Since the Law on Secured Transaction No. 06/NA, dated 20 May 2005 (“Law on Secured Transactions”) is partially replaced by Civil Code No.55/NA, dated 6 December 2018 (“Civil Code”). According to the Civil Code, the security according to the contract is an asset guarantee agreement to secure the debt repayment between a creditor and debtor in form of a pledge and a mortgage, or a guarantee agreement by any individual or legal entity as a third party for debt repayment while the debtor fails to do so.

1.Pledge

Pledge is the form of an asset security contract which can be classified as follows:

1.1 Pledge with movable asset

A pledge with the movable asset is security by movable asset for the debt repayment in which the said asset is under the possession of the pledgee or another person as agreed[1], however, the ownership right remains with the pledgor.[2] Pledge with movable assets under the Civil Code still can be divided as follows:

1.1.1 Pledge at Pawnshop;

1.1.2 Pledge with documents is a security in which the debtor assigns a document certifying ownership of a movable asset to the creditor, however, the debtor still has the possession of, and right to use the assets;[3]

1.1.3 Pledge by inventory in the warehouse is that the debtor assigns a negotiable warehouse bond to the creditor to guarantee the debt repayment.[4] 

1.2 Pledge with immovable assets

A pledge with the immovable asset is security by the immovable asset which the said asset is under the possession of the pledgee or another person as agreed,[5] however, the ownership of the said asset still belongs to the pledgor. In this regard, the pledgee has the right to use or enjoy usufruct from the said immovable asset but has no right to charge interests from the pledgor.[6] The document certifying the ownership can be in the possession of either the pledgor or the pledgee as agreed between the pledgor and the pledgee.[7]

1.3 Pledge with right

A pledge with the right is security by the rights over the certificate, the agreement, or any projects whereas the creditor can claim such right for example, right over the bank account, right over share certificate, and right over benefits of the project.

2.Mortgage

A mortgage is the form of an asset security contract which can be classified as follows:

2.1 Mortgage with immovable assets

A mortgage of an immovable asset is the guarantee for debt repayment in which the said asset is required to be registered mortgage with the Lao authority without transferring its possession to the mortgagee.[8] Moreover, the asset ownership is still held by the mortgagor who enjoys the usufruct right from the said mortgaged assets.[9]

2.2 Mortgage with movable assets

A mortgage of a movable asset is the guarantee of debt repayment in which the said asset is required to be registered mortgage with the Lao authority without transferring its possession to the mortgagee.[10] Moreover, the asset ownership is still held by the mortgagor who enjoys usufruct the said mortgaged assets as same as a mortgage of the immovable asset.[11]

3.Security by another individual or legal entity

Security by an individual or legal entity as a third party agreeing to repay the debt himself/themselves to the creditor if the debtor fails to do so.[12] Both the Law on Secured Transaction and the Civil Code is not required the security by an individual or legal entity to be registered with the Lao authorities, however, we recommend the parties registered the said security with the Division of Finance to certify and enforce the said security in the future.

The comparison between Law on Secured Transactions and Civil Code