Securitisation 2025

CHINA Law and Practice Contributed by: Borong Liu, Xiaoli Liu, Jingyi Lu and Zhijie Zhang, Zhong Lun Law Firm

party has a priority claim on the assets. Under Article 19 of the Bankruptcy Law, after a court accepts a bankruptcy petition, preservation measures pertaining to the debtor’s estate shall be lifted and enforcement procedures over the estate shall be suspended, which means the secured party must delay the exercise of secu - rity rights over the estate. In bankruptcy liqui - dation and bankruptcy settlement proceedings, the administrator may decide to dispose of the security property with the rest of the bankruptcy estate as a whole if disposition of such security property alone would reduce the value of the rest of the bankruptcy estate, and the disposition and distribution plan of the bankruptcy estate shall be approved by the meeting of creditors, which makes the exact timing of the realisation of the security rights ultimately uncontrollable. In the bankruptcy reorganisation proceeding, if the security property is necessary for the reor - ganisation, and the administrator or the debtor can provide a corresponding guarantee or com - pensation, the People’s Court may rule not to resume the exercise of the security right. Thus, in a secured loan transaction, a creditor’s right over the collateral will be affected by the debtor’s bankruptcy procedure in various aspects; in a true sale situation, by contrast, a transferor’s bankruptcy will not have any impact on the transferee’s exercise of rights over the underly - Currently, China’s Company Law, Securities Law, Bankruptcy Law and other laws and regula - tions fail to provide room for the development of SPVs in the form of SPCs and SPLPs. The Trust Law was enacted in 2001, wherein the principle of trust property independence provides a solid legal basis for bankruptcy remoteness pursued in securitisation. Therefore, in credit asset secu - ing assets. 6.2 SPEs SPE Characteristics

ritisations and CIBM Business Asset Securitisa - tions where a trust company serves as an issuer/ issuing vehicle manager, SPTs are adopted. As for exchange market securitisations, the initial issuers were limited to securities companies or their subsidiaries, and due to the separate oper - ation principle of trust industry and securities industry under the current financial regulation framework, ABSPs instead of SPTs are used. However, a recent judicial trend tends to regard the relationship of an ABSP as a trust and shall apply the Trust Law as well. Neither an SPT nor an ABSP constitutes a legal entity, but rather a set of contractual relation - ships, where the trustee or plan manager con - ducts transactions or administrative activities on behalf of the trust or the ABSP according to the contracts, and no operations or debts irrelevant to the securitisation are allowed. The trustee or plan manager may further engage a servicer, fund custodian and other institutions to provide services for the SPV. Bankruptcy Remoteness An ABSP is set up by a plan manager, who pur - chases the underlying assets from an originator on behalf of the investors. According to Arti - cle 5 of the Administrative Provisions on Asset Securitisation by Securities Companies and Subsidiaries of Fund Management Companies issued by the CSRC, the assets of ABSPs are independent from the inherent property of the originator, manager, custodian and other busi - ness participants, and if the above-mentioned entities are subject to liquidation due to dissolu - tion, revocation or declaration of bankruptcy, the assets of the ABSP do not belong to the liquida - tion property. Naturally, whether the assets of the ABSP can achieve bankruptcy remoteness from the originator also depends on whether the transfer of the assets from the originator to the

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