Skip to main content

Enforcement of security for overseas loans

Enforcement of security for overseas loans

By Wang Jihong and Huang Guanli, Zhong Lun Law Firm

In 2017, the Export-Import Bank of China launched a RMB130 billion (US$18.74 billion) special loan to support implementation of the Belt and Road Initiative (BRI). Following the theme of the previous two articles, this article will exemplify a project in a certain African country that the authors represent and probe the issues that may arise in practice during the enforcement of security for loans, and corresponding solutions.

Difference in concept of law

Chinese enterprises
Wang Jihong
Zhong Lun Law Firm

It is unavoidable that national conditions and histories of different countries give rise to different legal systems. Chinese enterprises should pay special attention to the legal systems unique to the host countries joining the BRI when they engage in specific legal affairs.

When security is created for a loan, Chinese enterprises should consider whether the security agreement and supporting legal documents have legal effect locally, and how to balance the applicable laws and regulations of China and that of the host country in performance of these agreements.

According to the Unified Business Law of OHADA (Organization for the Harmonization of Business Law in Africa), registration of private documents is a measure for the identification of authenticity, and serves to determine the date when the document becomes credible.

Determination of the credibility and commencement time of private documents means that the private documents, on the date of registration, obtain such recognized effect as public documents (such as notary documents, judgments of courts, and judicially served documents, etc.) obtain on the date of publication.

If the documents are not registered, Chinese enterprises will not be able to request a judicial authority to enforce them. It should be noted that Chinese enterprises are less familiar with such registration systems. They should consult local lawyers when they are to enforce the above private documents in OHADA countries in Africa.

Difference in supporting systems

Chinese enterprises
Huang Guanli
Zhong Lun Law Firm

Even if two countries have similar legal systems, they may differ in the connotations and extensions of such systems. Chinese enterprises should not simply and indiscriminately copy their practices at home, but clarify the specific rights and obligations, and put them into practice so as to satisfy their needs.

Under the Unified Business Law of OHADA, subrogation, in addition to recovery, may apply when the surety fulfills its liability of security. The Uniform Act on Security Interests, as the legal basis of such system, provides that the guarantor shall be granted all the rights and guarantees of the creditor for the part of debt it repays to such creditor.

In this way, Chinese enterprises may achieve a legal effect similar to transfer of creditor’s right under the laws of China. When a third party repays the debt, it obtains the rights to which the creditor is entitled pursuant to the agreements or legal provisions. In other words, all rights of the original creditor (subrogor), including original creditor’s right and security interests, are transferred to the new creditor (subrogee).

The original creditor’s right and the accessory security still exist. The new creditor, or subrogee, does not obtain new right to recovery, but is subrogated to the place of the original creditor, or subrogor, in the original obligatory relationship.

In accordance with this legal system, if Chinese enterprises intend to enforce their security for loans in host countries, they may enter into an agreement with the creditor, the Export-Import Bank of China, and agree on repayment of debt by subrogation and acquisition of the rights, including the security interests for the original loan. They will handle related formalities pursuant to local laws to obtain the security interests established for the original loan.

Uncertainty in practice

For the purpose of this article, the meaning of uncertainty is three-fold. First, all applicable laws of the host country at all levels should be co-ordinated in practice. For example, for member countries of the OHADA, if both OHADA laws and national laws are applicable to a certain operation, it should be decided which law should prevail.

Second, even if it is preliminarily decided at the legal level that local laws and regulations of the host country are applicable to the security measures for the loan, cross-border uncertainty should be considered during enforcement of the security. In practice, it is highly likely that the requirements of competent authorities of the host country for the types and formats of documents required may deviate from the provisions of laws and regulations. They may even differ in application and interpretation of the laws and regulations.

Finally, the law enforcement capability of some local competent authorities of the host country may be less than satisfying. Local authorities may enforce existing legal documents and handle related formalities in such a way that falls short of the expectation of Chinese enterprises, and the results may not be what they expect or intend.

Therefore, possible discrepancies and corresponding solutions should be considered and anticipated. In order to ensure smooth implementation of the preliminary objectives, it is indispensible that Chinese enterprises seek legal support from Chinese law firms that are experienced in international projects, and possess local co-operation networks, during implementation of the project.

