A Guide to Debt Collection in China (Part II)
IV. Debt Collection through legal action in China
If you cannot recover the debt in China by telephone collection, electronic collection and sending a demand letter, we suggest that you engage a lawyer in China to start legal procedures, which means to file a lawsuit to the Chinese court by preparing evidence materials, and at the same time, we suggest applying to the court for property preservation, which is for freezing the debtor’s bank accounts, real estate properties, etc., so as to preventing the debtor from escaping the debt and making sure the court judgement enforced smoothly.
1. Successful case
a. From January to August 2022, Company A and Company B have signed the Product Purchase and Sales Contract several times, agreeing that Company B will purchase a product from Company A, and the contract stipulates that Company B will make the payment by wire transfer within 30 working days after the acceptance of the goods. However, after Company B received all the goods, it had not paid the corresponding payment, and the amount of the payment has reached more than RMB10 million yuan.
b. In March 2023, Company A entrusted our firm to recover the amount owed.
c. On April 9th 2023, our firm filed an arbitration with the arbitration committee agreed in the contract and applied to the court for property preservation.
d. On May 11th 2023, the court froze more than RMB10 million yuan in a bank account under the name of Company B.
e. On May 30th, 2023, Company A and Company B signed a mediation agreement, in which the amount of debt was confirmed by both parties and the court property preservation fees, bonding fees and arbitration fees were paid by Company A due to arbitration shall be borne by Company B; Company B shall pay the amount due and the above fees before August 10th 2023.
Shortly thereafter, Company B paid Company A all the money owed to Company A and the corresponding expenses. The case was quickly closed within one month, and our law firm successfully assisted the client to get back all the money owed.
2. Brief introduction to property preservation measures of the civil courts of China
Property preservation measures refers to a system whereby, in civil proceedings, the People’s Court takes temporary compulsory measures against the property in dispute between the parties at the request of the parties, or as decided by the people’s court in accordance with its functions and powers, in order to ensure that the judgment in the future can be realized.
Property preservation plays an extremely important role in the litigation of payment demand. A civil case, from the initiation of the lawsuit to the trial and the judgment to take effect, often takes several months or even longer. After the judgment takes effect, if the debtor refuses repayment of debt, it will take a long time from the creditor to apply for enforcement in the court. In this process, the debtor may transfer, hide, squander property or the subject of action. In this case, it is very likely that the debtor will find it difficult to realize the creditor rights even if he wins a judgement. Therefore, the property preservation plays an extremely important role in the litigation of debt collection.
Property preservation shall be arranged fast, precise and ruthless. Fast means such measured can be taken before or after the case registration, precise means pinpointing the debtor’s assets and ruthless means to freeze the debtor’s assets as many as possible, the more the better.
3. Steps for debt collection under civil court proceedings in China
a. determines the court of jurisdiction;
b. case filing and registration in the court;
c. payment of case registration fees and other litigation costs;
d. waiting for the court to schedule the hearing;
e. case hearing in the court;
f. waiting for the judgment;
g. waiting for repayment from the debtor;
h. application for enforcement;
i. getting back the money.