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1 White Paper on the Business Environment in China
the application for execution by the people's court, receivable32. Article 546 of the Civil Code adopts
unless the guarantor has evidence to prove that Article 100 of the Contract Law, providing that if
the debtor still has property for execution.”30 a creditor assigns its credit without notifying the
debtor, the transfer will have no effect on the
e. Factoring Contract debtor. The additional provision that in a factoring
contract, a factor shall notify the debtor, not
A factoring contract is a contract where only recognizes the effect of the notice, but also
creditors of accounts receivable transfer accounts requires the factor to present its identity, attaching
receivable to a factor who will provide financial the necessary evidence for debtor’s review, so as
support and services such as management of to protect the debtor’s interest.
receivables, collection’s services, and a payment
guarantee for accounts receivable. It is a device At the same time, the Civil Code also provides
for company finance. The chapter of contract in that a creditor of accounts receivable and a debtor
the Civil Code has a special chapter for factoring shall not claim against a factor if they change
contracts, including the concept, contents or negotiate the basic contract without proper
and forms of a factoring contract, factoring reasons, and they have the right to choose to
for fabricated accounts receivable, notice of request the factor exercise in case of recourse
assignment by a factor, recourse factoring, non- factoring, the scope of the factor's rights in case
recourse factoring and multiple factoring. of non-recourse factoring, the sequence of the
factor’s rights in case of several factoring contracts,
The Civil Code provides that where an accounts etc.
receivable creditor and debtor fabricate accounts
receivable as the subject of assignment and enter The Interpretation of the Supreme People's
into a factoring contract with a factor, the accounts Court on the Application of the Guarantee System
receivable debtor may not claim against the factor in the Civil Code of the People's Republic of China
on the grounds that the accounts receivable does further elaborates on how to deal with factoring
not exist, unless the factor knows such accounts and pledges of accounts receivable in the same
receivable are fabricated31. The legal basis of this accounts receivable group33. If the accounts
provision is that “invalidity through conspiracy and receivable include factoring and pledge of
fabrication shall not be an excuse against a bona accounts receivable at the same time, the priority
fide third party”; however, it is noticeable that of the party concerned will be the same as the
the result of conspiracy and fabrication between sequence of the factors at the conclusion of the
creditor of the accounts receivable and debtors factoring contracts; the registered factors will be
must show that their act has fabricated the rights prior to the non-registered factors; if all the factors
that do not exist, and the factor has acted in good are registered, the former registered factors will
faith and has not committed wrongdoing. be prior to the later registered factors; if all the
factors have not been registered, the factors
If the factor knows that the basic contract is that has received the notice of assignment from
a false contract, the act of financing rendered the debtor of the accounts receivable shall have
by the factor for the creditor will be defined as priority.34
borrowing. In this case, the factor may only require
the creditor to refund the capital and pay for the f. Partnership Contracts
interest, while it has no right to claim against the
debtor. The legal system of China’s partnership law
integrates the respective adjustments in the
The Civil Code states that a factor shall present general provisions and chapter on contracts in
its identity as a factor, attaching necessary the Civil Code, as well as the Partnership Law. The
evidence when issuing a notice of assignment general provisions provide that a partnership
of accounts receivable to the debtor of accounts
30 Interpretation of the Supreme People's Court on the 32 Civil Code, Article 764
Application of the Guarantee System in the Civil Code of 33 Interpretation of the Supreme People's Court on the
the People's Republic of China, Article 28 Application of the Guarantee System in the Civil Code of
31 Civil Code, Article 763 the People's Republic of China, Article 66
34 Civil Code, Article 786
206
the application for execution by the people's court, receivable32. Article 546 of the Civil Code adopts
unless the guarantor has evidence to prove that Article 100 of the Contract Law, providing that if
the debtor still has property for execution.”30 a creditor assigns its credit without notifying the
debtor, the transfer will have no effect on the
e. Factoring Contract debtor. The additional provision that in a factoring
contract, a factor shall notify the debtor, not
A factoring contract is a contract where only recognizes the effect of the notice, but also
creditors of accounts receivable transfer accounts requires the factor to present its identity, attaching
receivable to a factor who will provide financial the necessary evidence for debtor’s review, so as
support and services such as management of to protect the debtor’s interest.
receivables, collection’s services, and a payment
guarantee for accounts receivable. It is a device At the same time, the Civil Code also provides
for company finance. The chapter of contract in that a creditor of accounts receivable and a debtor
the Civil Code has a special chapter for factoring shall not claim against a factor if they change
contracts, including the concept, contents or negotiate the basic contract without proper
and forms of a factoring contract, factoring reasons, and they have the right to choose to
for fabricated accounts receivable, notice of request the factor exercise in case of recourse
assignment by a factor, recourse factoring, non- factoring, the scope of the factor's rights in case
recourse factoring and multiple factoring. of non-recourse factoring, the sequence of the
factor’s rights in case of several factoring contracts,
The Civil Code provides that where an accounts etc.
receivable creditor and debtor fabricate accounts
receivable as the subject of assignment and enter The Interpretation of the Supreme People's
into a factoring contract with a factor, the accounts Court on the Application of the Guarantee System
receivable debtor may not claim against the factor in the Civil Code of the People's Republic of China
on the grounds that the accounts receivable does further elaborates on how to deal with factoring
not exist, unless the factor knows such accounts and pledges of accounts receivable in the same
receivable are fabricated31. The legal basis of this accounts receivable group33. If the accounts
provision is that “invalidity through conspiracy and receivable include factoring and pledge of
fabrication shall not be an excuse against a bona accounts receivable at the same time, the priority
fide third party”; however, it is noticeable that of the party concerned will be the same as the
the result of conspiracy and fabrication between sequence of the factors at the conclusion of the
creditor of the accounts receivable and debtors factoring contracts; the registered factors will be
must show that their act has fabricated the rights prior to the non-registered factors; if all the factors
that do not exist, and the factor has acted in good are registered, the former registered factors will
faith and has not committed wrongdoing. be prior to the later registered factors; if all the
factors have not been registered, the factors
If the factor knows that the basic contract is that has received the notice of assignment from
a false contract, the act of financing rendered the debtor of the accounts receivable shall have
by the factor for the creditor will be defined as priority.34
borrowing. In this case, the factor may only require
the creditor to refund the capital and pay for the f. Partnership Contracts
interest, while it has no right to claim against the
debtor. The legal system of China’s partnership law
integrates the respective adjustments in the
The Civil Code states that a factor shall present general provisions and chapter on contracts in
its identity as a factor, attaching necessary the Civil Code, as well as the Partnership Law. The
evidence when issuing a notice of assignment general provisions provide that a partnership
of accounts receivable to the debtor of accounts
30 Interpretation of the Supreme People's Court on the 32 Civil Code, Article 764
Application of the Guarantee System in the Civil Code of 33 Interpretation of the Supreme People's Court on the
the People's Republic of China, Article 28 Application of the Guarantee System in the Civil Code of
31 Civil Code, Article 763 the People's Republic of China, Article 66
34 Civil Code, Article 786
206
