3 Typical Problems and Legal Risks in the Business Process of Financial Leasing Companies
Introduction: What do you know about the typical problems in the business process of financial leasing companies? The following is my compilation of 3 typical problems and legal risk analysis information, welcome to read and learn.
Typical problem 1
A company A intends to build from the city of B to the city of C underground gas pipeline, need to seamless steel pipe 18,000 tons, as well as the corresponding pressure regulating equipment and other ancillary equipment (the amount of ancillary equipment accounted for about 13% of the total capital requirements). At present, A has completed the planning, approval and other preliminary procedures, and has signed a construction contract with Company D, but has not yet formally commenced construction. The financial leasing company intends to intervene by way of direct lease to provide financing for A. In this case, can the underground gas pipeline be used as a lease? Who is responsible for the obligation of acceptance of the completion of the construction?
Underground gas pipeline can be the subject of financial leasing by way of direct lease or leaseback
At present, there is no relevant law in China to make a unified and clear definition of the scope of financial leasing leases. Article 19 of the Measures for the Administration of Financial Leasing Companies provides that the leased property used in financial leasing transactions is a fixed asset. Referring to Article 2 of the UNIDROIT Model Law on Leasing, the leased object will not cease to be a leased object merely because it is attached to or embedded in immovable property.
Therefore, underground gas pipelines and other such equipment attached to and constructed on the immovable property can be the subject of financial leasing by way of direct lease or leaseback, and the financial leasing contract with this as the leasing object still belongs to the financial leasing contract.
The financial leasing company as the owner of the gas pipeline does not have the corresponding administrative license, does not affect the effectiveness of the financial leasing contract
According to the "General Office of the State Administration of Safety Supervision on the adjustment of the oil and gas pipeline safety supervision responsibilities of the notice" (Safety Supervision General Office [2014] No. 57, "General Office of the State Administration of Safety Supervision on the clarification of the long-distance pipeline safety supervision related matters" (Safety Supervision General Office [2014]) Notice on Clarifying Matters Related to the Safety Supervision of Oil and Gas Long-distance Transportation Pipelines" (General Office of the State Administration of Safety Supervision Guan San 〔2014〕 No. 78), oil and gas pipeline safety supervision is included in the scope of hazardous chemicals safety supervision, and should be strictly in accordance with the relevant hazardous chemicals safety supervision laws, regulations, norms and standards for the implementation of the supervision. Therefore, the operation of oil and gas pipeline enterprises should be in accordance with the "hazardous chemicals business license management approach" and other provisions of the law, "hazardous chemicals business license".
However, Chapter 2 of the Administrative Measures for Operating Licenses for Dangerous Chemicals? Conditions for applying for a business license? For the law to apply for a "hazardous chemicals business license" business made specific requirements, financial leasing company as specializing in the financial leasing industry, if the financial leasing company to carry out business involving the use of leased property business should obtain administrative licenses, are to apply for the appropriate license, financial leasing companies need to spend a lot of money costs, does not comply with the economic principles.
At the same time, the Supreme People's Court on the trial of disputes over financial leasing contracts on the application of the law of the interpretation of Article 3: According to laws and administrative regulations, the lessee of the leased property for the operation of the use of the administrative license should be obtained, the people's court shall not be based only on the lessor did not obtain the administrative license for the reason that the financial leasing contract is invalid. It can be seen that the financial leasing company did not obtain the "hazardous chemicals business license", does not ipso facto lead to the "financial leasing contract" invalid legal consequences. However, the financial leasing company in carrying out the lease for oil and gas pipeline financial leasing business, before signing the Financial Leasing Contract, should audit the lessee whether to obtain the appropriate administrative license, legally hold the Hazardous Chemicals Operation License.
It is recommended that the financial leasing company may agree that the lessee shall assume the obligation of completion and acceptance of the leased goods
Based on the basic legal relationship of financial leasing, as the lessor, the financial leasing company shall assume the obligation of providing financing and calmly enjoying the ownership of the leased goods. In order to avoid the expansion of the scope of responsibility of the financial leasing company, it is recommended that the financial leasing company agree in the Financial Leasing Contract that the lessee shall sign the Construction Contract with the construction party and undertake the legal obligations in the construction process including but not limited to the completion and acceptance of the project. As for the time of commencement of the construction should be subject to the agreement of the Construction Contract.
