錢伯斯：全球法律實務指南項目融資2023之中國篇（英文版）（17頁）.pdf

《錢伯斯：全球法律實務指南項目融資2023之中國篇（英文版）（17頁）.pdf》由會員分享，可在線閱讀，更多相關《錢伯斯：全球法律實務指南項目融資2023之中國篇（英文版）（17頁）.pdf（17頁珍藏版）》請在三個皮匠報告上搜索。

1、CHAMBERS GLOBAL PRACTICE GUIDESProject Finance 2023Definitive global law guides offering comparative analysis from top-ranked lawyersChina:Law&Practice Zhang Lei Jingtian&GongchengCHINA2CHAMBERS.COMLaw and PracticeContributed by:Zhang Lei Jingtian&GongchengContents1.Project Finance Panorama p.51.1 S

2、ponsors and Lenders p.51.2 Public-Private Partnership Transactions p.51.3 Structuring the Deal p.51.4 Active Industries and Sectors p.52.Guarantees and Security p.52.1 Assets Available as Collateral to Lenders p.52.2 Charges or Interest Over All Present and Future Assets of a Company p.62.3 Register

3、ing Collateral Security Interests p.62.4 Granting a Valid Security Interest p.62.5 Restrictions on the Grant of Security or Guarantees p.72.6 Absence of Other Liens p.72.7 Releasing Forms of Security p.73.Enforcement p.73.1 Enforcement of Collateral by Secured Lender p.73.2 Foreign Law p.83.3 Judgme

4、nts of Foreign Courts p.93.4 A Foreign Lenders Ability to Enforce p.94.Foreign Investment p.94.1 Restrictions on Foreign Lenders Granting Loans p.94.2 Restrictions on the Granting of Security or Guarantees to Foreign Lenders p.104.3 Foreign Investment Regime p.104.4 Restrictions on Payments Abroad o

5、r Repatriation of Capital p.104.5 OffshoreForeignCurrencyAccountsp.105.Structuring and Documentation Considerations p.115.1 Registering or Filing Financing of Project Agreements p.115.2 Licence Requirements p.115.3 Agent and Trust Concepts p.115.4 Competing Security Interests p.115.5 Local Law Requi

6、rements p.11CHINA CONTENTS3CHAMBERS.COM6.Bankruptcy and Insolvency p.126.1 Company Reorganisation Procedures p.126.2 Impact of Insolvency Process p.136.3 Priority of Creditors p.136.4 Risk Areas for Lenders p.136.5 Entities Excluded From Bankruptcy Proceedings p.147.Insurance p.147.1 Restrictions,Co

7、ntrols,Fees and/or Taxes on Insurance Policies p.147.2 Foreign Creditors p.148.Tax p.148.1 Withholding Tax p.148.2 Other Taxes,Duties,Charges p.158.3 Limits to the Amount of Interest Charged p.159.Applicable Law p.159.1 Project Agreements p.159.2 Financing Agreements p.159.3 Domestic Laws p.16CHINA

8、Law aNd PraCTiCEContributed by:Zhang Lei,Jingtian&Gongcheng 4CHAMBERS.COMJingtian&Gongcheng is one of the first pri-vate partnership law firms in China.Since its establishment,Jingtian&Gongcheng has been dedicated to providing clients with high-quality and efficient legal services,and has grown into

9、 one of the top full-service business law firms in China.The firm is active in a wide variety of practice areas and is recognised as an industry leader in capital markets,banking and finance,M&A,outbound investment,dispute resolution and private equity/venture capital investments.It has always been

10、deeply committed to serving its clients and maximising their interests,and can therefore boast a long list of many first-of-its-kind matters in various practices and sec-tors.Jingtian&Gongcheng has won numerous awards and recommendations from leading legal publications.The firm is headquartered in B

11、eijing,with offices strategically located in Shanghai,Shenzhen,Chengdu,Tianjin,Nan-jing,Hangzhou,Guangzhou,Sanya and Hong Kong.AuthorZhang Lei is a partner in the banking and finance department at Jingtian&Gongcheng.He has been practising law for more than 15 years,and previously worked at a magic c

12、ircle firm and two top Chinese firms for many years.His practice focuses mainly on banking and finance,including syndicated loans,bilateral loans,acquisition finance,project finance,export credit,disposal of non-performing loans,bankruptcy and insolvency as well as financial regulation and complianc

