Decree No. 318/2026/ND-CP: Interest Rate Derivative Contracts with Netting Provisions in Bankruptcy Proceedings
Under the legal framework on recovery and bankruptcy, the treatment of financial contracts incorporating netting and settlement mechanisms presents specific legal considerations, as such transactions may simultaneously involve payment obligations, collateral and the determination of net asset values between the parties.
Decree No.318/2026/ND-CP of the Government establishes specific exceptions for interest rate derivative contracts containing netting provisions, allowing certain settlement, set-off and enforcement mechanisms to continue during recovery and bankruptcy proceedings involving enterprises and cooperatives.
This Legal Brief highlights the key provisions of Decree No. 318/2026/ND-CP and provides practical recommendations for parties to interest rate derivative contracts, enterprises and cooperatives subject to bankruptcy proceedings, and Judges handling bankruptcy proceedings.
1. DECREE NO. 318/2026/ND-CP: KEY INFORMATION
Name of the instrument: Decree No. 318/2026/ND-CP providing detailed regulations on certain provisions of the Law on Recovery and Bankruptcy concerning cases in which the relevant provisions do not apply to derivative contracts containing netting provisions.
Issuing authority: The Government.
Number: 318/2026/ND-CP.
Date of issuance: 12 August 2026.
Effective date: 12 August 2026.
The Decree was issued pursuant to the Law on Government Organization No. 63/2025/QH15, the Law on Recovery and Bankruptcy No. 142/2025/QH15, and the Law on Credit Institutions No. 32/2024/QH15, as amended and supplemented by Law No. 96/2025/QH15.
Notably, Decree No. 318/2026/ND-CP does not regulate all types of derivative contracts. It specifically addresses interest rate derivative contracts containing netting provisions in the context of recovery and bankruptcy proceedings involving enterprises and cooperatives.
The Decree addresses four groups of provisions under the Law on Recovery and Bankruptcy:
1. Cases in which the enforcement of collateral securing obligations owed to secured creditors is not suspended;
2. Cases in which payments or set-offs are not deemed invalid;
3. Cases in which the performance of an effective contract is not temporarily suspended or terminated; and
4. Cases in which prior reporting to the Judge is not required before carrying out a set-off of obligations.
2. WHAT ARE INTEREST RATE DERIVATIVE CONTRACTS AND NETTING PROVISIONS?
2.1. Interest rate derivative contracts
Under Decree No. 318/2026/ND-CP, an interest rate derivative contract is an agreement between parties establishing rights and obligations for the purpose of hedging or mitigating interest rate risks in accordance with the laws governing the provision and trading of interest rate derivative products by credit institutions and foreign bank branches.
This definition should be read together with the specialized banking regulations governing interest rate derivative products in Vietnam.
Interest rate derivatives are financial instruments whose value is determined by reference to changes in interest rates and which may be used by eligible parties to hedge interest rate exposure.
An interest rate derivative contract should be documented in writing, including in electronic form, and should identify the underlying transaction, notional principal amount, applicable interest rate, tenor and settlement dates, method of settling gains and losses on a net basis, rights and obligations of the parties, early termination arrangements, dispute resolution and contract close-out mechanisms.
The parties may also agree to use standard documentation of the International Swaps and Derivatives Association (ISDA), provided that such arrangements are not inconsistent with Vietnamese law.
2.2. Netting
Under Decree No. 318/2026/ND-CP, netting refers to an arrangement under an interest rate derivative contract pursuant to which, upon termination of interest rate derivative contracts on or before their maturity date in accordance with the parties’ agreement, the parties determine and settle a single net amount after setting off the amounts payable under the relevant interest rate derivative contracts.
Instead of settling each contract separately, the relevant payment obligations are aggregated and set off against one another to determine a single net amount payable by one party to the other.
This mechanism is particularly significant where an enterprise has multiple interest rate derivative contracts with the same counterparty, because the amount ultimately subject to settlement following a bankruptcy event may be determined on a net basis rather than separately for each obligation.
2.3. Parties to interest rate derivative contracts
The parties to an interest rate derivative contract are the legal entities or other eligible persons entering into the relevant agreement.
In Vietnam, one party will commonly be a commercial bank or foreign bank branch providing the relevant derivative product, while the other party may be an eligible customer permitted to use interest rate derivative products.
Under the specialized banking regulations, eligible customers may include credit institutions, foreign bank branches and legal entities established and operating under Vietnamese law, together with other eligible entities depending on the applicable transaction.
Accordingly, when reviewing a specific derivative contract, the parties should examine not only the contractual title but also:
- The legal status of each party;
- Authority to enter into the contract;
- The underlying transaction;
- The purpose of hedging or mitigating interest rate risk;
- Early termination provisions;
- Bankruptcy event provisions;
- Netting provisions; and
- The mechanism for determining the final net amount.
