Amicable collections

1.1. General information

China has had a vivid history of debt collections. The practice was prohibited by the Chinese government in the late 19th century and is still prohibited by law today. Therefore, the debt collections industry does not exist officially, but there are companies that provide debt collections services through specialised legal firms that are authorised to collect Chinese debts.

China has shown more interest in outsourcing their outstanding receivables to debt collections agencies and law offices. We collaborate with local law firms to provide amicable and legal collections services in China. Our team has experienced collectors with a legal background, which is essential for collecting debts in China.

1.2. Local agents

We have local offices in Shanghai and Guangzhou, two major cities in China, covering collections services across the whole nation.

1.3. Interest

From a cultural point of view, Chinese debtors are not used to paying late payment interest charges. So during the first steps of negotiation, we usually do not claim this part.

When a case enters into litigation, we charge interest calculated from the loan rate set by the People’s Bank of China, plus 30% to 50% (the Reply of the Supreme People’s Court on the Calculation Standard of Late Payment Penalties).

1.4. Debt collections costs

From the point of view of Chinese law, we have the right to charge the costs arising from the collections of debts, but Chinese debtors will not expect to pay them if the debts are paid in the negotiation phase.

1.5. Prescription

The general limitation of action regarding applications to a people’s court for protection of civil rights is three years, unless otherwise stipulated (General Principles of the Civil Law of the PRC, Article 135). The limitation of action is one year for cases concerning the following:

  1. Claims for compensation for bodily injuries
  2. Sales of substandard goods without proper notice of the effect
  3. Delays in paying rent or refusal to pay rent
  4. Loss of or damage to property left in the care of another person

For a dispute arising from a contract for the international sale of goods or a technology import or export contract, the time limit for bringing a suit or applying for arbitration is four years, calculating from the date on which the party knows or ought to know the infringement on its rights.

The limitation period for claims against carriers with regard to carriage of goods by sea is one year, starting from the day on which the goods were delivered or should have been delivered by the carriers. The limitation period for claims against rail carriage is 180 days. There are no such stipulations regarding outstanding invoices.

The practice of selling debts has been a prerogative of companies in China.

Any of the following circumstances will have an effect of interruption on the statute of limitations:

  • A party directly serves a document of claim on the opposite party, and the opposite party affixes their signature or seal on the document. Or it may be otherwise proved that the document reached the opposite party, who failed to affix their signature or seal on the document
  • A party makes a claim by correspondence or data message, and the letter or data message reached or should have reached the opposite party
  • A party, that is also a financial institution, deducts and collects the owed principal and interest out of the account of the opposite party
  • The whereabouts of a party is unknown, and the opposite party publishes an announcement of claim in a national medium or a local influential medium near the last known location of the party whose whereabouts is unknown

These are only a few of the situations that may interrupt a limitation period, and there are many other stipulations that have the same effect detailed in the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Statute of Limitations during the Trial of Civil Cases, which came into force as of 1 September 2008.

1.6. Accepted and most common payment methods

The most common payment methods are bank transfers and bank acceptance drafts for local businesses.

The drafts normally have future honour dates and bank acceptance stamps on them.

1.7. Types of companies

Limited liability company

  • The company bears liability for its debts with all its property
  • The amount of capital contributions subscribed for by all its shareholders is in compliance with the company’s by-laws

Joint-stock limited company

  • The company bears liability for its debts with all its property
  • The shareholders are responsible for the company to the extent of the shares they have subscribed for
  • The company can be established by floatation on a stock exchange

1.8. Sources of information

In China, lawyers can directly access financial data as well as other useful information on debtors from industrial and commercial authorities. The financial data includes the debtors’ balance sheets and income statements that are reported to tax authorities before the mid-year of each year.

Other information includes the contact details of the debtors’ shareholders or legal representatives, the debtors’ bank accounts, and the likes. In most cases, we can find the information we need by ourselves, so a private investigator is not necessary.

(End of chapter 1 - Amicable collections)

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