Notice of Trial of Cases Involving the Validity of External Security Contract
· Document Number：No.25  of the Supreme People’s Court
· Area of Law： Contract Banking & Finance Foreign Exchange
· Level of Authority： Documents of Judicial Interpretation Nature
· Date issued：07-01-2010
· Effective Date：07-01-2010
· Issuing Authority： Supreme People's Court
· Status： Effective
Notice of the Supreme People's Court on the Trial of Cases Involving the Validity of External Security Contract in which Financial Asset Management Companies Handle Bad Claims by Using Foreign Funds
(No.25  of the Supreme People's Court July 1, 2010)
The higher people's courts of all provinces, autonomous regions and municipalities directly under the Central Government; the Military Court of the PLA; and the Production and Construction Corps Branch of the Higher People's Court of Xinjiang Uigur Autonomous Region:
To correctly try cases in which financial asset management companies handle bad claims by using foreign funds and fully protect the rights and interests of all parties, we hereby notify you of the relevant issues concerning the validity of security contracts involved in handling of bad claims by using foreign funds as follows upon soliciting opinions of the relevant competent department of the State. The people's courts at all levels shall comply with this Notice in the trial of cases which have not been concluded after this Notice is promulgated and the newly-accepted cases:
I. When a financial asset management company handled bad claims by using foreign funds, sold or transferred non-performing assets to a foreign investor after January 1, 2005, and the foreign investor brought a lawsuit to the people's court after assignment of the obligee's right, claiming that the obligor and the security provider should be directly responsible to him, as to this case, since the obligee has changed into a foreign investor, making the original security with domestic nature contained in the non-performing assets have the nature of external security which has its own characteristics, the relevant competent department of the State adopts a relatively easing policy on the examination of this type of security. If the party concerned provides evidence to prove that, in accordance with the provisions of Article 6 of the Circular of the State Administration of Foreign Exchange on Relevant Issues concerning the Control of Foreign Exchanges relating to the Use of Foreign Capitals for Non-performing Asset Disposal of Financial Asset Management Companies (No.119  of the State Administration of Foreign Exchange), a financial asset management company has informed the original security provider of the principal contract, a foreign investor or his agent has clearly stated the specific circumstances of the security in the materials submitted for handling the archival filing and registration of non-performing assets transfer, and the transfer of non-performing assets is archived and registered upon the approval of a branch or foreign exchange administrative department of the SAFE, the people's court shall not determine that the security contract is invalid on the ground that the transfer is without the consent of the security provider or is without the approval or registration by the relevant competent department of the State.
II. When handling the archival filing and registration of non-performing assets transfer, the foreign investor or his agent shall clearly state, item by item, the circumstances of the security in the materials submitted to the branch or foreign exchange administrative department of the SAFE, and if they are not clearly stated, the security shall be deemed as not being registered. Where the party concerned makes supplementary submission of filing materials of non-performing assets in which the specific circumstances of the security are clearly stated before the end of court debate of the first instance, the people's court shall not determine the security contract invalid on the ground that the security is not approved or registered by the relevant competent department of the State.
III. As for cases of disputes arose from financial asset management companies' handling of bad claims by using foreign funds before January 1, 2005, if a party concerned can provide evidence to prove that the relevant formalities for approval or registration have been handled in accordance with the then provisions, the people's court shall not determine the security contract invalid on the ground that it is not approved or registered by the relevant competent department of the State.