13、e,etc.Mr Zhang regularly advises Chinese banks,foreign banks and corporate clients,and most of his transactions involve a cross-border aspect.He is qualified to practise PRC law and is fluent in Chinese and English.Jingtian&Gongcheng34/FTower 3China Central Place77 Jianguo RoadBeijing 100025ChinaTel

14、:+86 10 5809 1098Fax:+86 10 5809 1100Email:Web:CHINA Law aNd PraCTiCEContributed by:Zhang Lei,Jingtian&Gongcheng 5CHAMBERS.COM1.Project Finance Panorama1.1 Sponsors and LendersThe project sponsors are almost always the shareholders of the project company.Depending on the industry,the institutions ac

15、ting as spon-sors will be different,ranging from state-owned enterprises to private enterprises,and from domestic corporates to international corporates.Lenders involved in project finance transactions in China are mainly banks.Previously,foreign banks were quite active in the market,but in recent y

16、ears Chinese banks have played a more and more important role in project finance trans-actions,which includes state-owned banks and joint stock banks.Export credit agencies,such as the China Export&Credit Insurance Corpo-ration(Sinosure),also play a significant role in the market,by providing guaran

17、tees and insur-ances.Sinosure provides insurance support and issues guarantees to counterparties of Chinese export-oriented companies.1.2 Public-Private Partnership TransactionsPublic-private partnership transactions are com-monly seen in public service industries,such as energy,transport,environmen

18、tal protection,agriculture,forestry,technology,government-subsidised housing,healthcare,education and culture,etc.The legislation applicable to public-private part-nership transactions includes(without limitation)the Civil Code,the Budget Law,the Government Procurement Law and the Bidding Law.1.3 St

19、ructuring the DealThere are several main issues that need to be considered when structuring project finance transactions in China.First,the parties need to carefully consider the basis on which the deal should be structured:non-recourse,limited recourse or otherwise.Sponsors normally prefer a non-re

20、course or limited recourse deal.However,in many project finance transactions,the lenders will require a guarantee or other security from the sponsors even though they take security over all the pro-ject assets.Secondly,the capital ratio is regulated and deter-mined based on the nature of the investm

21、ent project under PRC laws.Generally,the minimum capital ratio is 25%but it varies depending on the nature of the investment project.Project sponsors need to structure their financial model carefully so that the capital ratio requirement does not affect the return on invested capital.1.4 Active Indu

22、stries and SectorsIndustries/sectors relating to the so-called New Infrastructure 5G,Data Centre,AI,Industrial Internet and IoT,etc are expected to be more active in the coming year.2.Guarantees and Security2.1 Assets Available as Collateral to LendersUnder PRC laws,the following types of assets are

23、 typically available as collateral to lenders:land use right and buildings;machinery,equipment,inventory and other movables;receivables;shares in Chinese companies;intellectual property;ships;aircrafts;and vehicles.CHINA Law aNd PraCTiCEContributed by:Zhang Lei,Jingtian&Gongcheng 6CHAMBERS.COMThe fo

24、rms that security typically takes in the market include guarantee,pledge and mortgage.Under PRC laws,security created over certain types of assets needs to be registered at the relevant asset-based registry for perfection pur-poses.The security perfection requirements for these types of assets are a

25、s follows:for land use right and buildings registration at the local real property registry;for machinery,equipment,inventory and other movables online registration at the Credit Reference Centre of the Peoples Bank of China(PBOC);for receivables online registration at the Credit Reference Centre of

26、 the PBOC;for shares in Chinese companies depending on the types of company whose shares are pledged,registration at:(a)the local State Administration for Market Supervision;or(b)the securities depository and clearing institution;for intellectual property registration at the relevant IP registry;for

27、 ships registration at the local maritime registry;for aircraft registration at the Civil Aviation Administration of China;and for vehicles registration at the local vehicle registry.Security can be created in favour of a security agent in syndicated loan transactions,as the security agent concept i

28、s generally recognised in the PRC.A security agent can hold security,enforce the syndicates rights under the loan documents and apply any enforcement pro-ceeds in accordance with the instructions of the lenders in the syndicate.2.2 Charges or Interest Over All Present and Future Assets of a CompanyA

29、 Chinese company can create a floating mort-gage over its machinery,equipment,raw mate-rials and semi-manufactured products,as well as its finished products,both those currently owned and those to be owned in the future.However,under PRC laws,it is not generally possible to create a floating charge

