Legal Research On The Commercial Pledge Of Accounts Receivable

The pledge of accounts receivable came into being in China and witnessedrapid development in the last ten years. However, the recent legislation can hardlymeet the demand of the economic and financial development. The dissertationattempts to make the legislators and the relevant staff in this field to be aware of thepositive significance to the development of market economy so that the concept ofcommercial pledge will be formed and relevant legislation and regulation will beconstructed and perfected.Firstly, the development of the pledge of accounts receivable has been closelyrelated to the economy from the history of the legislation of the pledge and moderncreditor’s rights pledge system. From early times when Chaldaic offered pledge asthe object and the other forms of pledge such as trust、pledge and mortgage appearedin Rome to contemporary times when continental European countries set up thesecurity for an obligation and UK and America established the pledge of accountsreceivable, these are all the outcome of the corresponding economic and socialdevelopment as well as the reflection of the evolution of human civilization in thesense that people’s autonomy and creativity to legislation development nourish theprosperity of economy in return. In the meantime, the accounts receivable, as theproduct of modern commerce, bears the features of typical commercial pledge and itdifferentiates itself in the direct goal and values orientation in that the former aims atfinancing and gaining profits while the latter belongs to ordinary consumption; thevalue orientation of the former is convenience and efficiency and the latter is fairness.Therefore, we ought to build the concept of commercial pledge in accordance withthe legal system of combination of civil and commercial laws and to construct a setof laws and regulations of the pledge of accounts receivable.Secondly, accounting accounts receivable refer to the commercial subject enjoys the rights of claim for currencies such as providing the payment, givingservice fees and offering rent because of selling goods, offering services, rentingproperties to the other subject. The definition of accounts receivable iscomparatively broad in legal sense as the American Uniform Commercial Codeprovides eight specific forms for the definition. The floating pledge of Britain andthe general creditor’s rights pledge of the continental law system expand the scope ofthe pledge rights. In China, the accounts receivable in its legal sense is more generalthan the same term in its accounting sense in that this is due to the demand offinancial practice and the influence of Anglo-American law system. But theregulation of the accounts receivable in China has two major flaws. The first one isthe fact that the law level of the interpretation of the People’s Bank of China is lowwhich will lead to the dispute about pledge validity. The second is that the enclosingand listing legislation of the pledge rights and the accounts receivable will become abarrier to the economic development and financial innovation. We suggest that weshould clarify the types of the accounts receivable that can be pledged in terms oflaw、administration and judicature to avoid disputes. The second suggestion is thatwe should define the accounts receivable and creditor’s rights pledge in more openand general sense to facilitate the financial innovation and economic booming. Weshould regulate the rights of charging which is unique in China in a special way andinclude the rights that are not forbidden by law for example, the general creditor’srights can be regarded as the rights of pledge as long as the following threerequirements are satisfied: being able to be converted into currency capital, not beingpersonal, not being forbidden by law.Thirdly, the pledge of accounts receivable contract bears the characteristics ofguaranty contract, namely, dependency, complementary, independent guarantyfeatures due to its commercial property. In its contract we should pay attention to thefollowing problems: although there is not limitation on the identity of the subject of the contract in China, non-profit organization can’t be taken as the pledgor nor thepledgee of the contract and its operation can’t go against its identity; for some typesof creditor’s rights, they should compose the following four factors: the companiescan’t set the pledge of accounts receivable against the procedure prescribed by thelaw; the charging rights of the real estate shall at least comply with relevantadministrative permission, the service provided has the nature of public service, theservice bears the feature of binding and cash income is relatively stable. Besides, weshould regulate the behavior of the secondary obligator and the obligation inpractice.Fourthly, the classification of general creditor’s rights pledge into “delivery ofcreditor’s rights certificate”,“notification of the secondary obligator” and“registration” in continental law system has its strengths and weakness; America’saccounts receivable registration and UK’s floating guarantee registration systemadapt to the modern commerce development well representing the tendency ofcommercial pledge publicity system. Our country draws lesson from the twocountries, but there are many flaws to be perfected. In details we should establishspecific registration institutes; set up the publicity mode of “registration+notification of the secondary obligator”; the transfer of accounts receivable of thenon-bank general commercial subject should be registered; the pledgor instead of thepledgee should be the side to apply for the registration; we should also clarify theorder of rights when dispute arises; the validity of registration should be cohesivewith the term of legal real rights for security.Finally, the implementation of the pledge rights of accounts receivable hasparticularity, in addition to enjoying the priority of compensation with regard to theselling price, they can also claim rights to the secondary debtor directly. We shouldpay attention to the legal risks and validity risks coming from the external pledge ofaccounts receivable, risks of registration rules, conflicts arising from potential rights. In respect to the internal legal risks, we ought to be aware of the risks of basiccontracts, risks from the secondary debtor and the pledgor, risks from the accountingregistration methods. In order to prevent these risks, it is a must to perfect therelevant laws and regulations. On the top of the list, we should establish propercommercial pledge concept to place the commercial subject in its special positionand to grant the subject sufficient authorization as well as proper attitude to theprofitable behavior of the commercial subject. On the basis of the above we ought toclarify the objects and the scope of the legislation of the pledge of accountsreceivable and differentiate the pledge of accounts receivable with the pledge of realestate in the legal sense. The pledgee should prevent the risks coming from therelevant sides in the transaction of the pledge of accounts receivable and selectsuperior accounts receivable on the basis of perfecting internal manipulation andenhancing legal review procedure. We should also standardize the pledge contract,clarify the registration terms of the pledge of accounts receivable, prescribe theoriginal documents provided by the pledgor to the pledgee, and prescribe thenotification obligation of the pledgor. The debtor should give specific announcementand promise as well as offering detailed prescription of the liability of breach toprevent the risks of fraud and violation.