Debt Collection in China
By Sun Jin(Marlow), Chinese attorney at Law, Zhejiang Xinmu Law Firm, republishing this article please indicate author and source of this article. March. 2, 2012
1. Who can help you to collect your debts legally in China
In China, only licensed law firms and licensed lawyers can help you collect your debts from China.
In 1995, National Public Security Bureau and State Administration for Industry and Commerce issued together one regulation prohibiting organizations and individuals to set up Debt Collection Companies. The theory base of this regulation is, debt collection and recovery is a sort of law service, and only licensed Chinese lawyers are allowed to offer clients with Chinese law services. And in 2000, State Economic and Trade Commission (under National People's Congress), National Public Security Bureau and State Administration for Industry and Commerce issued together another notice named “fighting against illegal debt collection companies severely”. In fact, if according to the 1995 regulation, all debt collection companies in China are illegal.
Before this regulation of 1995 was issued, individuals and organizations may set up debt collection companies in China, and help clients with their debt recovery. However, some of their debt collection methods were not professional, and even illegal. One typical method is, to send several persons or to hire and send around 10 unemployed persons to the house or office-site of debtor, and sitting there to have a party, and they will not leave unless the debtor agree to manage to pay the debt. And some of their debt recovery methods are more violent, like threat, deceiving, extortion and even kidnapping.
2. How to recover your debt legally?
The standard operation procedure of debt collection via legal actions shall be:
a. Study the materials from debtee, and when in need the lawyer will do pre-investigations on the situation of the debtor, like whether and where it’s registered, whether one off-shore company, and registered capital, address and so on of the debtor.
b. Decide the nature of the case, if the case is a civil case (dispute) over nature, then come to step c. If the case is a criminal case over nature, then organize up the documents and help debtee to file one criminal case in a related police bureau in China.
c. Lawyer’s letters(claim before legal actions and/or final claim before legal action) to the debtor, and if the debtor opens to it, carry on further negotiations with him so as to reach one out-of-court agreement, requesting him to pay the debt.
d. In case the letter does not work, or negotiations do not lead to one out-of-court agreement, the lawyer will file one litigation or arbitration case on behalf of debtee.
3.Types of debts
a. Debt caused by Contracts. This is the most-often-seen type of debt. For example, when importer and exporter signed one sales/purchase agreement, the importer makes the payment fully, but the exporter does not deliver the cargos, or delivered defective cargos, when the importer will become debtee and exporter will become debtor. Or on the contrary, the exporter delivered the cargos, but the importer does not make the payment, when the exporter will become debtee and importer will become the debtor.
b. Debt caused by Unjust Enrichment. For example, A and B is negotiating a deal of sales/purchase via email and is coming to a deal, A is the buyer and B is the seller, a hacker hacked into the business email of B, or use a very-similar email to B’s email, and sent the bank account of C to A, requesting A to pay the money of deal between A and B to C. A accepts the instruction, and pays the money to C, (and later may find that the email was not from B at all, but a very-similar email) . In this situation, A may claim the money against C over civil law principle of Unjust Enrichment.
c. Debt caused by Management of Affairs without Mandate.
d. Debt caused by Infringement of legal rights.