30、over all pre-sent and future assets of a company.Separate agreements are required to create a security over each type of asset.2.3 Registering Collateral Security InterestsCosts associated with registering collateral security interests in China are minimal,and the borrower usually pays these costs(i

31、f any)direct-ly.For example,the registration fee for security over a land use right and buildings is CNY80 or CNY550(depending on the types of land use right and buildings)for each registration;the registration fee for security over receivables is CNY30 per annum for each registration;and no registr

32、ation fee is payable for security over shares.2.4 Granting a Valid Security InterestTo the extent practically possible,it is almost always necessary to identify each item of col-lateral in the security document individually in order to grant a valid security interest.It is noteworthy that it may not

33、 be possible to indi-vidually identify each item of collateral for certain types of security,such as a floating mortgage over machinery,equipment,raw materials and semi-manufactured products,as well as finished products(both currently owned and to be owned in the future).In this case,a general descr

34、ip-tion of the collateral should be sufficient.It is also advisable to consult the relevant security registry in advance regarding whether the col-CHINA Law aNd PraCTiCEContributed by:Zhang Lei,Jingtian&Gongcheng 7CHAMBERS.COMlateral needs to be individually identified for the purpose of security pe

35、rfection.2.5 Restrictions on the Grant of Security or GuaranteesUnder PRC laws,there are two types of cross-border security that need to be registered with the State Administration of Foreign Exchange of the PRC(SAFE):Nei Bao Wai Dai(NBWD)refers to a financ-ing transaction where both the borrower an

36、d the lender(s)are located outside China,while the guarantor/security provider is located in China;and Wai Bao Nei Dai(WBND)refers to a financ-ing transaction where both the borrower and the lender(s)are located in China,while the guarantor/security provider is located outside China.Other types of c

37、ross-border security are gener-ally not required to be registered with the SAFE.For example,if foreign lenders lend into China and take security over assets located in China,the security is not required to be registered with the SAFE.In practice,cross-border security reg-istration may need to have b

38、een completed prior to the application of security registration with the relevant asset-based registry,so it is advisable to check with the relevant authorities on a case-by-case basis.2.6 Absence of Other LiensLenders usually conduct due diligence against the collateral over which they will take se

39、curity.This due diligence normally assesses whether there are other liens or restrictions on the col-lateral,among other matters.Generally,liens are recorded with the relevant security registry and therefore are searchable following the pre-scribed procedures(eg,the authorisation of the collateral o

40、wner may be required).2.7 Releasing Forms of SecurityGenerally,the parties may choose the form of security release,as there is no restriction in this regard under PRC laws.It should be noted that,if a security release form is required to be sub-mitted to the security registry for the purpose of dere

41、gistering the security,it is advisable to con-firm with the security registry whether the release form is acceptable.3.Enforcement3.1 Enforcement of Collateral by Secured LenderUnder PRC laws,a secured lender can enforce its collateral if the debt secured by that collateral is not paid when due and

42、payable,or if another event of default provided in the finance docu-ments occurs.Generally,there are three meth-ods by which to enforce collateral in China.First,a secured lender can reach an agree-ment with the security provider to receive payment by converting the collateral into value or by obtai

43、ning proceeds from the auc-tion or sale of the collateral.When converting the collateral into value or selling it off,the price should be determined by reference to the market price.Secondly,a secured lender can initiate a law-suit at the competent PRC court if no agree-ment could be reached by the

44、parties regard-ing the collateral enforcement.PRC laws provide a special court procedure to enforce collateral,through which a secured lender can apply directly with the competent PRC court for auction or sale of the collateral.After examination,if there is no substantial dispute CHINA Law aNd PraCT

45、iCEContributed by:Zhang Lei,Jingtian&Gongcheng 8CHAMBERS.COMbetween the parties regarding enforcement of the collateral and the conditions to enforce the collateral are satisfied,the PRC court shall rule to auction or sell off the collateral;if a substantial dispute exists between the parties,the PR

46、C court shall rule to reject the application,and the secured lender may initi-ate an ordinary court procedure.Thirdly,a secured lender can initiate an ordinary court procedure at the competent PRC court if the PRC court rules to reject the application for a special court procedure.Of course,the secu

47、red lender can also directly initiate an ordinary court procedure(without going for a special court procedure first).Once they have obtained a court judgment(or an arbitration award if arbitration is the agreed dispute resolution in the security documents),the secured lender can present it to the co