3. FOUR KEY EXCEPTIONS UNDER DECREE NO. 318/2026/ND-CP
The principal significance of Decree No. 318/2026/ND-CP lies in its identification of cases where certain provisions of the Law on Recovery and Bankruptcy do not apply to interest rate derivative contracts containing netting provisions.
3.1. No suspension of collateral enforcement
Where a court accepts a petition for the commencement of recovery or bankruptcy proceedings against an enterprise or cooperative, the enforcement of collateral securing obligations owed to a secured creditor under an interest rate derivative contract containing netting provisions is not suspended.
This constitutes an important exception to the general mechanism for preserving the assets of an enterprise during the initial stages of recovery or bankruptcy proceedings.
However, upon request, the secured creditor must provide the Administrator, asset management and liquidation enterprise, or Judge with information relating to the enforcement of the collateral, including:
- The reason for not suspending enforcement;
- The collateral being enforced;
- The date on which enforcement commenced; and
- The location of the enforcement.
3.2. Payments or set-offs made during the six-month period prior to the bankruptcy opening decision are not deemed invalid
Under the general principles of the Law on Recovery and Bankruptcy, certain payments or set-offs made during the six-month period preceding the date on which the court issues a decision to commence bankruptcy proceedings may be subject to review as potentially invalid transactions where they fall within the statutory grounds.
Decree No. 318/2026/ND-CP establishes an exception for payments or set-offs made on the basis of interest rate derivative contracts containing netting provisions.
Accordingly, a payment or set-off carried out during the six-month period preceding the date on which the court issues a decision to commence bankruptcy proceedings is not deemed invalid under the relevant provision of the Law on Recovery and Bankruptcy.
Upon request, the parties must provide:
- The netting provision;
- The date on which the payment or set-off was carried out; and
- Relevant documents and data relating to the payment or set-off.
3.3. Effective contracts are not subject to temporary suspension or termination
An interest rate derivative contract containing netting provisions that remains effective at either of the following times:
- When the court accepts the petition for commencement of bankruptcy proceedings; or
- When the court issues the decision to commence bankruptcy proceedings,
is not subject to temporary suspension or termination under the relevant provisions of the Law on Recovery and Bankruptcy.
This is an important exception because, as a general matter, the Law on Recovery and Bankruptcy allows the court to temporarily suspend or terminate contracts where their continued performance may adversely affect the enterprise or cooperative.
For interest rate derivative contracts falling within the scope of Decree No. 318/2026/ND-CP, the special mechanism is intended to preserve the operation and settlement of derivative obligations in accordance with the parties’ contractual arrangements.
The parties must be able to provide:
- The applicable netting provision; and
- Documents and data demonstrating that the relevant interest rate derivative contracts remain effective.
3.4. No prior reporting to the Judge is required before carrying out the set-off
This may be one of the most practically significant provisions of the Decree.
After the court issues a decision to commence bankruptcy proceedings, in respect of interest rate derivative contracts containing netting provisions that were entered into before such decision, the parties may carry out the set-off mechanism agreed upon by the parties when a bankruptcy event occurs.
This mechanism may include:
1. Termination of all interest rate derivative contracts between one party and the same counterparty;
2. Determination of the amounts payable by each party;
3. Set-off of the corresponding obligations; and
4. Determination of a single net asset amount owed by one party to the other.
Such set-off does not require the parties to report to the Judge and obtain prior approval before carrying it out.
However, a clear distinction must be made between determining the net asset amount and settling that net amount.
The Decree permits the set-off mechanism to be carried out without prior reporting in the specified circumstances. Payment of the resulting net amount remains subject to the applicable laws on recovery and bankruptcy.
4. IMPLICATIONS FOR PARTIES TO INTEREST RATE DERIVATIVE CONTRACTS
Decree No. 318/2026/ND-CP may materially affect how parties manage a counterparty bankruptcy event.
4.1. Banks and derivative product providers
Derivative providers should:
- Review their entire portfolio of interest rate derivative contracts;
- Identify contracts containing netting provisions;
- Review early termination and bankruptcy event provisions;
- Identify contracts entered into with the same counterparty that may be subject to netting;
- Maintain complete transaction records, confirmations, settlement schedules and valuation data;
- Prepare evidence demonstrating the validity of the contracts and the legal basis for the netting mechanism;
- Review collateral arrangements and collateral enforcement mechanisms; and
- Establish internal procedures for immediate response upon becoming aware that a counterparty is subject to court proceedings or bankruptcy proceedings.
In particular, parties should avoid a situation where a contract contains a netting provision on paper, but the underlying transaction records, confirmations or valuation data are insufficient to establish the applicable netting mechanism when a bankruptcy event occurs.
