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PRC Supreme Court has legalized private lending between enterprises


17 August 2015
On August 6, 2015, the PRC Supreme People's Court published "Regulations on Issues Concerning Application of Law for Trial of Private Lending Cases" (the "Regulations") which will be implemented as from September 1, 2015.
Previously, private lending could only be lawfully conducted between individuals, or between an individual and an enterprise, while the lending between enterprises would generally be held invalid. According to the new Regulations, a private lending contract for meeting production and operation needs entered into between enterprises will also be regarded in principle as valid and enforceable (except for those to be held as invalid pursuant to express stipulations of the PRC Contract Law and the Regulations).
Previously, the interest rate for private lending shall not be higher than four times of the interest rate charged by banks and any part of interest exceeding the said four times would be held invalid. According to the new Regulations, the interest rate for private lending shall in principle not exceed 24% per annum; if a private lending contract has no stipulation on the payment of interest, or in case the contract is between individuals and it has no clear stipulation on the payment of interest, then the lender shall have no right to claim against the borrower for payment of interest.
According to the Regulations, if parties have signed a sale and purchase agreement as a security for performance of a private lending contract, and in case the borrower fails to repay the loan and the lender claims for enforcement of the sale and purchase agreement, the court shall deal with the case as a private lending case, and if the borrower fails to pay under the effective judgment, the lender may apply for sale by auction of the assets sold under the sale and purchase agreement and use the sales proceeds to settle the indebtedness under the judgment.
In addition to those above mentioned, the Regulations also contain some other stipulations on relevant issues, such as the conditions for an enterprise to lawfully raise funds from its employees, and conditions for the P2P provider to bear the guarantee liability.

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Disclaimer
Any legal information contained in this newsletter is general in nature and laws and regulations are changing from time to time and compliance will always depend upon the particular circumstances. We have not attempted to give exhaustive descriptions of law or to give a legal opinion on specific legal issues. You should not rely on this newsletter as a legal advice for any particular purpose.

 

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