48、urt for enforcement.It is noteworthy that,under PRC laws,the par-ties can have a debt instrument notarised by a notary office and obtain a notarial certificate when signing the instrument.Debt instruments that can be notarised include but are not lim-ited to loan agreements,security documents,etc.On

49、ce notarised,the debt instruments will be granted enforceability by notarisation under PRC laws.In the event of default,the secured lender can request the notary office to issue an enforcement certificate regarding the notarised debt instrument(eg,a security document)and apply directly to the compet

50、ent PRC court for enforcement of the collateral.It is generally possible for security enforcement to be taken directly by a security agent,unless the security document provides otherwise.As mentioned,a security agent can hold security,enforce the syndicates rights under the loan documents and apply

51、any enforcement pro-ceeds in accordance with the instructions of the lenders in the syndicate.3.2 Foreign LawFor a foreign-related contract,PRC laws gener-ally allow the parties to choose the governing law of that contract(PRC laws or a foreign law),except where the choice of foreign law violates ma

52、ndatory PRC legal provisions or where any provision of the foreign law violates a public policy of the PRC in the determination of a par-ticular issue,in which case PRC laws would be the applicable laws.Under PRC laws,contracts are considered to be foreign-related contracts when:either party or both

53、 parties to the contract are foreign persons or foreign entities;the habitual residence of either party or both parties to the contract is located outside the territory of the PRC;the subject matter of the contract is outside the territory of the PRC;and the legal fact that leads to the establishmen

54、t,change or termination of the contract relation-ship happens outside the territory of the PRC.Based on this,for loan agreements entered into between a Chinese company and foreign lenders,PRC laws generally allow the parties to choose a foreign law as the governing law(in particular,English law),and

55、 PRC courts will give effect to the choice of foreign law.For security documents,however,as a matter of the lex situs doctrine,the security is typically governed by PRC laws,since the security asset is located in China.Generally,the submission to a foreign jurisdic-tion should be upheld under PRC la

56、ws,provided that it does not contradict the mandatory legal CHINA Law aNd PraCTiCEContributed by:Zhang Lei,Jingtian&Gongcheng 9CHAMBERS.COMrequirements in China,such as the legal require-ment regarding exclusive jurisdiction.3.3 Judgments of Foreign CourtsUnder PRC laws and according to the inter-na

57、tional treaties concluded or acceded to by the PRC or based on the principle of reciproc-ity,PRC courts shall review an application or a pleading for the recognition and enforcement of a judgment rendered by a foreign court.If,upon review,the foreign judgment neither con-tradicts the fundamental pri

58、nciples of PRC laws nor violates state sovereignty,security or pub-lic interest,PRC courts shall rule to recognise and enforce the foreign judgment.China offi-cially signed the Hague Convention on Choice of Court Agreements in September 2017,and is still going through the ratification procedure.To d

59、ate,there is no other international treaty in respect of the recognition and enforcement of judgments between the PRC and the UK or USA.China is a member of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards(ie,the New York Arbitration Conven-tion).Therefore,a foreign arbit

60、ral award against a Chinese company should be enforceable in China if the legal provisions of the Arbitration Law of the PRC are complied with.3.4 A Foreign Lenders Ability to EnforceGenerally,there are no substantive restrictions on a foreign lenders ability to enforce its rights under a loan or se

61、curity agreement.However,as the official language in PRC courts is Chinese,a foreign lender would have to prepare and pre-sent a Chinese translation of documents filed with PRC courts.Moreover,PRC courts gener-ally require a foreign lender to notarise and legal-ise its constitutional documents,as we

62、ll as the power of attorney granted to its legal counsel in a judicial proceeding.4.Foreign Investment4.1 Restrictions on Foreign Lenders Granting LoansThe following regulatory requirements when foreign lenders grant loans within the PRC are worth mentioning.Foreign Debt QuotaPursuant to the regulat

63、ions of the PBOC,a for-eign debt quota is required for a Chinese bor-rower to take out loans from foreign lenders.The risk-weighted outstanding amount of all foreign loans borrowed by the Chinese borrower shall not exceed its foreign debt quota.The foreign debt quota is calculated as follows:the bor

64、-rowers capital or net assets multiplied by the cross-border financing leverage ratio multiplied by the macro-prudential regulation parameter.Depending on the type of borrower,the calcula-tion of foreign debt quota is different:for an enterprise borrower,the quota is calcu-lated based on its net ass

