Legal system of the PRC related to Business debt
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.
Supreme People’s Court
High People’s Courts
Intermediate People’s Courts
Basic People’s Courts
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.
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.
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
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.
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.
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).
Enforcement of 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.
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.
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.
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