CHINA Law and Practice Contributed by: Nelson Zhou, Yifeng Yuan, Jianwei Yang and Jingbo Zhou, JunHe LLP
The attractiveness of enforcing through the property mortgage will depend on a number of factors, including: • who benefits from the mortgage (ie, just the onshore lender or also the foreign sharehold- er) relative to who is initiating the enforcement process (eg, the offshore or onshore lender); and • the degree of mortgage coverage and the likelihood of other creditors. Unless the onshore borrower agrees, the enforcement of mortgages is a court process, which could be time-consuming. An offshore lender is unlikely to look to the mortgage as a means of enforcement if it has no or limited mortgage coverage (often the case), while an onshore lender will view mortgage enforcement as one of its primary means of enforcement. Under PRC law, a creditor with a mortgage over a debtor’s property may enforce its remedies under the mortgage through a consensual sale and/or a judicial sale. In each case, the creditor will have lien priority over all junior secured cred- itors and all unsecured creditors with respect to the proceeds of the sale of the property.
sition SPV) and its operating subsidiaries (or selected material subsidiaries). 6.2 Restrictions When both the ParentCo/LBO loan borrower and the OpCo are PRC domestic companies, there are no legal constraints preventing the OpCos from providing upstream guarantees to the ParentCo. When the ParentCo is an offshore company and the OpCos are PRC domestic entities, the OpCos are unable to provide an upstream guar- antee to the ParentCo unless they can register such upstream guarantee with SAFE as outward security, which is not easily achievable. The Administration Rules for Listco Takeover provide that a listed company in the PRC is not permitted to provide financial assistance (includ- ing a guarantee) to an acquirer. This restriction does not apply to non-public companies, how- ever, which can provide security (including a guarantee) to support the financing of acquirers subject to compliance with certain requirements, including such security being duly approved by the shareholders/directors (and, in the case of a listed company, making a public announcement via the relevant stock exchange). 6.3 Requirement for Guarantee Fees It is not mandatory under PRC law for parties to collect guarantee fees. In the market, it is also rare for an affiliated guarantor to charge guaran- tee fees to another guaranteed affiliate. 7. Lender Liability 7.1 Equitable Subordination Rules There are no enacted laws or regulations clearly recognising equitable subordination. Contrac-
6. Guarantees 6.1 Types of Guarantees
Since sponsor deals are usually non-recourse deals, there will be no sponsor guarantees, and the typical type of guarantees will include: • before acquisition closing, guarantees from the acquisition SPV and the intermediary holding companies underneath it; and/or • after acquisition closing, guarantees from the target company (if not merged with the acqui-
122 CHAMBERS.COM
Powered by FlippingBook