Legal Risks
Article 248 of the Contract Law stipulates that the lessee shall pay the rent according to the agreement. If the lessee does not pay the rent within a reasonable period of time after being reminded, the lessor may demand payment of the entire rent; he may also terminate the contract and recover the leased property. Accordingly, the financial leasing company as the lessor, the lessee defaults on the right to take back the leased property.
However, if the gas pipeline is used as the leased property, the financial leasing company may have a weak security function. In the case of lessee default, due to the pipeline has been laid embedded in the land, although the financial leasing company can theoretically exercise the right to retrieve, but in practice it is not feasible, or retrieve the value of the leased property is basically lost, the financial leasing transaction of the property security function is difficult to realize, which brings the financial leasing company to the lessee's default risk is unavoidable.
Typical question 2
When a financial leasing company carries out its business, can the financier be a government agency, a fully-funded institution, or a social welfare unit? If so, are all their assets, such as real estate and movable assets of hospitals and movable and real estate of schools, suitable for leasing?
Government agencies, institutions and social welfare units (such as hospitals, schools, etc.) can become financial leasing lessees
At present, there are no relevant laws and regulations in China that restrict or prohibit the qualifications of lessees in the financial leasing legal relationship. Meanwhile, Article 6 of the Measures for the Administration of Foreign Investment in the Leasing Industry (No. 5 of 2005) stipulates that: The leased property referred to in these Measures includes:? Medical equipment, scientific research equipment? All kinds of movable property. As the main body of the use of medical equipment for the hospital, usually the main body of the use of scientific research equipment that is the school, so the provisions of this article can reflect the side of the hospital, the school can be used as a financial lease lessee.
In practice, some government agencies, institutions and social welfare units (such as hospitals, schools, etc., hereinafter collectively referred to as: the above institutions) due to the stable future cash flow, but does not meet the conditions of credit loans, but also the lack of collateral security, through the financial leasing to achieve the financing needs of more and more cases. In many cases of the People's Court, it has also recognized the legitimacy of the Financial Lease Contract entered into by the above institutions as lessees.
Therefore, the above organization can become a legal lessee in the legal relationship of financial leasing.
Typical circumstances and suggestions of the above organizations not recommended to be used as financial leasing leases
(1) In order to facilitate the exercise of the right of repossession by the financial leasing company, the properties of the above organizations which are not suitable to be used as collateral security are also not recommended to be used as financial leasing leases.
Refer to Article 19 of the Administrative Measures for Financial Leasing Companies: The leased property used in financial leasing transactions is fixed assets. However, at present, there is no relevant law in China to make a unified and clear definition of the scope of financial leasing leases.
Article 37 of the Guarantee Law and its judicial interpretation: schools, kindergartens, hospitals and other public institutions, social organizations for the purpose of public welfare, educational facilities, medical and health facilities and other public welfare facilities (hereinafter referred to as: public welfare facilities) can not be set up to mortgage security. The purpose of the legislation should be to maintain the social interests of the consideration, do not allow public welfare facilities at any time will be disposed of in the risk, and thus affect the normal social order.
Therefore, with reference to the aforementioned legislative intent, if the public welfare facilities of the above organizations are used as financial leases, and the lessee is unable to repay the rent, the financial leasing company, based on the identity of the financial leasing lessor and the owner of the public welfare facilities, may encounter obstacles in the process of applying for the retrieval of such public welfare facilities. If the financial leasing company carries out business with such public welfare facilities as the leased property, it is recommended that the financial leasing company require the said organization as the lessee to provide property of sufficient value to cover the leased property which is not used for public welfare purposes' as a guarantee.
(ii) The construction in progress of the said organization is not recommended to be used as the leased property for financial leasing.
In addition, it is worth noting that the construction in progress in the above organizations is not recommended to be used as leases under leaseback. According to Article 1 of the Interpretation of the Supreme People's Court on the Application of Law to the Trial of Cases of Disputes over Financial Leasing Contracts: The people's court shall, in accordance with the provisions of Article 237 of the Contract Law and in conjunction with the nature of the subject matter, the value, the composition of the rent as well as the contractual rights and obligations of the parties, make a determination of whether or not it constitutes a financial leasing legal relationship. For the name of the financial lease contract, but actually does not constitute a financial leasing legal relationship, the people's court shall deal with the legal relationship in accordance with its actual composition.
