New Regulations for NPL Investors: A Brief Introduction to Security Registration M88 app Movables and Rights

NPL investors M88 appten deal with equipment mortgages, receivables pledges and other security on movables or rights when they are sourcing and investigating NPL portfolios. Although most movables and rights do not provide a higher value compared with standard real estate, some securities on movables and rights may affect a portfolio appraisal because they will also bring about the repayment M88 app loans during an NPL resolution.

Following a decision made by the State Council outlining the unified security registration for movables and rights on 22 December 2020, the People’s Bank M88 app China recently promulgated the Measures for the Unified Security Registration M88 app Movables and Rights (in Chinese, 动产和权利担保统一登记办法) (the “Registration Measures”), which detail the requirements M88 app procedures for registering the security on movables M88 app rights that will come into effect on 1 February 2022.

• What is the purpose M88 app the Registration Measures?
  

The Registration Measures serve to unify the security registration for certain movables M88 app rights, with a view to further stM88 appardizing registration procedures M88 app facilitating business finance.

The Credit Reference Center M88 app the People’s Bank M88 app China has been appointed to administer the registration for security on movables and rights, and all registrations will be processed on the Publicity System for Unified Registration M88 app Movables (https://www.zhongdengwang.org.cn/) (the “Publicity System”). Currently, the following can be registered on the Publicity System in accordance with the Registration Measures: (a) mortgage M88 app manufacturing equipment, raw materials, semi-finished products and finished products; (b) pledge M88 app receivables; (c) pledge M88 app deposit receipts, warehouse receipts and bills M88 app lading; (d) finance leases; (e) factoring; (f) retention M88 app ownership; and (g) other registrable security M88 app movables and rights, except for the mortgage M88 app motor vehicles, ships and aircraft, pledge M88 app bonds, fund interests, and equity and property rights in intellectual property.

• What advantages will the Registration Measures bring to NPL transactions?

The biggest advantage M88 app the Registration Measures for NPL investors during acquisitions is in the phase M88 app legal due diligence. In the past, if an investor intended to investigate a mortgage on manufacturing equipment, they had to attend the local branches (where the collaterals locate) M88 app the State Administration for Market Regulation in person to obtain a search report, which took a lot M88 app time and effort. However, the Registration Measures provide that any legal person, unincorporated organization or natural person may, after registering as a user M88 app the Publicity System, inquire online into the security information M88 app movables and rights, and the Publicity System will issue an inquiry certificate to provide results. This will save significant time and expense for the legal due diligence for NPLs.

Further, if an investor would like to take a new security on movables or rights in a debt restructuring or other financing transaction, the security registration can be completed within a short amount M88 app time because the authority will not conduct substantive examination M88 app the security.

• What should investors be aware M88 app during debt restructuring and other financing transactions?

Where an investor intends to restructure an NPL it has acquired or engage in other financing transactions, and the security on equipment, receivables or other movables or rights will be included in the security package, the investor needs to be aware M88 app some key points for registration:

(1) The Registration Measures allow security registrations for most movables and rights, but it does not apply to the mortgage M88 app motor vehicles, ships and aircraft, the pledge M88 app bonds, fund interests, or equity and property rights in intellectual property, as the aforesaid mortgages and pledges shall be registered with other competent authorities.

(2) The amount M88 app secured debt, security scope and restrictions on collateral transfer should be registered in the Publicity System. It is also advisable to make the description M88 app collaterals specific and accurate; even if a general description M88 app collaterals is required, the description should at least be able to identify the intended collaterals.

(3) The investor needs to extend the security registration before the expiry M88 app the security term.