a relevant Court or arbitration center to protect their lawful rights and request for payment from the employers. But the litigation and judgment enforcement process take long time, costs and efforts, which can also damage the relationship and reputation of the two involved parties in the market place. Especially, when the employers go bankrupt, even winning the case of debt collection, it is almost impossible to collect the debts.
• When the real estate market freezes, the employers can not sell their project, so they can not pay the constructors. As a result, many construction companies have to go bankrupt along with the project investors.
• The constructors do not have an effective debt management policy.

III. Leading law firm for debt collection in construction sector in Vietnam

Understanding the difficulties and urgent demands of our Clients, who are constructors and sub constructors, ALB & Partner Law Firm has developed and provided effective methods of debt collection in relation to this sector in Vietnam, bringing Clients satisfactory results as expected.

We are recognized as the leading debt collection law firm in construction sector in Vietnam by our Clients who are the biggest construction companies like Hoa Binh, Ricons, BM Windows, Searefico, etc.

https://www.flc.vn/en/A typical case of our debt collection service that we assisted Hoa Binh Construction Group, the biggest construction corporation in Vietnam, in winning the lawsuit of debt collection against the employer FLC Group Joint Stock Company (“FLC”), collecting a debt of more than 276 billion VND (nearly $12 million).

Further information on this case can be found at our Client’s website: https://hbcg.vn/news/9875-hoabinhconstructiongroupwinsthelawsuitagainstflcgroup.html

With a team of experienced lawyers specializing in construction laws and debt collection, currently giving legal advice to most of biggest construction companies in Vietnam, ALB & Partners Law Firm is ready to assist Clients in solving construction disputes and collecting overdue debts in connection with construction projects in Vietnam.

To find out more about our services or have any request, feel free to contact us via email: [email protected]