65、ets,and the cross-border financing leverage ratio is 2;for a bank borrower,the quota is calculated based on its Tier 1 capital,and the leverage ratio is 0.8;and for a non-bank financial institution(eg,insur-ance companies),the quota is calculated based on its capital,and the leverage ratio is 1.Curr

66、ently,the macro-prudential regulation parameter is 1.5 for both financial institutions and enterprise borrowers.NDRC 56 RegistrationFor foreign loans with a tenor of more than one year,the borrower is required to apply for regis-tration in advance with the National Development CHINA Law aNd PraCTiCE

67、Contributed by:Zhang Lei,Jingtian&Gongcheng 10CHAMBERS.COMand Reform Commission of the PRC(NDRC).It is noteworthy that the NDRC 56 registration is required not only where the borrower is a Chi-nese enterprise but also,technically,where the borrower is an offshore subsidiary or an offshore branch con

68、trolled by a Chinese enterprise.Foreign Debt RegistrationAfter the signing of the loan agreement,the bor-rower is required to register the loan agreement with the SAFE.4.2 Restrictions on the Granting of Security or Guarantees to Foreign LendersUnder PRC laws,there are two types of cross-border secu

69、rity that need to be registered with the SAFE:NBWD and WBND(see 2.5 Restric-tions on the Grant of Security or Guarantees).Other types of cross-border security are gener-ally not required to be registered with the SAFE.For example,if foreign lenders lend within China and take security over assets loc

70、ated in China,the security is not required to be registered with the SAFE.In addition,security created over certain types of assets located in the PRC needs to be reg-istered at the relevant asset-based registry for perfection purposes;see 2.1 Assets Available as Collateral to Lenders for details.4.

71、3 Foreign Investment RegimeAccording to the Foreign Investment Law of the PRC,which was promulgated on 15 March 2019 and came into force on 1 January 2020,China applies the National Treatment Principle plus a negative list to foreign investment.This means that foreign investors and Chinese investors

72、 are generally treated equally,provided that:a foreign investor does not invest in an indus-try or sector that is prohibited by the foreign investment negative list;and a foreign investor satisfies certain conditions when investing in an industry or sector that is restricted by the foreign investmen

73、t negative list.In addition,China is a member of the World Trade Organization,and has entered into more than 130 bilateral investment treaties and more than 100 double tax treaties with other countries.4.4 Restrictions on Payments Abroad or Repatriation of CapitalGenerally,there are no restrictions

74、on payments abroad or the repatriation of capital by foreign investors.According to PRC laws,a foreign investor may freely remit into or out of China its capital contributions,profits,capital gains,pro-ceeds from the disposition of assets and pro-ceeds from liquidation,whether in CNY or in a foreign

75、 currency.4.5 OffshoreForeignCurrencyAccountsTypically,a project company will maintain its CNY account(s)and/or foreign currency account(s)onshore with Chinese banks.In several circum-stances(such as for the purpose of collecting offshore revenue proceeds,or making payment of expenditures outside Ch

76、ina),PRC laws allow a project company to maintain offshore foreign currency accounts,provided that the project company applies for and obtains approval from the SAFE in advance.CHINA Law aNd PraCTiCEContributed by:Zhang Lei,Jingtian&Gongcheng 11CHAMBERS.COM5.Structuring and Documentation Considerati

77、ons5.1 Registering or Filing Financing of Project AgreementsThe following registration/filing requirements apply to financing agreements.NDRC 56 RegistrationFor foreign loans with a tenor of more than one year,the borrower is required to apply for regis-tration in advance with the NDRC.It is notewor

78、-thy that the NDRC 56 registration is required not only where the borrower is a Chinese enterprise but also,technically,where the borrower is an offshore subsidiary or an offshore branch con-trolled by a Chinese enterprise.Foreign Debt RegistrationAfter the signing of the loan agreement,the bor-rowe

79、r is required to register the loan agreement with the SAFE.Cross-Border Security RegistrationUnder PRC laws,there are two types of cross-border security that need to be registered with the SAFE:NBWD and WBND(see 2.5 Restric-tions on the Grant of Security or Guarantees).In addition,security created o

80、ver certain types of assets located in the PRC needs to be reg-istered in the relevant asset-based registry for perfection purposes;see 2.1 Assets Available as Collateral to Lenders for details.5.2 Licence RequirementsIn China,land and natural resources are gen-erally owned by the state.Individuals

