CHINA Law and Practice Contributed by: Nelson Zhou, Yifeng Yuan, Jianwei Yang and Jingbo Zhou, JunHe LLP
5. Security 5.1 Types of Security Commonly Used Shares Pledges can be created over shares in a limited liability company. Inventory A mortgage on the inventory, including raw materials, semi-finished products and finished products, can be created. Bank Accounts A pledge over bank accounts (in essence, a pledge over the deposits therein) will only be recognised when: • the pledgee has actual control over such account; or • the inflow and outflow of funds are for one specific category of use. Receivables Pledges of account receivables can be used rather than the security assignment or the debenture, as frequently used in other jurisdic- tions. IP Rights A pledge over IP rights can be created. Real Property Mortgages over real properties can be created. Movable Properties A pledge over movable properties is possible when possession of such properties could be delivered to the creditors. If possession is not deliverable, then a mortgage over movable prop- erties can be created.
5.2 Form Requirements There are no form requirements under PRC law. 5.3 Registration Process Share Pledge Shares of a non-public company are to be reg- istered with local branches of the State Admin- istration of Market Regulation, and shares of a listed company are to be registered with the China Securities Depository and Clearing Cor- poration (CSDCC). Bank Account Pledge There is no registration requirement, but the pledgee should either control such an account or designate an agent to control the account. Receivables Pledge Registration with the online registration platform of the People’s Bank of China (PBOC) is required – ie, registration with the Unified Registration and Publicity System for Movable Property Financing of the Credit Reference Centre of the PBOC (the “PBOC System” ). IP Rights Mortgage Registration of trade mark rights and patent rights with the China National Intellectual Prop- erty Administration is required, as is registration of copyrights with the Copyright Protection Cen- tre of China. Real Property Mortgage Registration with the real estate exchange centre
in different localities is required. Movable Property Mortgage
Registration with the PBOC System is required. 5.4 Restrictions on Upstream Security When both the parent company ( “ParentCo” , LBO loan borrower) and operating subsidiaries
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