Analysis Of The Legal Problems Of Forfaiting

Forfaiting is a new financing tool used in international deferred payment trade. In a forfaiting transaction, the exporter sells trade receivables evidenced by negotiable instruments to the forfaiter on a non-recourse basis, while the forfaiter provides finance to the exporter and undertakes all the risks involved in receivables collection. Forfaiting can greatly facilitate exporters by reducing trade risks and enhancing competitiveness in the buyer-oriented world market. In accordance with the practices and relevant legal systems, this thesis analyzes the main legal problems of forfaiting, in order to present a guide for China to develop such a financing service and improve relevant laws. The thesis divides into four chapters except for Preface and Conclusion.Chapter 1 clarifies the concept of forfaiting, introduces its origin and development, summarizes the features of forfaiting by making comparisons with other financing tools such as factoring and loan, then analyzes the advantages as well as the disadvantages of a forfaiting transaction to its parties, also specifies the legal relationships between the parties.Chapter 2 elucidates the legal basis of forfaiting. Firstly, through an analysis of the rights and obligations between parties involved in forfaiting, together with analyses of the operation and functions of forfaiting, it is ascertained that forfaiting is based on the assignment of trade receivables. Secondly, it is pointed out that the assignment of receivables in forfaiting differs from that commonly used in ordinary transaction, because it takes the form of transfer of negotiable instruments. Finally, pursuant to foreign and Chinese laws regarding negotiable instruments, this chapter expounds the transfer of forfaiting instruments in four aspects, i.e. the basic requirements for instruments, the transferability of instruments, methods to perform the said transfer, and legal effects of the transfer upon the parties of forfaiting.Chapter 3 probes into the non-recourse characteristic of forfaiting. After clarifying the meanings of non-recourse in forfaiting transactions, this chapter conveys the methods which may be adopted by exporters to accomplish non-recourse treatment under different laws, including foreign laws and the corresponding Chinese laws. Then, it expatiates on the relativity of the effects of non-recourse, with a further analysis of the conditions which should be satisfied by the exporter so as to enjoy thenon-recourse treatment.Chapter 4 analyzes the guarantees in forfaiting. It points out the advantages and disadvantages of three guarantee forms widely used in forfaiting, i.e. aval, demand guarantee and standby letter of credit. In respect of aval, it illuminates the requirements for an aval to be valid and the effects of a valid aval on the basis of relevant legal systems. As for demand guarantee and standby letter of credit, this chapter identifies both the common points and the different points between them, and makes comments on relevant Chinese laws.