In practice, the construction in progress as a lease? Financial lease contract? Generally does not constitute a financial leasing contract relationship, because: 1. the construction in progress does not yet have legal ownership, so the financial leasing company as the lessor can not actually obtain the ownership of the project, which with the lessor during the lease enjoys the ownership of the leased property deviates from the characteristics of the leased property; 2. the construction in progress does not belong to the substantive meaning of the fixed assets, is not a legal subject matter of the financial leasing. However, if the leased property for the property has obtained the right certificate, the practice tends to find that it constitutes a financial lease contract relationship.
Therefore, it is suggested that the financial leasing company may consider to wait until the construction work in progress obtains the right certificate and then carry out the financial leasing business, in order to reduce the risk. If the financial leasing company has to carry out the business before obtaining the right certificate, the Financial Leasing Contract is likely to be recognized as a substantive ? Loan Agreement? In this case, it is recommended that the lessee be required to provide other effective guarantees to ensure the legitimate rights and interests of the financial leasing company as much as possible.
Typical Question 3
A company intends to apply to a financial leasing company for direct financial leasing of assets such as fire-fighting engineering equipment, gymnasium equipment, kitchen equipment, centralized air-conditioning equipment, teaching equipment, and electric power equipment, etc. (hereinafter collectively referred to as: the Subject Matters), to be used in the school invested by the company, and there may be demand for transferring part of the Subject Matters to the name of the school in the future. There may be a need to transfer some of the Subject Matters to the name of the school in the future. Now the financial leasing company intends to the company and the school as *** the same lessee, *** the same to the financial leasing company to fulfill the obligation to pay rent, and to achieve mutual? Guarantee? s purpose. Can the school become a *** same lessee? What are the legal risks of this project?
The school can become a *** same lessee, but the execution of the school facilities may be blocked in case of litigation due to the lessee's inability to pay the rent as agreed.
Now China's private schools through financial leasing to obtain the right to use the subject matter has not made clear restrictions or prohibitions, so it can be a financial lease *** with the lessee.
Similarly, China has not yet laws and regulations on creditors applying for the execution of private school property whether there are restrictions or prohibitions, but the Private Education Promotion Law, Article 3: private education is a public welfare undertakings. Article 37 of the Guarantee Law and its judicial interpretation: schools, kindergartens, hospitals and other public welfare institutions, social organizations, educational facilities, medical and health facilities and other public welfare facilities can not be set up mortgage security. The purpose of the legislation should be to protect the interests of society, do not allow the school's educational facilities at any time will be disposed of in the risk, which affects the normal teaching work of the school.
Therefore, with reference to the aforementioned legislative intent, if the subject matter of the educational facilities into the school for use, the lessee is unable to repay the rent, the financial leasing company in the process of applying for the implementation of this part of the educational facilities may encounter greater difficulties. The financial leasing company may consider reducing the teaching facilities by negotiating with the company to reduce the risk appropriately.
If the subject matter is transferred to the name of the school during the lease period, the financial leasing legal relationship between the financial leasing company and the lessee is changed, and the financial leasing company's request for continued payment of rent based on the financial leasing contract is defective
In the financial leasing legal relationship, the ownership of the subject matter shall belong to the financial leasing company. If the ownership of the subject matter is changed to the lessee during the lease period, the financial leasing contract relationship will evolve into a legal relationship between the financial leasing contract, the loan contract and the sale contract, which is difficult to be clearly defined. At that time, the financial leasing company, originally as the lessor, due to the loss of ownership of the subject matter, it is difficult to request the company, originally as the lessee, to continue to pay rent based on the agreement of the financial leasing contract, and there is a defect in the right of request. This will bring some risk to the financial leasing company to recover the rent in full.
In addition, a major feature of the financial leasing legal relationship, that is, the financial leasing company enjoys the ownership of the subject matter, so that the arrangement itself is for the financial leasing company in the early stage of the output of a large amount of money a kind of ? Property right security? The way. Consequently, it will be extremely unfavorable to the financial leasing company if it is unable to have the ownership of the subject matter after the payment of the subject matter to the supplier. Therefore, it is not recommended that the financial leasing company in the lease period to transfer the ownership of the subject matter to the lessee.
Currently, China's laws and regulations governing the financial leasing industry are not very comprehensive, and financial leasing companies carry out business, especially some innovative business, because it usually involves a large subject matter and a long period of time, they should hire professional lawyers to do a comprehensive and professional analysis of the feasibility of the project as far as possible, in order to reduce the legal risks, safeguard their own legitimate rights and interests, and to ensure that the business is carried out smoothly.
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