In an increasingly competitive business environment where cash flow pressures are ever-present, debt collection has become an essential component of financial management. However, in many instances, businesses or authorised individuals have employed debt collection measures that exceed legal boundaries, exposing themselves to risks of administrative penalties or even criminal liability. Against this backdrop, identifying and clearly distinguishing between lawful and unlawful debt collection practices is crucial. Doing so enables businesses to protect their legitimate rights, uphold their reputation, and ensure compliance with the law. This article examines the Distinction Between Lawful and Unlawful Debt Collection – What Businesses Need to Understand, providing guidance on how to recognise the legal boundaries in debt collection activities, avoid potential violations, and ensure that all collection efforts are carried out in accordance with legal regulations.
The Importance of Distinction Between Lawful and Unlawful Debt Collection
In business activities, the occurrence of bad debts or late payments is common and can directly affect a company’s cash flow, financial efficiency, and reputation. However, not all debt collection measures are permitted by law. The Distinction Between Lawful and Unlawful Debt Collection helps businesses choose suitable methods to collect debts, minimise legal risks, and at the same time protect their legitimate rights and interests.
Understanding this distinction also helps businesses avoid illegal actions such as using violence, making threats, or infringing upon the debtor’s honour or property, thereby preventing administrative penalties or criminal prosecution. At the same time, it provides a legal basis for businesses to implement lawful debt collection measures, ensuring that the debt collection process is transparent, professional, and legally secure.
Thus, recognising and correctly applying lawful debt collection practices not only helps protect a business’s rights and interests but also strengthens its reputation and corporate image in the eyes of partners and the market.
Distinction Between Lawful and Unlawful Debt Collection
Lawful and unlawful debt collection practices differ clearly in terms of the executing party, the methods employed, and their legal consequences.
In Terms of the Party Involved
Lawful debt collection is carried out by the creditor or a duly authorised representative of the creditor (such as a lawyer or another legally authorised person) to collect debts based on clear legal grounds, including loan agreements, debt reconciliation records, and the provisions of the Civil Code 2015 and the Civil Procedure Code 2015.
Unlawful debt collection is often carried out by individuals or organisations engaged in debt collection services – a business activity prohibited under Article 6.1(h) of the Law on Investment 2020 – or by creditors themselves who unilaterally employ illegal measures to coerce debtors into fulfilling their payment obligations.
In Terms of Conduct
In terms of conduct, lawful debt collection is carried out within the legal framework, using transparent and civilised methods that do not infringe upon the rights or legitimate interests of others. Lawful actions may include: sending written reminders, engaging in direct negotiation, initiating court proceedings, or requesting the enforcement agency to execute a court judgment.
Specifically, if the debtor fails to fulfil their repayment obligation when it becomes due, the creditor has the right to file a lawsuit with the court where the debtor resides to request enforcement of the payment obligation. Alternatively, if there is evidence suggesting that the debtor’s conduct constitutes a criminal act, such as wilfully refusing to repay despite having the means to do so, using deceitful methods to misappropriate assets, or absconding to evade repayment, the creditor may file a criminal complaint for the competent authority to investigate and take action under Article 174 (Fraudulent Appropriation of Property) or Article 175 (Abuse of Trust to Misappropriate Property) of the Criminal Code 2015, as amended in 2017.
Unlawful debt collection refers to the use of prohibited measures instead of the lawful debt collection methods permitted by law, with the intention of coercing the debtor to fulfil their repayment obligation. Such actions not only violate social and ethical standards but also directly infringe upon public order, social safety, and the legitimate rights and interests of others.
In practice, unlawful debt collection may involve acts such as using violence, issuing threats or psychological pressure, unlawfully seizing the debtor’s property, or engaging in other illegal behaviours such as assaulting or intimidating the debtor; splashing paint, throwing waste substances, disturbing public order; or posting the debtor’s personal information or images on social media with the intent to insult their honour or dignity.
In Terms of Legal Consequences
Lawful debt collection refers to the creditor exercising their legal right to demand repayment in accordance with the law. Accordingly, such lawful actions are recognised and protected by law. In the event of a dispute, the court and the competent civil enforcement authorities will review and resolve the matter to ensure the creditor’s legitimate rights and interests are upheld.
Unlawful debt collection constitutes a violation of the law and may result in administrative penalties under Article 4.2, Article 12.5(d) of Decree No. 144/2021/NĐ-CP. Specifically, individuals may be fined between VND20,000,000 and VND40,000,000, while organisations may face fines ranging from VND40,000,000 to VND80,000,000 for using violence, threatening to use violence, or employing other unauthorised measures to collect debts.
In more serious cases, the perpetrator may be subject to criminal prosecution under the Criminal Code 2015 (as amended and supplemented in 2017) for offences such as: Intentionally causing injury or harm to another person’s health (Article 134); Infringement of another person’s residence (Article 158); Insulting another person (Article 155); Unlawful arrest, detention, or imprisonment (Article 157); Disturbing public order (Article 318); or other related offences, depending on the nature, severity, and consequences of the unlawful act.
Solutions for Businesses
To prevent legal risks and protect legitimate interests, businesses must clearly understand the Distinction Between Lawful and Unlawful Debt Collection, thereby choosing methods to collect debts that comply with legal regulations. When bad debts or delayed payments arise, businesses should begin by reviewing contracts, records, and supporting documents to determine the debtor’s payment obligations—forming the basis for good-faith negotiation and discussion. Sending written reminders or recording minutes of meetings is also an important step, as it serves as evidence for any subsequent debt collection proceedings.
If negotiation proves unsuccessful, the business may consider taking legal measures, such as initiating court proceedings to claim the outstanding debt. This process may be carried out directly by the business or through law firms or legal service providers, which can offer advice and assistance in conducting negotiations, filing lawsuits, and undertaking other necessary steps in accordance with legal regulations.
Carrying out debt collection in compliance with the law and under clear legal guidance not only helps businesses safeguard their legitimate rights and interests but also contributes to maintaining their reputation and professional image in business operations.
In conclusion, Distinction Between Lawful and Unlawful Debt Collection – What Businesses Need to Understand is crucial for enabling businesses to choose appropriate debt collection methods, comply with legal regulations, and minimise legal risks. Properly understanding and applying lawful debt collection procedures helps businesses protect their legitimate rights while maintaining their reputation and professional image in business operations.
The above is an overview of Distinction Between Lawful and Unlawful Debt Collection – What Businesses Need to Understand. If you have difficulties in finding a Law Firm to advise and support in the relevant legal field, please contact us. Phuoc & Partners is a professional consulting firm established in Vietnam and currently has nearly 100 members working in three offices in Ho Chi Minh City, Hanoi and Danang. Phuoc & Partners is also rated as one of the leading consulting firms in Vietnam with highly specialised teams in top legal fields such as Labour and Employment, Taxation, Merger and acquisition, Litigation. We are confident in providing customers with optimal and effective service.
