Formalities. Time consuming, seemingly needless, but so very important.

When I was in Laos, I worked for an investment fund that offered some private parties loans. I was in charge of securing those loans. I did my due diligence, researched the secured transaction law–which was fairly simple–and drafted sufficient contracts to protect the fund. But part of the process was notarization of the contract in order to register the security with the State.

Now, in Laos, there is only one agency which notarizes documents, and that’s a ministry–I forget which one now. One loan we gave was secured by a vehicle and we successfully notarized that loan and registered the security over the car, which was a Mercedes if I remember correctly. But this loan was secured by real property.

We managed to get the borrower to sign the contract, and we managed to get one of the signatories to show up at the notary, but not the rest. We tried several times but couldn’t secure the notarized signatures of all the signatories to the loan. This was important, too, because it was a relatively high risk loan.

The head boss inquired after the loan and legal told him it wasn’t secured yet. But for some reason he proceeded with fulfilling the loan and paying out the rather large sum. Now, as legal, we were obsessed with finishing the formalities, so we continued to try to get the loan documents notarized by all of the borrowers. This didn’t work, however, and we were left with multiple phone calls unanswered and needless trips to their address.

Lo and behold, three months later, the borrowers defaulted on the loan. We didn’t have security for the loan and couldn’t proceed with collection against the real property because the loan documents weren’t properly notarized and the security subsequently registered over the property. We were left with self-help options that involved more phone calls and visits to the address of the borrowers.

Admittedly, the courts of Laos probably wouldn’t have enforced the security anyway, considering everything we knew about them, but we didn’t have the proper formalities accomplished before performing the contract, or issuing the loan. That’s a big problem.

Formalities may seem needless, may seem like they are a pain in the butt, but they are very necessary and are there for a reason. The government of the local jurisdiction wants to see a certain thing happen. They’ve issued laws and regulations. They expect investors to follow those laws. And it behooves investors, especially those unfamiliar with Indochina who are coming into the region for the first time, to conform to those regulations.

That’s why it’s vital you consult with lawyers or other qualified personnel before signing and performing a contract in Indochina. You don’t know the law, and you don’t know what all is required of you to ensure that you can enforce the contract should the other party fail to perform its obligations under that contract.

So pay heed to formalities. They are vital.