China proposes revised procedures for registration of mortgages of moveable property

 New draft procedures to make information searchable online

On 3 December 2015, the State Administration for Industry and Commerce published proposed revisions to the 2007 Measures on Registration of Mortgage over Moveable Property for public comment ("moveable property" includes machinery, raw materials, semi-finished goods, finished products and any other property that is not affixed to land or other property, and excludes equity interests).

A key feature of China’s corporate landscape over the past two years has been the development of a publicly searchable online nationwide platform for the posting of a broad range of information in relation to companies registered in China (the "Platform"). The proposed revisions provide for registered mortgage information to be uploaded to the Platform, making this information searchable against the name of the mortgagor.

To recap, under PRC security law, while a mortgage is validly created upon the mortgage agreement taking effect, the mortgagee is required to perfect the mortgage by registration with the administrative authorities for industry and commerce at county level at the location where the mortgagor resides (the "Authority"). A third party with a registered mortgage interest who acts in good faith takes priority over a prior unregistered mortgagee.

To register a mortgage of moveable property, the following documents are required to be submitted to the Authority:

  1. the Registration Form for Mortgage of Moveable Property signed or sealed by mortgagor and mortgagee;
  2. the corporate establishment document or natural person’s identity document of mortgagor and mortgagee; and
  3. the identity documents of the applicant for registration (who must be a natural person appointed by the mortgagor and mortgagee).

The form of the registration form is attached to the 2007 measures. The following information needs to be set out on the registration form:

  1. name and address of mortgagor and mortgagee;
  2. name, quantity, quality, status, location and ownership (or right to use) of the mortgaged assets;
  3. the amount of the liability being secured;
  4. the scope of the security;
  5. the security period;
  6. the name of the applicant for registration;
  7. the signature or seal of the mortgagor and mortgagee; and
  8. other information which the mortgagor or mortgagee may consider necessary.

The proposed revisions require the Authority to upload information contained on the registration form to the Platform within 20 business days of registration of the mortgage.

Under the proposed revisions, the parties to a mortgage should also file changes to, or termination of, the mortgage agreement with the Authority. As the mortgage information is publicly searchable, the mortgagor would have a natural incentive to ensure that the registration is duly updated. The parties to a mortgage may apply to correct the information filed with the Authority, and the Authority is also empowered to change registered information on the basis of an effective court judgment.

Reference

Measures on Registration of Mortgage over Moveable Property (Draft for Consultation), State Administration for Industry and Commerce, 3 December 2015