Research On The Sequence Of Payment In Floating Charge

The floating charge system originated in Anglo-American law system, and gained considerable development in the fertile land of countries with a law system of common law. The development is mainly due to the special advantage of the floating charge. It gave a financing chance to the companies which were unable to get loans through traditional mortgage. Then this kind of enterprises can use the existing and future property as collateral to finance. The floating mortgage system in civil law has been lagging behind. China, as a member of civil law, has not introduced the floating charge system into her law structure until the launch of The Property Law.The Property Law Article181and its supporting provisions Triggered a research wave of floating charge system. A large number of papers sprung up during this period. This paper, which is on the basis of previous research, will study the following points in the view of sequence of payment when the floating charge is conflicted with other rights:the immunity of " buyers in the ordinary course of business "; the payment priority between the floating charge and the purchase money security interest(PMSI); the sequence of payment of floating charge with restrictive terms; the payment order of floating charge in bankruptcy process. The article is divided into the following six parts:The first part demonstrates that the floating charge system exists under the legal framework of China. This section analyses two different theories about the existence of floating charge in China. Then point out that floating charge is widely accepted in Chinese financing and judicial practice. On the basis of the theoretical and practical analysis, the author concluded that floating charge has already established in Chinese law system, which provide a premise for the further discussion.The second part discusses the significance of research on sequence of payment of floating charge. On the basis of defining floating charge’s sequence of payment, this part elaborated the significance of study on this matter in the following perspective: theoretical research on this question was vacant, there are some gaps in the floating charge legislation, and the establishment of sequence of payment in floating charge is very significant.The third part of this paper introduces the order of payment between floating charge and the rights of buyers in the ordinary course of business. The principle of dealing this matter is the immunity of "buyers in the ordinary course of business" This principle applies with the following exceptional circumstances:The subject of ordinary course of business is buyers rather than seller; The body of setting the floating charge is not the seller.The fourth section of this article elaborates the payment priority between the floating charge and the purchase money security interest (PMSI). After the introduction of the purchase money security interest system, the paper clarifies the super priority of PMSI. Then the author explains the reason of the super priority of PMSI, and also lists the restrictions on super priority.The fifth part of this paper introduces the sequence payment of floating charge with restrictive terms. The author defines the right under restrictive terms as contract right rather than the right of guarantee, then analyzes the two criteria on whether floating charge with restrictive clauses is preferred to the traditional mortgage. At last, the article points out the limitation to the effect of restrictive terms.The last section of this article elaborate the payment order of floating charge in bankruptcy procedure. After citing the regulation on this matter of the extraterritorial law, the author points out that the key of setting priorities under Chinese law framework is to judge whether the floating charge can be the fundamental rights of exemption right. Through analysis of two controversial views on this matter, the author makes a conclusion that floating charge constitute the fundamental rights of exemption right and should be payed in priority during the bankruptcy procedure.