Legal Issues in Financial Leasing Factoring Business

Legal Issues in Financial Leasing Factoring Business

Introduction: Domestic factoring business carried out by financial leasing company and domestic commercial bank refers to the factoring contract between the two parties that the leasing company assigns the outstanding rent receivable claims under the financial leasing contract to the bank, and the bank pays the leasing company a certain proportion of the financing amount and collects rents as the assignee of the rent claims directly from the lessee. Collect rent directly from the lessee as the assignee of the rent claim. The following is the knowledge of the relevant legal issues, welcome to read and learn.

(a) on the application of the law

International factoring business is mainly based on the international factoring practice and the agreement of the parties. At present, there is no clear domestic legislation on factoring, can only be applied to the provisions of the contract law on the transfer of claims, the specific provisions are as follows:

1, the parties agreed or legal non-transferable claims can not be transferred

2, the transfer of the claim without notice to the debtor does not take effect

3, the transferee of the claim to obtain the subordinate rights associated with the claim (eg, the right to security);

4. The debtor's defenses to the contract may be asserted against the assignee of the claim.

Although the above provisions are the basic legal basis for the domestic factoring business, the factoring business involves other content, such as factoring business contractors must have specific qualification requirements, financial leasing factoring business when the lessee fails to pay the lease whether the bank has the right to recourse to the leasing company and the procedures to be carried out, the bank according to a number of leases during the leasing of the nature of the leasing company leasing charges financing fees, the ownership of leased property and many other issues. There is no direct legal regulation on many contents, such as retention and treatment of leased goods. The newly promulgated Property Law stipulates that accounts receivable may be pledged and the pledge right is established from the time of registration of the pledge by the credit reference agency. There is no clear regulation on the registration of the transfer of accounts receivable.

(2) Factoring contractor

At present, the domestic factoring business is directly undertaken by commercial banks. In the international factoring business, in addition to the bank as a factor, there are independent factoring specialized companies (Note: many are subsidiaries run by banks). There is no clear legal provision as to whether other institutions besides banks can undertake factoring business, whether it is necessary to stipulate the start-up conditions and qualification requirements, as well as industry regulation.

(C) on the operation of the factoring business

1, on the terms of the factoring contract

The factoring contract is the leasing company and the bank to establish a legal relationship between the factoring, the provisions of the specific rights and obligations and responsibilities of the basic legal documents. The factoring contract should have a clear structure, clear and concise terms, unified concepts, easy to operate and lock the relevant risks.

The factoring contract usually includes the following: the subject of the contract, the definition of terms, the scope and amount of rent receivable claims, the amount of financing issued by the bank (basic acquisition and additional acquisition) and the conditions of issuance, the period of factoring and factoring fees (financing fees, late payment of liquidated damages, fees, recovery costs, etc.), the parties to the statement and warranty, the leasing contract and the notice of the transfer of claims and other submissions, lessee, rent return, regulatory account set up, and the transfer of claims, the lease agreement and the notice of transfer. Rental restitution, regulatory account establishment, handling of erroneous payments, bank recourse to the leasing company, payment of repurchase money, liability for breach of contract, contract entry into force and change, application of law and jurisdiction.

2, on the financing payments and factoring fees

Factoring as a means of financing, as with credit, banks and factoring companies need to calculate their respective fees to be charged and paid, in order to measure, compare profitability or financing costs. The payments involved in factoring are mainly financing payments issued by the bank to the leasing company, factoring fees paid by the leasing company to the bank (e.g., financing fees, factoring fees, late payment of liquidated damages, litigation and arbitration costs for recovering claims), repurchase payments, etc.

According to different leasing companies, different leasing projects, different banks, different regional financing interest rate levels, different lessees and other factors, the above cost items and the amount of trade-offs are different. The calculation of the fees is the most important part of the factoring business operation, which is directly related to the cost burden of the leasing company and the profitability of the bank. Therefore, no matter what the fees are, the name of the fees, the definition of the concept of terminology, the basis of the billing, the method of calculation (formula), the period of time from the beginning to the end, the rate, etc., to avoid misunderstanding and operational ambiguities.

On the financing issued by the bank to the leasing company: the basis of calculation (rent receivable claims or leasing costs, etc.), the proportion or amount of financing, etc. should be clarified.

On the factoring fees charged by the bank to the leasing company: there are different charges and standards for different factoring businesses. Some only according to the People's Bank of China lending rate or floating up and down to charge one or more financing fees, and some have to add late payment of liquidated damages, factoring fees and so on.

Because the lessee pays rent in installments, the rent receivable claim exists for more than one performance period, according to the balance of the rent due date of the financing (acquisition), the factoring bank compared to the same period of the lending rate (or up and down floating ratio) according to the leasing company in each of the factoring period, respectively, the financing fee. Attention should be paid to the agreement of the beginning and end of the factoring period, the acquisition of the balance of the payment calculation method, to avoid the balance itself, as well as with the calculation of overdue liquidated damages and other duplicates.

In the event that the lessee defaults on the due rent, some banks charge the leasing company default fees according to the number of days overdue compared to the loan penalty rate, and attention should be paid to clarifying the basis for billing.

Banks generally require the leasing company to bear the costs of litigation and arbitration to recover the leasing claim, it should be noted that the cost of the project should be clear and specific, to avoid? All costs in the course of the factoring business? The company's main goal is to provide the best possible service to its customers.

3, on the parties to the legal risk avoidance

In view of the lack of clear legal provisions of the factoring, whether for the bank or leasing company, factoring business legal risk prevention is crucial.

