Keywords

Active justice; gaining full benefits of tax policies; ascertainment of lease relationship and relief of rights and interests contained therein

Case Overview

In the enforcement concerning the financial loan contract dispute between an Asset Management Corporation Hainan Branch (the Applicant) and a Hainan Investment Co., Ltd., a Hainan Trade Co., Ltd., Li, Pang, Yang & Zhou (the Parties subject to Enforcement), the Hainan Investment Co., Ltd., was under bankruptcy examination and was unable to pay the financial loan in amount of CNY 209 million plus interest, and therefore a total of 15,000 square meters of commercial premises in the ownership of Li (the Guarantor) in Guangzhou and Zhanjiang should be subject to enforcement. Upon appraisal, it was found that the auction of the said commercial premises had failed since there were no buyers willing to sign up for the auction due to Covid-19. During the enforcement, the enforcement officers found that the court that first seized the premises did not ascertain whether there existed a lease relationship at the time of seizure, and therefore it was possible that Li might have leased the premises to others under a long-term lease and had received hires before the seizure. On top of that, the Applicant claimed that, as an asset management company, they were not able to operate the commercial premises and for this reason, they did not accept the cession of goods. Due to these unfavorable conditions, it was difficult to liquidate and deliver the heavy asset, which was the only enforceable property in this case.

Enforcement

During the enforcement, given the negative impact of Covid-19 on the real estate market, the enforcement officers rearranged an appraisal and auction in a timely manner. During this process, they found that owing to a document jointly issued by the Ministry of Finance and the State Administration of Taxation in 2023, the financial asset management company could benefit from a tax policy during August 2022 and July 2023, including suspension of taxes payable by sellers or tax exemption for buyers, if they accepted cession of goods for the distressed debts. This would cut up to CNY 20 million in tax payment. To ensure final delivery which might be obstructed by the unknown lease relationship, the enforcement officers visited the premises for several times and finally persuaded tenants to assert their rights by way of a lawsuit or enforcement objection. Given the circumstances, the Applicant made an internal decision and agreed to take the 15,000 square meters of the commercial premises as payment for the debt of CNY 155.7 million.

Significance

In this case, the 15,000 square meters of the commercial premises in the ownership of the guarantor Li in Guangzhou and Zhanjiang should be good-performing assets that bring in cash flow, which, unfortunately, failed the two disposal procedures arranged by the court due to the serious impact of the Covid-19 on the society, economy and people’s life across China, not to mention the large area of the premises and the complicated lease relationship involved. To reduce financial risks and put the non-performing assets into use, the court exercises active justice by taking multiple measures, and eventually causes the Applicant to accept cession of goods. During the disposal of the commercial premises, the court has done some useful research on certain issues, such as a second auction, preferential tax treatment, and ascertainment of lease facts by various methods, which provides a good reference for the handling of similar cases.