Registration Practice for Retention of Title in Vietnam: How to Minimize the Risk of Non-Payment

A detailed explanation of the registration procedure for "retention of title," designed to prevent the risk of non-payment in transactions with Vietnamese companies. This practical guide covers establishing enforceability against third parties, priority rules, and the registration documents required. NEXORA LAW FIRM provides comprehensive legal support to local Japanese companies, including the drafting and review of sale and purchase agreements, registration of security interests, and resolution of payment-collection disputes.

In practice, we receive inquiries from Japanese companies that have entered into sale and purchase agreements with Vietnamese companies regarding payment collection and dispute resolution. Among these, one of the most serious situations is where the Vietnamese buyer has received the goods but fails to fulfill its payment obligation.

01 - The Current Situation and Challenges Faced

In a sale and purchase transaction, delivery of the goods is typically the key point at which "possession" transfers. However, once the goods reach the buyer's warehouse, what subsequently happens to them is left entirely to the buyer's intentions and good faith. In practice, there are numerous cases in which, even though the buyer has not yet paid the purchase price, the buyer engages in conduct such as the following.

Feeding the goods into a production line: immediately using or consuming the delivered raw materials or parts in its own manufacturing process.
Reselling to a third party: reselling the goods to another company and using the proceeds for its own purposes, without first paying the seller.
Pledging the goods as collateral: using the delivered goods as collateral for a debt owed to a financial institution or other party.

Where this occurs, the seller (the Japanese company) faces extremely difficult legal and practical challenges.

Inability to recover the goods themselves: where the goods have already been processed or consumed, or resold to a good-faith third party, it is effectively impossible to recover the goods in kind.
Excessive dependence on the buyer's financial capacity: even where a clear breach of the payment obligation has occurred, whether the funds can actually be recovered depends on the buyer's cash flow. Where the buyer has become insolvent (in default), the seller is exposed to the risk of a total loss of its assets.

To protect the seller's rights to the fullest extent, NEXORA LAWFIRM strongly recommends putting in place effective measures to secure performance of the payment obligation starting from the contract-drafting stage. Among such measures, the use of a "retention of title" clause is an especially effective legal tool.

02 - The Operating Mechanism and Strategic Benefits of Retention of Title

"Retention of title" is not merely a contractual clause — it functions as a powerful legal "shield" protecting the seller's property rights. The mechanism is based on the principle that "title does not transfer until payment of the purchase price has been completed in full."

2.1. The Mechanism for Recovering Property and Settling Added Value

Where the buyer fails to perform its payment obligation, the seller has the right to demand return of the asset itself, in order to recover its invested capital. Vietnamese law ensures fairness through the following rules.

The seller's priority position: unlike the mere exercise of a monetary claim, the key feature of retention of title is that the seller can directly recover the asset itself based on its title, even where the counterparty's funds have been depleted.
Addressing added value: where the buyer or a third party has enhanced the value of the asset — for example, by adding parts or upgrading a system — the seller, upon recovering the asset, is obligated to compensate the party who made the investment for that increase in value. This ensures a balance of interests between the parties.

2.2. The Buyer's Rights and Responsibilities During the Retention Period

Even before title passes, the buyer is granted certain rights, while at the same time being subject to strict legal constraints.

Exemption for natural wear and tear: so long as the asset is not used for a purpose other than intended, the buyer is not liable for natural wear and tear arising from the ordinary use of the asset.
Succession to the obligation (securing enforceability against third parties): where the retention of title has been registered as a "secured transaction," even if the buyer transfers the asset to a third party without authorization, that transferee must assume the obligations arising from the retention of title. This is an extremely important rule for preventing improper concealment of assets.

2.3. Inseparable Strategic Advantages
An "isolation" effect upon insolvency: because title has not yet transferred, the asset is not included in the buyer's bankruptcy estate (the list of assets subject to liquidation) even if the buyer enters bankruptcy proceedings. The seller can recover the asset by separating it out from the bankruptcy estate.
A strong enforcement effect (psychological deterrent): because the buyer cannot obtain full title to the asset, this creates a business constraint for the buyer, exerting strong financial and psychological pressure to prioritize payment.

A Message from Practice

Particularly in high-value transactions and sales of machinery and equipment, the following two points are essential to maximizing the effectiveness of this measure.

Detailed drafting of the clause: the sale and purchase agreement should set out the scope and conditions of the retention of title in extensive detail.
Registration of the security interest: the parties must complete "registration of the secured transaction" with the competent authority, in order to establish enforceability against third parties.

03 - A Practical Guide to Registering Retention of Title and Enforcing the Right

There is a legally significant difference between merely "agreeing" to a retention-of-title clause and actually "registering" it. Proper registration procedure is essential to making the right effective in practice.

3.1. Enforceability Against Third Parties and the Importance of Registration
Internal effect: a retention-of-title clause takes effect between the seller and the buyer from the effective date of the contract.
Effect against third parties: to assert the right against a third party (such as a bank or another creditor), "registration of the security interest" is required. Failure to register means that, in the event of a dispute, the seller cannot claim priority protection over other creditors.

3.2. The Risk of "Priority": A Lesson from Practice

For movable assets whose title is not subject to mandatory registration, the "timing" of registration can determine the outcome.

Principle: registration of the retention of title must be completed before the buyer pledges or mortgages the asset to a third party.
The cost of delay: if the buyer provides the asset as collateral to another party before registration takes place, that secured creditor will take priority. The seller will then only be entitled to whatever residual value remains after the secured creditor has recovered its claim (if any), making recovery of the asset extremely difficult.

Example: goods are delivered on March 1; the buyer pledges them to another company as collateral on March 15; the seller finally registers on April 1. As a result, the secured creditor takes priority, and the seller is subordinated.

3.3. Summary of Rights and Obligations During the Retention Period

Item

Details of the Rule

Buyer's rights

The buyer has the right to use the asset and may enjoy the income and benefits arising from it.

Buyer's responsibility

The buyer bears the risk of damage to or loss of the asset during the retention period.

Scope of recovery

The seller may recover the asset only to the extent of "unpaid purchase price." Incidental costs such as default interest or labor costs are treated as "ordinary (unsecured) claims," and are not entitled to priority satisfaction through recovery of the asset.

Settlement obligation

When recovering the asset, the seller must refund the amount the buyer has already paid (net of depreciation), and must further settle with the buyer for any value the buyer has added to the asset through its own investment.

3.4. Registration Procedure and Required Documents

To establish enforceability against third parties, the following documents must be prepared:

Registration application (in the prescribed form)
Power of attorney
The sale and purchase agreement (containing the retention-of-title clause) or a separate security agreement
Details/description of the asset

Place of registration:

General movable assets: the National Registration Agency for Secured Transactions, in Hanoi or Ho Chi Minh City.
Specific assets: the Civil Aviation Authority (for aircraft), the ship registration authority (for vessels), or the land registration office (for real estate).

🔍 How to Check the Legal Status of an Asset

Anyone can check the security status of an asset through the online portal of the Ministry of Justice.

👉 dktructuyen.moj.gov.vn

In Closing: A Message from NEXORA

Retention of title is a smart risk-management solution, but its effectiveness depends entirely on the "accuracy" and "speed" of the registration procedure. A situation in which delayed registration causes your company's rights to be subordinated to those of other creditors must be avoided.

NEXORA provides end-to-end support, from reviewing the contract through to handling the registration procedure on your behalf, to protect your company's invested capital to the fullest extent possible.