CHINA Law and Practice Contributed by: Borong Liu, Xiaoli Liu, Jingyi Lu and Zhijie Zhang, Zhong Lun Law Firm
product exceeding 10% of its issuance scale; the percentage of investment in various ABS of the same originator shall not exceed 10% of the net value of the fund asset. • Money market funds shall not invest in the bonds and debt financing instruments of non- financial enterprises with a credit rating under AA+, and investment in the bonds, debt financing instruments of non-financial enter - prises and ABS of the same originator/issuer shall not exceed 10% of the net value of such fund’s asset. 4.14 Other Principal Laws and Regulations Please refer to 1.3 Applicable Laws and Regu- lations . 5. Synthetic Securitisation 5.1 Synthetic Securitisation Regulation and Structure According to the Notice of the People’s Bank of China, China Banking Regulatory Commission and Ministry of Finance on Further Expanding the Pilot Programme on Credit Asset Securitisa - tion (Yin fa [2012] No 127), resecuritisation and synthetic securitisation are currently explicitly prohibited. In terms of business asset securiti - sation, although there is no explicit prohibition, resecuritisation and synthetic securitisation are also not allowed in practice. 6. Structurally Embedded Laws of General Application 6.1 Insolvency Laws Insolvency Laws and Securitisation Insolvency laws are crucial for securitisation, because a primary legal objective for most
securitisation transactions is the isolation of the underlying assets from the originator’s bank - ruptcy risks. “True sale”, as a precondition for the bankruptcy remoteness of financial assets, depends on the type and structure of the trans - action. For credit asset securitisation or CIBM business asset securitisation (the structure of which is elaborated in 1.2 Structures Relating to Financial Assets ) on the CIBM, the under - lying assets are entrusted by an originator to an SPT, and the underlying assets’ bankruptcy remoteness is provided for under Article 15 of the Trust Law, meaning that true sale is not an issue for such transactions. However, in the case of exchange market securitisation, where the underlying assets are transferred from an originator to an ABSP, the question of whether the transfer of the underlying assets constitutes a true sale or a financing guarantee is a deci - sive factor in determining the underlying assets’ remoteness from the originator’s bankruptcy. Insolvency Laws for True Sale v Secured Loan Pursuant to Article 30 of the Bankruptcy Law, if the underlying assets have already been legally transferred to others when a bankruptcy peti - tion pertaining to a transferor (as the debtor) is accepted by a court, then the underlying assets will not be held as part of the bankruptcy estate of the transferor, unless the transfer falls within the scope of revocable transfers (including unre - quited transfer and transaction at manifestly unreasonable price) within one year prior to the acceptance of the bankruptcy petition, as pro - vided under Article 31 of the Bankruptcy Law. If a debtor only creates security rights over cer - tain assets, then, according to the applicable laws, when the debtor enters into a bankruptcy proceeding, these assets shall be part of the debtor’s bankruptcy estate, but the secured
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