81、or enter-prises can be granted the usufruct in order to use or operate such assets;a licence or a cer-tificate(such as a land-use certificate)will be required in this respect.However,foreign enti-ties are restricted from holding the usufruct of land or natural resources directly.As required by the p

82、rinciple of commercial presence,foreign entities need to establish a foreign investment enterprise in China in order to undertake relevant business or operate such assets.5.3 Agent and Trust ConceptsThe security agent concept is generally recog-nised in the PRC and a security agent can hold security

83、,enforce the syndicates rights under the loan documents and apply any enforcement pro-ceeds in accordance with the instructions of the lenders in the syndicate.5.4 Competing Security InterestsWhere security interests compete with each other,priority will be determined based on the time when the secu

84、rity interest is perfected:the security interest that is perfected earlier will have priority over that which is perfected later.Where a sponsor injects equity by way of subor-dinated debt,the project finance lenders usually procure a subordination undertaking from that sponsor.This kind of contract

85、ual subordination provision should generally be upheld by the PRC court,even in the case of the insolvency of the borrower,provided that the contractual subordi-nation provisions do not violate the rules govern-ing the priority of competing security interests under PRC laws.5.5 Local Law Requirement

86、sPRC laws do not generally require a project company to be organised under the laws of China.However,in practice,the competent gov-ernmental authority usually requires the project company to be a company incorporated under the laws of China.CHINA Law aNd PraCTiCEContributed by:Zhang Lei,Jingtian&Gon

87、gcheng 12CHAMBERS.COMAs a matter of fact,it is extremely rare for a pro-ject company to be a foreign company incorpo-rated outside China,and the typical legal form of a project company is a limited liability company.6.Bankruptcy and Insolvency6.1 Company Reorganisation ProceduresThe Enterprise Bankr

88、uptcy Law of the PRC pro-vides for three types of insolvency proceedings:reorganisation,conciliation and bankruptcy liqui-dation.An insolvency proceeding is commenced by filing an application with the competent PRC court.A debtor can file an application for reorganisa-tion,conciliation or bankruptcy

89、 liquidation with the competent PRC court if the debtor is insol-vent(ie,it is unable to pay off its due debt and/or its assets are not sufficient to pay off all its debts).A creditor can also apply for the reorgani-sation or bankruptcy liquidation of a debtor from the competent PRC court if the deb

90、tor is unable to pay off its due debt.If the court accepts the application,it shall appoint an administrator.Once appointed,the administrator will take over all the debtors assets,as well as the manage-ment of the debtor.The administrator shall report to the court and be supervised by the creditors

91、meeting and the creditors committee.During the reorganisation proceedings,the debt-or or the administrator shall prepare and sub-mit a draft reorganisation plan to the court and the creditors meeting within six months(unless otherwise extended)after the court accepts the reorganisation application.T

92、he creditors will dis-cuss the draft reorganisation plan in the credi-tors meeting,and will be divided into groups based on the categories of debts for voting on the draft reorganisation plan.If all groups of creditors pass the draft reorganisation plan,it will be submitted to the court for approval

93、.The reorganisation proceedings shall be terminated upon approval of the reorganisation plan by the court.If the reorganisation plan is not passed by the creditors meeting or in other circumstances prescribed by the Enterprise Bankruptcy Law,the court will terminate the reorganisation pro-ceedings a

94、nd declare the bankruptcy of the debtor.A debtor can apply for conciliation with the court directly;it can also apply for conciliation after the court accepts a bankruptcy application made by a creditor,but before the declaration of bankruptcy of the debtor.In applying for concili-ation,the debtor s

95、hall submit a draft conciliation agreement.The creditors meeting will discuss and vote on the draft conciliation agreement.If it is passed by the creditors meeting,the court shall rule to acknowledge the draft conciliation agreement and terminate the conciliation pro-ceedings.If the draft conciliati

96、on agreement is not passed by the creditors meeting or in other circumstances prescribed by the Enterprise Bankruptcy Law,the court will terminate the conciliation proceedings and declare the bank-ruptcy of the debtor.Once the court declares the bankruptcy of the debtor,it shall notify the debtor,th

97、e admin-istrator and the creditors,and make a public announcement.The administrator shall prepare a conversion plan and a distribution plan for the bankruptcy estate,and submit that plan to the creditors meeting for discussion.Once the plan has been passed by the creditors meeting and approved by th

