In the midst of the global financial turmoil, the Supreme People’s Court of the PRC issued a set of opinions to guide Chinese courts on how to safeguard the nation’s financial security and sustainable development. The opinions, entitled the Opinions on Providing Judicial Protection and Legal Services to Safeguard Financial Security and Sustainable Economic Development , (the Opinions), were issued on December 4, 2008.
The Opinions point out that finance is the core of modern economy, and that the worldwide economic depression caused by the sub-prime mortgage crisis in the United States has adversely affected China’s financial market. The Chinese government is taking steps to stimulate domestic demand to offset the decrease in its exports, and investing heavily in public projects to battle the economic slow-down. In the meantime, China is seeing new developments and issues in its economy. As a result, there has been an increase in financial and contractual disputes in Chinese courts.
Against this backdrop, the first section of the Opinions focuses on the protection of national financial security. First, the Opinions require that the courts provide maximum protection for the state’s financial claims as creditors. With respect to non-performing loans where a state-owned bank is a creditor, the courts will protect the state’s financial claims with respect to the validity of the contracts and statutes of limitations to the fullest extent allowed by law and relevant judicial interpretations. Second, the courts will endeavor to safeguard against the erosion of state-owned assets. When hearing cases that involve the disposal of state assets, the courts will examine the assets to be transferred and the transferees, and ensure that the transactions comply with restrictions in relevant laws and regulations. Third, the courts will crack down on the evasion of debts owed to banks. Since some enterprises enter into litigation or file for bankruptcy in order to avoid repaying their loans, the courts must carefully review the relevant parties’ rights and obligations in hearing cases involving financial disputes, and punish the bad-faith debtors.
The second section of the Opinions focuses on punishing financial crime. For instance, the Opinions emphasize that illegally gathering funds through artificially high interest rates is prohibited, because it severely disturbs state financial activities. The courts will protect investors’ lawful rights and maintain an open and fair transaction environment. In addition, the courts will safeguard the stability of the securities market, preventing security companies, listed companies and investment institutions from manipulating stock prices, conducting insider deals and making misrepresentations. The courts will work closely with other governmental departments during judicial processes, and safeguard against potential financial risks. Specifically, when the courts detect problems such as false disclosure or unreasonable valuation in the course of hearing corporate cases, they will bring such problems to the attention of the relevant supervisory departments.
The third section calls on the courts to protect enterprises’ development and society’s stability. For instance, when judging liquidation and bankruptcy cases, the courts should simultaneously protect creditors’ legal rights and help debtors avoid bankruptcy and recreate value through the implementation of effective corporate restructuring. According to the Opinions, when hearing corporate debt disputes, the courts will seek a balance between the principles of the law and the resilience of the companies involved. For instance, if the debtor company is short of cash but still runs smoothly and has a good outlook for the future, the courts should avoid levying on the debtor’s property, and explore other ways, including finding guarantees, to grant the debtor company a grace period to pull itself out of financial straits. In addition, the courts will pay particular attention to protecting employees’ rights during the liquidation and bankruptcy processes.
In the fourth section, the Opinions require the courts to promote the balanced and sustainable development of the economy through effective adjudication of various types of cases. At the same time, the Opinions emphasize that the courts should protect the lawful rights and interests of foreign investors. The courts will treat domestic and foreign entities equally where their legal rights are concerned, but also prevent foreign investors from illegally withdrawing their investments. In addition, the courts will safeguard the healthy development of the real estate market. Confronted with increased real estate disputes between developers and constructors, the courts will focus on protecting construction workers’ rights and preventing employment payment in arrears, and punishing developers for obtaining loans from banks by providing fake mortgage loan documents.
The Opinions’ fifth section provides that the courts will play a more important role in promoting governmental functions in compliance with relevant laws. For example, the courts will support fair competition and curb local protectionism and industry monopolies in accordance with the law. When governments need to expropriate individuals’ land or houses for infrastructure projects, the courts will protect the individuals’ lawful rights. The Supreme Court also requires the courts to diligently hear cases concerning the executive branches’ inaction, and to sanction executive departments in accordance with the law.
In addition, the Opinions provide that the courts will advance the protection of intellectual property rights (IPR). The courts will serve, in accordance with the Outline of the National Intellectual Property Rights Strategy, as the key actors in protecting IPR. The courts will continuously enhance the judicial rules and trial system for protecting of IPR, not least of all by clarifying the scope of IPR and the definition of its infringement. The Opinions also call on the courts to strengthen the enforcement of court judgments, particularly in financial cases. The courts should constantly draw on their trial experience to timely formulate new judicial policies and interpretations.
In the midst of the global financial crisis, maintaining market order and improving fair market rules are extremely important. The Opinions require the courts to follow the abovementioned principles in order to safeguard financial security and sustainable economic development.