Debt Collection Agency China
Amicable Debt Collections China
1. General information
China have had a vivid history around debt collection. It was prohibited by the Chinese government in the late 19th century and is still prohibited by law today.
Therefore, debt collection officially does not exist, but there are companies who provide debt collection services through specialised legal firms that are authorised to collect Chinese debts.
China have shown more interest in outsourcing their outstanding receivables to debt collection agencies and law offices. Cosmopolite Collections collaborate with local law firms to provide amicable and legal collection services in China.
Our team has experienced collectors with legal backgrounds, which are essential for collecting debts in China.
1.2. Local agents
We have local offices in Shanghai and Guangzhou, two major cities in China, covering collection services across the whole nation.
From a cultural point of view, Chinese debtors are not used to paying late payment interest charges.
So during the first steps of the negotiation, we usually do not claim this part. When the case enters into litigation, we charge interest calculated from the loan rate set by the People’s Bank of China, plus 30% to 50% (the Reply of Supreme People’s Court on the Calculation Standard of Late Payment Penalty).
1.4. Debt collection costs China
From the point of view of Chinese law, Cosmopolite Collections have the right to charge the costs arising from the collection of debts, but Chinese debtors will not expect to pay them if the debts are paid in the negotiation phase.
The general limitation of action regarding applications to a people’s court for protection of civil rights is three years, unless otherwise stipulated (General Principles of the Civil Law of PRC, Article 135).
The limitation of action is one year for cases concerning the following:
- (1) claims for compensation for bodily injuries;
- (2) sales of substandard goods without proper notice to that effect;
-(3) delays in paying rent or refusal to pay rent; or
- (4) loss of or damage to property left in the care of another person.
The limitation period for claims against a carrier with regard to the carriage of goods by sea is one year, starting from the day on which the goods were delivered or should have been delivered by the carrier.
The limitation period for claims against rail carriage is 180 days.
There are no such stipulations regarding outstanding invoices. The practice of selling debts has been the prerogative of companies in China.
Any of the following circumstances will have the effect of interruption of the statute of limitations: A party directly serves a document of claim on the opposite party.
The opposite party affixes their signature or seal on the document, or it may be otherwise proved that the document reaches the opposite party, which fails to affix the signature or seal on the document.
A party makes a claim by correspondence or data message, and the letter or data message reaches or should have reached the opposite party. A party that is a financial institution deducts and collects the owed principal and interest out of the account of the opposite party.
The whereabouts of a party is unknown, and the opposite party publishes an announcement of claim in a national medium or a local influential medium near to the last known location of the party whose whereabouts is unknown.
These are only a few of the situations that may interrupt the limitation period, and there are many other stipulations that have the same effect detailed in the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Statute of Limitations during the Trial of Civil Cases, which came into force as of 1st September 2008.
1.6. Accepted and most common payment methods
The most common payment methods are bank transfers and bank drafts for local businesses.
1.8. Sources of information
In China, lawyers can directly access financial data as well as other useful information of the debtors from the industrial and commercial authorities.
The financial data includes the debtor’s balance sheets and income statements for every year. Other information includes the contact details of the debtor’s shareholders or legal representative, the debtor’s bank account and the likes.
In most cases, Cosmopolite Collections can find the information we need by ourselves, so a private investigator is not necessary.
2. Retention of title
In the Contract Law of PRC, it is usual for the seller to retain ownership of the goods before the buyer has paid in full only when both parties have agreed to this in the contract.
If there are no such stipulations, the ownership of the goods transfers to the buyer upon delivery.
Contract Law of PRC:
- Article 133. Ownership over a targeted matter is transferred upon the delivery of the targeted matter, unless the law provides otherwise or the parties stipulate otherwise.
- Article 134. The parties may stipulate in a purchase and sale contract that the seller retains ownership over the targeted matter if the buyer fails to pay the price or perform other obligations.
3. Safeguarding measures
If a debtor is not able to pay off the debts according to the contract, Cosmopolite Collections may ask the debtor to make a written commitment to pay in instalments, offer a guarantee or a debt repayment plan.
Such a commitment is valid and effective whether it is authenticated by a notary or not. The notarial procedure can reinforce the authority and legitimacy of commitments, but this is rarely practiced in China.
When a guarantee, pledge or a mortgage is established, a written contract is necessary.
When a mortgage is established on
- a) buildings and other objects fixed to land,
- b) the right to use construction land or c) the right of contracted management of such land as barren land, the mortgage registration will be examined.
The mortgage right will be established as of the date of registration.
4. Legal collections
4.1. General information
In China, private law regulates the relations between people or companies. There is no need to give a warning prior to starting a lawsuit.
When a case is sent to the court, there may be a pre-court procedure, which can be skipped before normal proceedings begin. China Limited liability company
The company bears the liabilities for their debts with all their property. A minimum capital of RMB 30,000 that can be paid in currency, in kind or intellectual property, land-use or other non-monetary properties
The amount of the capital contributions in currency paid by all the shareholders shall be no less than 30% of the registered capital of the limited liability company.