4.2. Enterprises and cooperatives subject to bankruptcy proceedings
An enterprise or cooperative should promptly prepare an inventory of all outstanding derivative contracts and classify them by:
- Counterparty;
- Date of execution;
- Tenor;
- Underlying transaction;
- Notional amount;
- Market value;
- Collateral;
- Termination provisions;
- Bankruptcy event provisions;
- Netting provisions; and
- Outstanding payment obligations.
The enterprise should also coordinate closely with the Administrator and asset management and liquidation enterprise to ensure that all relevant documents are produced in a complete and consistent manner.
Importantly, an enterprise should not automatically assume that every payment or set-off relating to a derivative contract is valid merely because the contract contains a netting provision. It remains necessary to determine whether the contract falls within the scope of Decree No. 318/2026/ND-CP and whether the relevant transaction satisfies the requirements for the applicable exception.
4.3. Judges handling bankruptcy proceedings
For Judges, the treatment of interest rate derivative contracts requires a distinction between:
(i) the exceptions established under Decree No. 318/2026/ND-CP; and
(ii) matters that remain subject to the Law on Recovery and Bankruptcy.
Before assessing a transaction or request made by the parties, the Judge should determine:
1. Whether the contract qualifies as an interest rate derivative contract under the Decree;
2. Whether it contains a netting provision;
3. Whether the contract was entered into before the court’s decision to commence bankruptcy proceedings;
4. Whether the contract remained effective at the relevant statutory time;
5. Whether the payment or set-off falls within the six-month period specified by the Decree;
6. Whether the parties have produced sufficient supporting documents and data; and
7. Whether the set-off merely determines the net asset amount or also includes payment of that amount.
Where the Decree permits set-off without prior reporting, the Judge nevertheless retains an important role in reviewing the relevant documents, determining whether the exception applies, and dealing with the resulting net asset amount in accordance with the Law on Recovery and Bankruptcy.
5. PRACTICAL RECOMMENDATIONS
From a legal risk management perspective, parties should consider at least the following measures.
First, review netting provisions before a bankruptcy event occurs
The review should not be limited to determining whether a contract contains a “netting” clause. Parties should also examine the trigger events, scope of contracts subject to netting, applicable counterparties, calculation methodology and valuation date.
Second, standardize transaction documentation
The transaction file should be sufficient to demonstrate:
- Valid execution of the contract;
- Continued effectiveness of the contract;
- The applicable netting provision;
- The underlying transaction;
- Amounts payable and receivable;
- The valuation methodology; and
- The method for determining the final net amount.
Third, establish an internal response procedure for counterparty distress
Parties should have an internal procedure for promptly determining:
- Whether a termination event has occurred;
- Whether the entire portfolio may be terminated and netted;
- Which collateral may be enforced;
- Which obligations have become due; and
- Whether the resulting net amount is an asset or liability of either party.
Fourth, distinguish “set-off” from “payment”
Decree No. 318/2026/ND-CP allows, in specified circumstances, set-off to be carried out without prior reporting to the Judge. This does not mean that a party may automatically pay the resulting net amount outside the statutory procedures governing recovery and bankruptcy.
This distinction should be expressly reflected in internal procedures for handling bankruptcy events.
Fifth, review existing contracts and pending proceedings
The Decree contains important transitional provisions. Where recovery or bankruptcy proceedings were accepted by the court but the court had not issued a bankruptcy declaration before the Decree took effect, interest rate derivative contracts containing netting provisions are to be considered and handled in accordance with Decree No. 318/2026/ND-CP.
Conversely, where the court had already issued a bankruptcy declaration before the Decree took effect, the Decree does not apply to reconsider or re-settle the matter.
6. CONCLUSION
Decree No. 318/2026/ND-CP establishes a specific legal framework for interest rate derivative contracts containing netting provisions in recovery and bankruptcy proceedings.
The key feature of this framework is to preserve the operation of close-out netting/set-off and net settlement mechanisms at certain critical stages, thereby preventing general rules concerning the suspension of collateral enforcement, invalidation of transactions, suspension or termination of contracts, and prior reporting before set-off from unnecessarily disrupting the risk-management mechanisms embedded in derivative transactions.
However, these exceptions do not mean that interest rate derivative contracts are entirely excluded from the Law on Recovery and Bankruptcy. The parties must still establish that the relevant contract falls within the scope of the Decree, satisfies the applicable requirements as to timing and effectiveness, and complies with the rules governing payment of the resulting net amount and treatment of assets in bankruptcy proceedings.
For banks, credit institutions, enterprises using derivative products and other parties to such contracts, pre-event review of netting provisions, standardized transaction documentation and a dedicated bankruptcy-event response procedure are important measures for mitigating legal risks and disputes.
Disclaimer: This article is provided for general legal information based on Decree No. 318/2026/ND-CP, the Law on Recovery and Bankruptcy No. 142/2025/QH15 and relevant specialized regulations. Whether a particular contract falls within the applicable exceptions should be assessed based on the complete contractual documentation, transaction records, netting arrangements and legal status of the relevant parties.