On 13 July 2017, the Supreme People’s Court (“SPC”), Ministry of Justice (“MOJ”) and China Banking Regulatory Commission (“CBRC”) jointly issued the Notice on Fully Utilising the Enforceability of Notarial Certificates for Banking Financial Claims Risk Prevention and Control.
Under Chinese law, a Chinese notary is entitled to certify a debt instrument to accord compulsory enforceability to the document under the following conditions:
- The debt instrument contains a right to payment of money, goods or valuable securities.
- The rights and liabilities are clear, and the creditors and debtors have no doubt about the payment obligation in the debt instrument.
- The debt instrument makes it clear that the debtor is willing to accept enforcement in accordance with law when the debtor fails to perform or properly perform its obligations.
A creditor to a notarised debt instrument of this type can apply to a competent people’s court for direct enforcement, after obtaining an execution certificate from the notary but without the need to pursue litigation before enforcement.
To enhance the efficiency and lower the cost of realising non-performing bank loans, the notice clarifies the circumstances when a notary can certify a debt instrument, the obligations of notaries and banks (that is, the creditors that seek to directly enforce debt instruments) in certifying and enforcing notarised debt instruments, and the scope and legal effect of enforceable notarised debt instruments.
Under the notice, the scope of bank debt instruments eligible to apply for this enforceability notarisation is:
- Various types of financing contracts, including various types of credit contracts, loan contracts, bills of acceptance and other types of paper financing contracts, financial leasing contracts, factoring contracts, open letters of credit and credit card financing contracts (including credit card contracts and various instalments contracts).
- Debt restructuring arrangements, repayment contracts, repayment commitments, and so on.
- All kinds of security agreements and guarantees.
- Other debt instruments that also meet the statutory conditions for enforceability notarisation.
Shirley Wang, Partner, Zhong Lun Law Firm, Beijing
“The notice expands the scope of enforceability of notarial certificates to protect financial creditors’ rights. In addition, the notice provides a clearer legal basis for the people’s courts to enforce relevant notarial certificates, and to improve the efficiency of realising the claims of financial creditors, while reducing costs.”
General Counsel for banks operating in China should become fully aware of the added protections afforded under the notice, as well as the obligations imposed on banks in relation to their efforts to directly enforce notarised debt instruments. Likewise, counsel for companies who are parties to any bank debt instrument should study the notice and be fully aware of the direct enforceability of a notarised instrument.