Why Do You Need to Preserve Debtor’s Property When Collecting Debt in China?
You’d better preserve the debtor’s property through the court to prevent the debtor from evading debt by transferring assets.
1. What is preservation?
“Preservation” means that after you file a lawsuit with a Chinese court, you can apply to the court for measures to control the defendant’s property before the court completes the trial and makes a judgment.
This practice is called “property preservation” in China or “interim measure” in some other countries.
2. Why is property preservation necessary?
In China, many defendants will transfer their property after becoming aware that they are sued and may lose the case. Sometimes, the defendant can ensure the legitimacy of such transfer through appropriate financial arrangements.
Therefore, you may still not be able to actually collect the judgment after winning the case.
However, if you take timely measures to preserve the defendant’s property and make it under the control of the court, you can be compensated directly from the property preserved after winning the case.
This is the significance of property preservation.
3. Who will preserve the property and how?
You should apply for property preservation with the court accepting your case.
The Chinese court has the power to sequester and/or seize the defendant’s real and movable property, or freeze its securities or funds according to your application.
4. Do I need to pay extra for preservation?
You need to provide a financial guarantee or bank reference to the court.
This is because the case is still pending at the time of applying for property preservation, and the court has no idea whether you will win the case later.
If you lose the case, the property preservation under your application will cause unnecessary losses to the defendant. To remedy these potential losses, the court may require you to provide a guarantee.
Many Chinese financial institutions can provide you with such a guarantee, or provide you with insurance products playing the role of a guarantee.
You need to pay the financial institution for this, which is usually equivalent to less than 5% of the value of the preserved property.
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