Out-of-the-box approach to winning lawsuits

By Rao Xiaomin and Hu Yongshuai, Zhong Lun Law Firm

Under the final ruling made by the Guangdong Provincial High People’s Court on the dispute between a bank and company A, and some other legal persons and natural persons over loan and guarantee contracts, the principal debtor A is ordered to repay the bank the principal of RMB130 million plus interest, and other guarantors shall be held jointly and severally liable for the debt repayment.

Rao Xiaomin Zhong Lun Law Firm
Rao Xiaomin
Zhong Lun Law Firm

In the course of the execution of the court ruling in 2012, company G and company H voluntarily got involved in the execution process, and respectively submitted a letter of execution guarantee to the court and offered guarantees to the bank. The court thus terminated the execution. However, efforts to execute the court ruling were restarted at the request of the bank in 2015 as the debt and interest were yet to be paid off.

After the resumption of execution efforts, the bank requested the court to order H to repay the debt with its 35% stake in company I (target stake), but did not apply to sell the properties of other guarantors. As the target stake was H’s main equity asset with potential to make a profit, the company sought legal advice to avoid the execution. Difficulties in the case are explained as follows:

It was legally ungrounded to request the court not to sell the target stake

According to the Civil Procedure Law (2012 Amendment) and its judicial interpretations, if the person subjected to execution has no property to be executed or his property is not valuable enough to pay off the debt, the court shall issue a ruling to execute the guarantor’s property. As H and other persons subjected to execution were held jointly and severally liable, the bank had the priority to choose the property of H or any other person subject to the execution. There was no solid legal basis to request the court not to sell the target stake or raise an objection to the court’s execution.

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Rao Xiaomin is a partner and Hu Yongshuai is an associate of Zhong Lun Law Firm in Shenzhen

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