Debt Collections in China: Why You Need to Know Enforcement Mechanism in Chinese Courts?
If you get a winning judgment or arbitral award, and the property that can be used to repay debts is located in China, then the first thing you need to know is the enforcement mechanism in the Chinese courts.
To start with, there are 3 things you should bear in mind.
- If it is a Chinese court judgment or a Chinese arbitral award, then it will definitely be enforced by the Chinese courts in accordance with law.
- If it is a foreign court judgment, then you need to know whether, and to what extent, it can be enforced in China. For more information, please read earlier posts, “Enforcing Judgments in China While Litigation in Another Country/Region”, and “Can Foreign Judgments Be Enforced in China?” .
- If it is a foreign arbitral award, then it is can be enforced in most cases under the New York Convention. For more information, please read an earlier post “Enforcing Arbitral Awards in China While Arbitration in Another Country/Region” .
Then when it comes to the enforcement stage in China, be it enforcing a judgment or an arbitral award, you can apply to the Chinese courts for collecting the debts.
So how does it work? How can the enforcement measures taken by Chinese courts be used for debt collection?
If a judgment debtor refuses to pay off the debts specified in a judgment or arbitration reward, a Chinese court may take the following fourteen (14) execution measures.
1. Mandatory disclosure of the judgment debtor’s property
The judgment debtor shall report his property situation existing at the moment and one year before he has received the notification of execution. If the judgment debtor refuses to do so or makes a false report, the court may impose a fine or detention on him, or his legal representative, principal heads, or the person directly responsible.
2. Execution of the judgment debtor’s cash and financial assets
The court is empowered to make inquiries with relevant units on the judgment debtor’s property, such as savings, bonds, stocks and funds, and may seize, freeze, transfer or appraise his property according to different situations.
3. Execution of the judgment debtor’s movable and immovable property
The court is empowered to sequester, seize, freeze, auction off or sell off the judgment debtor’s movable and immovable property, the amount of which shall not go beyond the scope of the debtor’s obligation.
4. Auction or sale of the judgment debtor’s property
After sequestering or seizing the judgment debtor’s property, the court shall instruct him to fulfill his obligations specified in the legal document. If the debtor fails to fulfill his obligations upon expiration of the period, the court may, auction off the sequestered or seized property. If the property is not suitable for auction or both parties agree not to auction off the property, the court may entrust relevant units to sell off the property or sell off the property by itself.
5. Delivery of the judgment debtor’s property
With respect to the property or negotiable instruments specified for delivery to the judgment creditor in the legal document, the court is empowered to order the person who has in possession the property or negotiable instruments to deliver it to the creditor, or after carrying out a compulsory execution, to forward the property or negotiable instruments to the creditor.
6. Transfer of ownership of the judgment debtor’s property
Where the legal documents specify the transfer of ownership of the real estate, land, forest right, patent, trademark, vehicles and vessels, the court may ask relevant units to assist in execution, i.e., to handle certain formalities for the transfer of certificates of such property right.
7. Execution of the judgment debtor’s income
The court is empowered to withhold or withdraw the judgment debtor’s income, the amount of which shall not go beyond the scope of the debtor’s obligation. The employer that pays wages to the judgment debtor, as well as the banks where the debtor has bank accounts, must cooperate in the execution of income.
8. Execution of the judgment debtor’s creditor’s right
The court is empowered to enforce the mature creditor’s right that the judgment debtor holds against another party, and notify the said another party to perform the liabilities to the judgment creditor.
9. Double interests for belated payment
If the judgment debtor fails to fulfill his obligations concerning pecuniary payment within the period specified by a judgment or ruling rendered by a Chinese court, an award rendered by a Chinese arbitral tribunal, or any other legal document, he shall pay double interest on the debt for the belated payment.
However, in the case of requests to enforce a foreign court judgment or a foreign arbitral award in China, the judgment debtor is not required to pay such double interest.
10. Exit restriction
The court is empowered to impose exit restrictions against the judgment debtor. If the judgment debtor is a legal person or an entity, the court may impose exit restrictions against its legal representative, main responsible person or the directly responsible person who may influence performance.
11. Restriction on high-level consumption
The court is empowered to impose restrictions against the judgment debtor on his/her high-level consumption and relevant consumption not necessary for livelihood or business operation. The restricted high-level consumptions include having high consumption activities at start-rated hotels; commuting by airplane, first-class seat if by train or second class or better if by water; taking any seat of the high-speed trains started with G; purchasing real estate; paying huge tuition for his/her children to go to private schools. If the judgment debtor is listed on the List of Dishonest Judgment Debtors, the court may also impose such restrictions on the debtor.
12. List of Dishonest Judgment Debtors
If the judgment debtor undertakes certain dishonest conduct, such as to circumvent execution through the diversion of property, the court is empowered to include the debtor into the List of Dishonest Judgment Debtors, and to impose credit discipline on the dishonest debtor in matters, such as financing and borrowing, market access and accreditation.
13. Fine and detention
The court is empowered to impose a fine or detention on the judgment debtor, depending on the seriousness of the act. If the judgment debtor is a legal person or an entity, the court may impose a fine or detention on its principal heads or the person directly responsible. A fine on an individual shall be less than RMB 100,000; a fine on a legal person or an entity shall be between RMB 50,000 and RMB 1,000,000. The period of detention shall not be longer than 15 days.
14. Criminal responsibility
If the judgment debtor has the capability to satisfy the judgment or ruling rendered by a court but refuses to do so, and the circumstances are serious, the debtor shall be convicted and punished for committing the crime of refusing to satisfy a judgment or ruling. The offender shall be liable to fixed-term imprisonment of not more than three years, criminal detention or a fine.
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