Debt collection in China: a little perseverance can go a long way – Company law/commercial law



Most people believe that China has a “great wall” all around its borders. The same belief applies when it comes to debt collection, especially if one of the parties is outside of China. At Horizons, we have encountered several cases where creditors have simply given up on debt collection. Our position in this case, before you reverse your losses, is to know that the Chinese legal system is in fact on your side.

Often, the lack of knowledge of the Chinese legal system discourages foreign-funded enterprises based in China from legally pursuing claims against debtors. Yet more than that, too many companies suffer from an ingrained pessimistic attitude towards China’s legal system while being unfamiliar with it. This must change.

The Chinese legal system provides for corporate creditors to sue corporate debtors and litigate in Chinese courts. However, applicants should be aware of the prerequisites for such a benefit. Among them are a carefully drafted contract establishing the governance of an exclusive Chinese jurisdiction, signed or executed in a locality in China, and direct documents to prove that factual business took place, such as correspondence, invoices and documents. other relevant documents.

Under the Civil Procedure Law of the People’s Republic of China, a company based in China can sue companies located outside of China; or inside China if the company in dispute is based outside of China. To illustrate this scenario, we offer a brief analysis in which a creditor company located in China can pursue recoverable debts from a company located outside of China, i.e. a foreign company.

File a claim

In China, the Court’s jurisdiction recognizes a duly signed agreement or contract between the two parties as proof of an established contractual relationship. In the absence of an agreement or contract, the Plaintiff (the injured company) may seize the People’s Court of the place (province, city, district) where (1) the contract was signed, (2) the execution of the contract has been executed, (3) the offense has been committed, or (4) the property has been seized.

Delivery abroad of claim and summons

In the latter case, all documents required for the filing of a claim must be submitted and approved by the competent court. Assuming that the case is accepted by the Chinese court, the evidence and the request for appeal will be sent to the competent court of the defendant – in our example, the foreign company – under the Hague Convention of 15 November 1965 on the service abroad of judicial and extrajudicial documents in civil or commercial matters. However, such provisions are granted if the country of the company is a Contracting State. In other words, is committed to respecting the Hague Convention on the Communication of Judicial and Extrajudicial Documents.

Under the Convention, each contracting state must receive and serve on the other contracting state the plaintiff’s claim and summon the defendant to a hearing in court supervising the original claim. The documents must be written or translated into the language of the receiving State or into the language agreed between the two States. If the documents are translated, the translation must be certified by the consular officer or carried out by a sworn translator. Documents can be served either by a method prescribed by the domestic law of the country for the service of documents, or by the particular method requested by the applicant if the method is governed by the law of the Contracting State. A certificate confirming delivery of documents, mode, place, date and person delivered is required either from the recipient or from the state authority.

Execution of judgment

In the event that the verdict of guilty (judgment) is obtained, the enforcement of the debt in China is carried out by an enforcement officer provided for in the civil procedures of the PRC. If there is no office or representative office of the foreign company (the defendant) in China, the Chinese company (the plaintiff) can apply for recognition and enforcement judgment in the jurisdiction of the foreign company , provided that a sworn or certified translation of the award is submitted.

Most domestic law countries have the option of accepting jurisdiction or on the basis of the principle of reciprocity to hear cases of recognition and enforcement of a foreign judgment. Chinese courts may themselves recognize and enforce judgments of foreign courts on the basis of international convention, bilateral treaties or – as noted – the principle of reciprocity, provided they do not violate fundamental principles of law Chinese, state sovereignty and security, or public interest (note: China has not ratified the Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters).

Ideally, the latter should provide for recognition and enforcement procedures between China and the country of the foreign company. Yet there is no official interpretation, legislative or judicial, of what constitutes reciprocity and the basis of enforcement. It is commonly accepted that reciprocity is interpreted as the willingness of a foreign court to enforce a judgment rendered by a Chinese court.

In short, keep the faith and persevere

Debt collection in China against a company outside of China is possible, provided the locality is exclusive to China. A contract or agreement must specify Chinese jurisdiction as the governing law or the performance of a contract, an offense and seizure of property must be committed in China, in order to file a claim in the Chinese court. While such claims involving companies outside of China may be subject to national enforcement laws in the defendants’ country, this should not immediately discourage companies from such proceedings, but rather understand and consult with experts to obtain advice on getting out of debt is the best step.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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