In the authors’ opinion, effective control of financing risks is one of the key factors to decide whether a Chinese enterprise that responds actively to the BRI may successfully implement its “going global” strategy. In order to effectively prevent and mitigate legal risks relating to provision of security for loans, Chinese enterprises should bring in professional legal advisory teams when discussing their financing plans (including security plans) and drafting agreements to ensure that the security plans are designed in conformity with the requirements of the financial institutions at home, and the laws, regulations and market practice of the host countries of their projects, and the provisions of agreements, are lawful and enforceable.

If a security is to be enforced later, Chinese enterprises should engage a professional legal advisory team as early as possible. The team will be responsible for co-ordinating and communicating with the legal service teams at home and abroad to protect the interests of Chinese enterprises to the maximum extent.

Wang Jihong is a partner and Huang Guanli is an associate at Zhong Lun Law Firm


Popular posts from this blog

SSG Commando Muddassir Iqbal of Pakistan Army

“ Commando Muddassir Iqbal was part of the team who conducted Army Public School operation on 16 December 2014. In this video he reveals that he along with other commandos was ordered to kill the innocent children inside school, when asked why should they kill children after killing all the terrorist he was told that it would be a chance to defame Taliban and get nation on the side. He and all other commandos killed children and later Taliban was blamed. Muddassir Iqbal has deserted the military and now he is  with mujahedeen somewhere in AF PAK border area” For authenticity of  this tape journalists can easy reach to his home town to interview his family members or   ISPR as he reveals his army service number” Asalam o Alaikum: My name is Muddassir Iqbal. My father’s name is Naimat Ali. I belong to Sialkot divison (Punjab province), my village is Shamsher Poor and district, tehsil and post office  Narowal. Unfortunately I was working in Pakistan army. I feel embarrassed to tell yo

CPEC Jobs in Pakistan, salary details

JOBS...نوکریاں چائنہ کمپنی میں Please help the deserving persons... Salary: Salary package in China–Pakistan Economic Corridor (CPEC) in these 300,000 jobs shall be on daily wages. The details of the daily wages are as follows; Welder: Rs. 1,700 daily Heavy Duty Driver: Rs. 1,700 daily Mason: Rs. 1,500 daily Helper: Rs. 850 daily Electrician: Rs. 1,700 daily Surveyor: Rs. 2,500 daily Security Guard: Rs. 1,600 daily Bulldozer operator: Rs. 2,200 daily Concrete mixer machine operator: Rs. 2,000 daily Roller operator: Rs. 2,000 daily Steel fixer: Rs. 2,200 daily Iron Shuttering fixer: Rs. 1,800 daily Account clerk: Rs. 2,200 daily Carpenter: Rs. 1,700 daily Light duty driver: Rs. 1,700 daily Labour: Rs. 900 daily Para Engine mechanic: Rs. 1,700 daily Pipe fitter: Rs. 1,700 daily Storekeeper: Rs. 1,700 daily Office boy: Rs. 1,200 daily Excavator operator: Rs. 2,200 daily Shovel operator: Rs. 2,200 daily Computer operator: Rs. 2,200 daily Security Supervisor: Rs.

A ‘European Silk Road’

publication_icon Philipp Heimberger ,  Mario Holzner and Artem Kochnev wiiw Research Report No. 430, August 2018  43 pages including 10 Tables and 17 Figures FREE DOWNLOAD The German version can be found  here . In this study we argue for a ‘Big Push’ in infrastructure investments in greater Europe. We propose the building of a European Silk Road, which connects the industrial centres in the west with the populous, but less developed regions in the east of the continent and thereby is meant to generate more growth and employment in the short term as well as in the medium and long term. After its completion, the European Silk Road would extend overland around 11,000 kilometres on a northern route from Lisbon to Uralsk on the Russian-Kazakh border and on a southern route from Milan to Volgograd and Baku. Central parts are the route from Lyon to Moscow in the north and from Milan to Constanţa in the south. The southern route would link Central Europe with the Black Sea area and