98、e court,the administrator shall be responsible for selling off the bankruptcy estate(usually through auction)and carrying out the distribution plan.Following the final distribution of the bankruptcy estate,the administrator will CHINA Law aNd PraCTiCEContributed by:Zhang Lei,Jingtian&Gongcheng 13CHA

99、MBERS.COMsubmit a distribution report to the court,based on which the court will decide whether to con-clude the bankruptcy proceedings.6.2 Impact of Insolvency ProcessAs a matter of principle,upon the debtors insol-vency a secured lender shall still enjoy priority over the security assets and can e

100、nforce the security in accordance with the provisions of PRC laws.The Enterprise Bankruptcy Law of the PRC pro-vides that,after the court accepts the insolvency application,the preservation measures concern-ing the debtors property shall be released and the execution procedures shall be suspended.Si

101、milar to unsecured creditors,a secured lender shall file its claim(specifying the claim amount as well as whether the claim is secured)with the administrator and participate in the insolvency proceedings.In particular,a secured lender shall suspend the enforcement of security during the reorganisati

102、on proceedings.However,if there is a possibility that the collateral may be damaged or the collateral value may decrease dramatically so that it will prejudice the rights of the secured lender,the lender may apply to the court for resumption of the enforcement of security.6.3 Priority of CreditorsIn

103、 the case of bankruptcy liquidation proceed-ings,secured creditors may recover their out-standing loans from the enforcement proceeds of the collateral,and also from the debtors general assets to the extent that those secured creditors cannot fully recover their loans from the enforcement proceeds o

104、f the collaterals.Sub-ject to the credits mandatorily preferred by PRC laws(such as wages,social insurance premiums and taxes),proceeds from the disposition of the debtors general assets are distributed to credi-tors on a pro rata basis.In the case of a reorganisation proceeding,all the creditors,in

105、cluding secured creditors,will recover their outstanding loans in accordance with the approved reorganisation plan.6.4 Risk Areas for LendersLenders should be aware of the following risks associated with a borrower,security provider or guarantor becoming insolvent(this is not an exhaustive list).Fir

106、st,PRC laws provide that,after the court accepts the insolvency application,the preser-vation measures concerning the debtors prop-erty shall be released and the execution proce-dures shall be suspended.Similar to unsecured creditors,a secured lender shall file its claim(specifying the claim amount

107、as well as whether the claim is secured)with the administrator and participate in the insolvency proceedings.In particular,a secured lender shall suspend the enforcement of security during the reorganisa-tion proceedings.However,if there is a possibil-ity that the collateral may be damaged or the co

108、l-lateral value may decrease dramatically so that it will prejudice the rights of the secured lender,the lender may apply to the court for resumption of the enforcement of security.Secondly,the following transactions are void-able upon insolvency:the transfer of the debtors assets for free within on

109、e year before the court accepts the bankruptcy application;transactions entered into with other parties at an undervalue within one year before the court accepts the bankruptcy application;security provided for existing debts within one year before the court accepts the bankruptcy application;CHINA

110、Law aNd PraCTiCEContributed by:Zhang Lei,Jingtian&Gongcheng 14CHAMBERS.COM the payment of undue debts in advance within one year before the court accepts the bankruptcy application;a waiver of claim by the debtor within one year before the court accepts the bankruptcy application;or payments made to

111、 specific creditors(while the debtor is already insolvent)within six months before the court accepts the bank-ruptcy application.Thirdly,mutual debts can be set off in insolvency proceedings,but with limitations.The debts to be set off must arise before the court accepts the bankruptcy application.I

112、f the creditor knows that the debtor is insolvent when it acquires the debt to be set off,set off is not permitted,because this will procure an advantage for the creditor to the prejudice of the debtors assets.In addition,a debt of unpaid capital contribu-tions to the debtor is generally not permitt

113、ed to be set off.6.5 Entities Excluded From Bankruptcy ProceedingsNo entities are excluded from bankruptcy pro-ceedings in China.7.Insurance7.1 Restrictions,Controls,Fees and/or Taxes on Insurance PoliciesInsurance can only be provided by licensed Chinese insurance companies,which are heav-ily regul

114、ated.7.2 Foreign CreditorsInsurance policies over project assets should be payable to foreign creditors,provided that the creditor in question is named as a beneficiary under the relevant insurance policies.8.Tax8.1 Withholding TaxDomestic lenders must pay enterprise income tax(EIT)in respect of int

115、erest originating both within and outside China.PRC EIT will also arise in respect of interest pay-able to foreign lenders if:the foreign lender has no establishment in China but receives payment of interest sourced from China;or the foreign lender has an establishment in China and receives payment

116、of interest sourced from China,but the payment of inter-est is not actually connected with that estab-lishment.Such EIT shall be subject to withholding at source.The payer(eg,the borrower)will be the withholding agent,and the EIT will be withheld from the interest amount paid to the foreign lenders.