(1) From the leasing company's point of view

? Establishment of non-recourse factoring

Banks set up recourse factoring is a safeguard to avoid the lessee's credit risk, but for the lessor, when the lessee does not return the lease, it is faced with the need to repurchase the bank has been paid but has not yet recovered the financing problem. The leasing company can choose the lessee recognized by the bank, the establishment of other guarantees and other risk control measures, try to establish non-recourse factoring with the bank. For example, if you choose the lessee under the unified credit management of the factoring bank, the bank knows more about the lessee and recognizes that it has a better financial condition, and relatively speaking, it may be willing to bear the lessee credit risk. Lease contracts generally have the lessee or a third party to the leasing company to provide guarantees or rights in rem. According to the contract law, the guarantee right is assigned to the bank as a subordinate right together with the lease receivable claim, and the guarantor has to continue to bear the guarantee responsibility to the bank within the scope of the original guarantee. The leasing company can set up its recognized guarantee for the bank, and negotiate with the bank to set up non-recourse factoring.

? Retain the right to leasehold property

From the legal point of view, the leasing company transfers the rent receivable claim, the right to leasehold property is independent of the claim, after the transfer of the claim, the leasing company should still enjoy the ownership of the leased property. The leasing company should avoid the factoring contract to agree on terms such as the transfer of the right to dispose of the leased property. The leasing company can negotiate with the supplier of the leased property, when the lessee does not repay the loan resulting in the leasing company must fulfill the repurchase obligation to the bank, the supplier guarantees to repurchase the leased property and in accordance with the agreed method of valuation, to pay the purchase price to the leasing company.

? Obligations to the bank should be limited to a certain range

Factoring banks usually set more obligations for the leasing company, part of the set obligations have exceeded the lessor's obligations under the lease contract, and covers all of the lessor's day-to-day business activities, which should be under the supervision and control of the bank. Any breach of obligations, promises and guarantees by the leasing company to the bank constitutes a breach of contract, and the bank can immediately pursue and terminate the contract. Based on the relativity of contracts, the obligations of the leasing company to fulfill the leasing contract as agreed in the factoring contract cannot exceed the obligations of the lessor under the leasing contract between the leasing company and the lessee. For the fulfillment of the factoring contract is not very important day-to-day business matters, it is recommended not to include the scope of obligations.

(2) From the bank's point of view

? The establishment of recourse factoring to avoid the lessee's credit risk.

? Establishment of other guarantees. The leasing company's leasehold rights can be set up to guarantee and set up repurchase realizations with supply vendors. Banks should take care to review the security rights without rights defects and disputes. Banks may also require leasing other security.

If the bank is directly assigned the security right under the lease contract, it should pay attention to review its authenticity and pay attention to exercise the right of recourse according to the law in the fulfillment of the guarantee to avoid the defect of the security statute of limitations.

? Pay attention to the review of the factoring contract general legal issues. For example, the rent receivable claim is transferable, is an outstanding claim, has the legitimacy, and the claim does not have any right defects, such as not being pledged by the leasing company, no other disputes, no subrogation rights claimed by the third party, etc..

? Try to avoid the impact of the lease contract performance disputes on the factoring contract, you can ask the lessee to issue a statement of no objection to the quality of the leased goods, delivery and so on.

? Set up a rent receivable regulatory account to protect the lessee does not return the lease or the leasing company does not repurchase, the bank has the right to direct debit from the respective regulatory account.

Some contracts stipulate that after the assignment of the rent receivable claim, when the lessee mistakenly pays the rent to the leasing company's account, the leasing company and the factoring bank establish a fiduciary relationship, and the factoring bank is the principal, and the payment immediately becomes the property of the factoring bank. However, according to the trust law, the trust property is independent of the principal and the trustee's own property. The principal only enjoys the benefit of the trust, and unless the trust relationship is extinguished, the trust property does not ipso facto become the property of the principal. Therefore, the lessee wrongly paid the money can be set up trust, its legal effect is questionable.

In summary, financial leasing factoring is an important financing channel for leasing companies, but also a better intermediary business for banks to obtain factoring income, which combines with leasing asset guarantee, supplier repurchase and other businesses to promote the development of the leasing industry. In view of the factoring-related laws are not yet perfect, the parties to the factoring business in the operation should refine the terms of each contract to prevent and avoid legal risks.

Some of the explanations of our laws on financial leasing

Article 237 of the Contract Law provides that the financial leasing contract is the lessor's choice to purchase the leased property from the seller based on the lessee's choice of the seller ﹑ the leased property. Choice, to the seller to buy the leased goods, provided to the lessee to use, the lessee to pay rent contract law.

The usual practice of financial leasing is the lessor's capital to purchase the lessee selected technical equipment or other materials, leased to the lessee as a lease, the lessee according to the contractual agreement to obtain the long-term right to use the leased property, during the lease, according to the contractual period to pay the rent, the lease expires according to the contractual disposal of the leased property law.

Financial leasing contract on the lease has the following three forms:

First, the surrender law.

The expiration of the commercial lease contract, the lessee of the lease contract according to the requirements of the lease will be returned to the lessor, the lessor to deal with their own leased property, due to the expiration of the leased property in the lease have generally reached the period of time, the lessor is difficult to rent or transfer after the recovery, so the leased property after the expiration of the period of time, generally do not use this method method.

Second, the renewal method.

Business in the lease contract period before the expiration of a reasonable period of time, the lessee should notify the lessor, on the leased property to continue to rent for negotiation, to determine the renewal of the lease term ﹑ rent and other content in the expiration of the period of the financial leasing contract to sign a renewal of the lease contract law.

Three, stay purchase method.

The commercial lessee to pay the nominal price of goods to obtain the ownership of the leased property, the lessee to obtain the ownership of the leased property, fixed assets investment, this method of the lessor, the lessee is favorable, so, after the expiration of the period of the financial leasing contract, the treatment of leased property is generally more of this way.

;