4.2. Legal system
In China, the courts are divided into the Supreme People’s Court, the High People’s Courts, the Intermediate People’s Courts and the Basic People’s Courts. Generally, the Basic People’s Courts have jurisdiction as courts of first instance over civil cases.
The Intermediate People’s Courts have jurisdiction as courts of first instance over civil cases that have major impacts on the area under their jurisdiction.
The High People’s Courts have jurisdiction as courts of first instance over civil cases that have major impact on the areas under their jurisdiction.
The Supreme People’s Court has the right to give interpretation of questions concerning specific applications of laws and decrees in judicial proceedings.
4.3. Required documents
The following conditions must be met when a lawsuit is filed:
- The plaintiff must be a citizen, legal person or any organisation that has a direct interest in the case.
- There must be a definite defendant.
- There must be a specific claim or claims, facts and a cause or causes for the suit.
- The name, gender, age, ethnic status, occupation, work unit and home address of the parties must be provided.
If the parties are legal persons or any other organisations, their names, addresses and the names and posts of the legal representatives or the principal heads must be provided.
The evidence and its source, as well as the names and home addresses of the witnesses, must be provided. Original documents do not need to be provided.
When a lawsuit is filed, copies of statements as well as other evidence will be provided depending on the number of defendants in court.
4.4. Legal dunning procedure
When a creditor requests payment of a debt or recovery of negotiable instalments from a debtor, they may, if the following requirements are met, apply to a Basic People’s Court that has jurisdiction for an order of payment.
No other debt disputes exist between the creditor and the debtor The order of payment can be served on the debtor.
China are the most credit-averse country with less than 40% of the business-to-business transactions made on credit.
The debtor will, within 15 days after receipt of the order of payment, clear off their debts or submit to the people’s court their dissent in writing. If the debtor has neither dissented from nor complied with the order of payment within 15 days, the creditor may apply to the people’s court for execution.
The order of payment is effective only when the debtor has failed to submit a dissent in writing within 15 days.
Once such a dissent is submitted, the order of payment will be terminated and the creditor will take action.
4.5. Lawsuit in China
A lawsuit can only be initiated by a creditors. Generally, a civil lawsuit brought against a citizen will be under the jurisdiction of the people’s court in the area where the defendant lives.
If the place of the defendant’s address is different from that of the defendant’s usual residence, the lawsuit will be under the jurisdiction of the people’s court of the place of the defendant’s habitual residence.
A civil lawsuit brought against a legal person or any other organisation will be under the jurisdiction of the people’s court of the place where the defendant has their domicile.
A lawsuit brought on a contract dispute will be under the jurisdiction of the people’s court at the place where the defendant has their domicile or where the contract is performed. Not all stipulations on jurisdiction are listed (see Civil Procedure Law of PRC).
If a party disagrees with a judgment made by a local people’s court at first instance, the party has the right to lodge an appeal with the immediate superior people’s court within 15 days from the date when the written judgment was served.
When filing an appeal, a petition for the purpose will be submitted.
The content of the appeal petition will include the names of the parties, the names of the legal persons and their legal representatives or names of other organisations and their principal heads, the name of the people’s court where the case was originally tried, the file number of the case and the cause of action, and the claims of the appeal and the reasons.
4.7. Expected time frame
When a case is tried according to a summary procedure, the people’s court will conclude the trial within three months from the date of entering it on its trial docket.
When a case is handled according to an ordinary procedure, the people’s court will conclude the case within six months from the date of accepting it.
When an extension of the period is necessary under special circumstances, a six-month extension may be allowed subject to the approval of the president of the court.
Further extension, if needed, will be reported to the people’s court at a higher level for approval. The case on appeal will be concluded within three months after being docketed by the people’s court.
4.8. Interest and costs in the legal phase
Interest and costs in the legal phase can be claimed as well with the same rate set by the People’s Bank of China, plus 30% to 50% (the Reply of Supreme People’s Court on the Calculation Standard of Late Payment Penalty).
5.1. Enforcement in debt
The parties concerned must comply with legally effective judgments or written orders in civil cases.
If a party refuses to do so, the other party may apply to the people’s court for execution, or the judge may refer the matter to the execution officer for enforcement.
All fees arising from the enforcement will be borne by the debtor, and the applicant does not have to pay such fees.
5.2. Enforcement in movable property and immovable property
If the debtor subjected to execution fails to fulfil the obligations according to the execution notice and the obligations specified in the legal document, the people’s court will be empowered to make inquiries with the banks, credit cooperatives or other units that deal with saving into the accounts of the debtor and will be empowered to freeze or transfer deposits.
If the debtor subjected to execution fails to fulfil the obligations specified in the legal document, the people’s court will be empowered to seal up, freeze, sell by public auction or sell off part of the property of the debtor for the fulfilment of their obligations.
Any party filing a civil lawsuit will pay the court costs according to the rules. In most cases, the litigation fees are borne by the losing party.
5.4. Expected time frame
The time frame for enforcement is usually less than six months, but it can be extended when necessary after being approved by the president of the court.