117、China has signed double taxation treaties with many countries.Tax relief and exemption may be available from the payment of interest accord-ing to provisions of the double taxation treaty between China and the country of the foreign lender.There is no specific tax provision under PRC laws regarding

118、the proceeds of enforcing security or claiming under a guarantee.However,it is gen-erally believed that similar tax treatment should apply to the extent the proceeds of enforcing security or claiming under a guarantee(or part of them)constitute the payment of interest.CHINA Law aNd PraCTiCEContribut

119、ed by:Zhang Lei,Jingtian&Gongcheng 15CHAMBERS.COM8.2 Other Taxes,Duties,ChargesOther taxes may also be applicable(eg,value-added tax).Domestic lenders shall pay value-added tax in respect of the payment of interest.For foreign lenders receiving the payment of interest from China but having no establ

120、ishment in China,value-added tax will be deducted from the payment by the payer(eg,the borrower).8.3 Limits to the Amount of Interest ChargedAs a result of the market-oriented interest rate reform,there are currently no usury laws or regu-lations generally limiting the amount of interest charged by

121、lenders.According to the Supreme Peoples Courts lat-est judicial interpretation,the interest rate for pri-vate lending shall not exceed four times the Loan Prime Rate(which is the benchmark rate pub-lished on a monthly basis by the National Inter-bank Funding Centre authorised by the PBOC)for a one-

122、year loan when the loan agreement is concluded.Generally,private lending refers to lending transactions between natural persons,companies or other organisations,but excludes loans provided by regulated financial institutions(such as banks).The Supreme Peoples Courts latest judicial interpretation cl

123、early provides that it shall not apply to loans provided by regulated financial institutions.However,in practice,the PRC courts may apply the above interest rate limit to loans provided by other lenders(includ-ing by foreign lenders).9.Applicable Law9.1 Project AgreementsFor a foreign-related contra

124、ct,PRC laws gener-ally allow the parties to choose the governing law of that contract(PRC laws or a foreign law),except where the choice of foreign law violates mandatory PRC legal provisions or any provision of the foreign law violates a public policy of the PRC in the determination of a particular

125、 issue,in which case PRC laws would be the applicable laws.Under PRC laws,contracts are considered to be foreign-related contracts when:either party or both parties to the contract are foreign persons or foreign entities;the habitual residence of either party or both parties to the contract is locat

126、ed outside the territory of the PRC;the subject matter of the contract is outside the territory of the PRC;or the legal fact that leads to the establishment,change or termination of the contract relation-ship happens outside the territory of the PRC.Based on this,if all parties to a project agree-me

127、nt are Chinese companies and no other for-eign factors are involved,the project agreement shall be governed by PRC laws.However,if one of the parties to a project agreement is a for-eign company,then,in most cases,that project agreement could be governed by a foreign law,provided that this does not

128、violate the manda-tory provisions under PRC laws.9.2 Financing AgreementsFor loan agreements entered into between a Chi-nese company and foreign lenders,PRC laws generally allow the parties to choose a foreign law as the governing law(in particular,Eng-lish law),and PRC courts will give effect to th

129、e choice of foreign law.For security documents,however,as a matter of the lex situs doctrine,the security is typically governed by PRC laws,since the security asset is located in China.CHINA Law aNd PraCTiCEContributed by:Zhang Lei,Jingtian&Gongcheng 16CHAMBERS.COM9.3 Domestic LawsAs a matter of the

130、 lex situs doctrine,a security document is typically governed by PRC laws,since the security asset is located in China.CHAMBERS GLOBAL PRACTICE GUIDESChambers Global Practice Guides bring you up-to-date,expert legal commentary on the main practice areas from around the globe.Focusingon the practical legal issues affecting businesses,the guidesenable readers to compare legislation and procedure and readtrend forecasts from legal experts from across key jurisdictions.To find out more information about how we select contributors,emailKatie.B