6. Insolvency proceedings
6.1. General information
With the start of the preliminary proceeding, all individual enforcement is suspended. Only when the insolvency proceeding is not started, will individual enforcement be continued.
The purpose of an insolvency proceeding is to pay out all creditors by liquidating the assets of the debtor company
When the debtor is unable to pay off the debts due, their creditors may file an application for reorganisation or liquidation by bankruptcy with the people’s court.
When one of the creditors files an application for bankruptcy, the people’s court will give a notice thereof to the debtor within five days after receipt of the application. In case the debtor objects to such applications, this notice will be submitted to the people’s court within seven days after receipt of the notice from the people’s court.
The people’s court will decide whether or not to accept the application within ten days since the expiration of the objection term. The people’s court will designate an administrator when ruling on accepting an application for bankruptcy.
The people’s court will inform the creditors who have definite addresses of the ruling within 25 days after making the ruling if it accepts the application for bankruptcy and makes a public announcement.
After the people’s court accepts the bankruptcy application, the debtor cannot pay off debts to a specific creditor.
The civil litigation or arbitration concerning the debtor that has started but has not yet ended will be suspended after the people’s court accepts the application for bankruptcy, and the litigation or arbitration will proceed after the administrator takes over the debtor’s property.
The civil litigation concerning the debtor after the people’s court accepts the application for bankruptcy may only be instituted with the people’s court that has accepted the application for bankruptcy.
6.3. Required documents
The applicant will submit a bankruptcy application form and relevant evidence to the people’s court.
The application form for bankruptcy will contain:
- The basic situations of the applicant and the party against whom the application is filed
- The purpose of the application
- The reasons and grounds of the application
- Other matters that the people’s court thinks should be contained.
- When an application is filed by the debtor, the debtor will submit to the people’s court a description of their financial conditions, a detailed list of debts and credits, all relevant financial reports and the settlement proposals together with payment of salaries and social security expenses of the employees of the bankrupt company.
6.4. Expected time frame and outcome
Upon the acceptance of the application for bankruptcy by the people’s court, the administrator is entitled to discharge or continue the performance of the contracts that have been established before the acceptance of the bankruptcy application.
When the administrator fails to give notice to the counterparts concerned within two months since the acceptance of the bankruptcy application or fails to reply to the counterparts concerned within 30 days since their requests for notifications, it will be deemed that the relevant contracts will be discharged.
The people’s court will confirm the time limits for the creditors to declare credits after accepting the application.
The time limits for declaring the credit will not be less than 30 days or exceed three months since the date of the public announcement of the application for bankruptcy by the people’s court.
The debtor or the administrator will, within six months since the date of the ruling by the people’s court on the reorganisation of the debtor, submit a draft reorganisation plan to the people’s court and the creditors’ meeting simultaneously.
At the request of the debtor or the administrator with justified reasons upon the expiration of the term above, the people’s court may rule on an extension of such terms for another three months.
The whole duration of an insolvency proceeding usually takes between two and four years, but it could be more.
6.5. Limited companies
The administrator will, within ten days since the conclusion of the bankruptcy proceedings, handle the procedures for the revocation of registration of the bankrupt person at the registration authority by producing the ruling of the people’s court on the conclusion of the bankruptcy proceedings.
The directors, supervisors or officers of the bankrupt company that have violated their duties of loyalty and due diligence and contributed to the bankruptcy of the company will bear the relevant civil liabilities.
The person involved in the mentioned circumstances will not act as the director, supervisor or officer of any company within three years since the date of the conclusion of the bankruptcy proceedings.
6.6. Unlimited companies / individuals
Unlimited companies or individual debtors cannot declare insolvency. They should bear the debts until they are paid off or released by the creditor.
6.7. Pool of creditors
There is no such term in Chinese law.
When the debtors and creditors have objections against the credit contained in the credit form, lawsuits may be instituted with the people’s court that has accepted the application for bankruptcy.
The salaries, medical and disability subsidies, pension expenses due to employees by the debtor and the basic pension insurance, basic medical insurance expenses owed to the individual accounts of the employees and compensations that will be paid to the employees as prescribed by administrative law and regulations are not required to be declared. These will be listed and posted to the public by the administrator after the investigation.
In case of objections to the records on the list, the employees may require the administrator to make corrections. If the administrator has made no corrections, the employees may initiate lawsuits with the people’s court.
7. Arbitration and mediation
Contracts related to foreign investments in China usually stipulate that any disputes arising between the parties should be settled by friendly negotiations, followed by arbitration in case of failure of agreement.
The resolution of disputes by arbitration is also recognised in foreign-related laws in China. Foreign-related arbitration in China is now mainly administered by the China International Economic and Trade Arbitration Commission (CIETAC).
According to the Arbitration Law of China, the arbitration agreement (which is usually set out as one of the clauses in the contract) must be in writing and contain the following particulars:
- An indication of the intention to apply for arbitration
- The arbitral matters
- The selected arbitration commission.
- Mediation is usually not used to resolve disputes in China.