Legal Study On Cross-border Sale And Leaseback

Cross-border sale and leaseback transaction, meaning a company sale its asset to an outbound territory then lease it back from the outbound buyer, is a new form of transaction under the prevalence of international financial leasing practices. Witnessed by a rapid development of international financial leasing industry, cross-border sale and leaseback transaction has already become one of the regular forms of international financial leasing. However, financial leasing industry in China started really late, the legal status of sale and leaseback has not been recognized until February 2014, when the Supreme People’s Court promulgated “Interpretations of the Supreme People’s Court on the Application of Law in the Hearing of Cases of Disputes over Financial Leasing Contracts”. In recent years, financial leasing in China has been developed to its peak time, and an increasingly number of companies pay their attentions to this industry, especially sale and leaseback transaction which constitute the major volume of trade in domestic financial leasing transaction in China. Nevertheless, strict rules and regulations of foreign exchange control and foreign debt makes it difficult for companies in China to finance outbound. And that’s what make cross-border sale and leaseback more attractive to the currency-in-need companies.On the one hand, companies which used to finance through overseas lending secured by domestic guarantee and other forms of cross-border guarantee, hope to broaden their ways of financing and to invigorate its assets through cross-border sale and leaseback, on the other hand, China has never witnessed an inbound cross-border sale and leaseback transaction, and there aren’t sufficient legal rules and regulations to regulate cross-border sale and leaseback transaction. This thesis aims at analyzing the international law and domestic law which regulated cross-border sale and leaseback in China, and it consists of five parts including introduction, conclusion and three chapters.Chapter I briefly introduced the concept of financial leasing, sale and leaseback, international leasing, and cross-border sale and leaseback, demonstrated the financial character of cross-border sale and leaseback, as the foundation of defining cross-border sale and leaseback and analyzing its legal regulations. What’s more, Chapter I summarized the current status of sale and leaseback, and cross-border financing transaction via cases regarding to overseas lending secured by domestic guarantee and other forms of cross-border guarantee, thus lead to the legal question of rules and regulations on cross-border sale and leaseback in China. Unlike traditional international financial leasing, “Convention on International Financial Leasing”, “UNIDROIT Model Law on Leasing” is not binding on cross-border sale and leaseback, which makes cross-border sale and leaseback have less applicable law to follow. In different jurisdictions, the same cross-border sale and leaseback transaction could be identified as different categories of traction in law, but the author hold that regardless of the differences of laws in each jurisdiction, cross-border sale and leaseback transaction should fall with the category of financial services.Chapter II analyzed legal rules and regulations on cross-border sale and leaseback from the perspective of both international law and domestic national law. Substantial laws of cross-border sale and leaseback have not been made on the international level. From the perspective of international law, the thesis analyzed China’s promises and particular duty of opening cross-border sale and leaseback market in the form of cross-border supply under GATTS and Financial Service Agreement. Cross-border sale and leaseback transaction in question should be classified as financial services, and according to the accession documents of China, especially the annex 1B of the general agreement on trade in services, China has not made any commitment on the opening of financial leasing market in the form of cross-border supply. Thus, the thesis comes to a conclusion that China has no obligations to open the market of cross-border sale and leaseback under international law. On a national basis, and from comparative law perspective, this thesis summarized legal rules and regulations of various states on financial leasing and cross-border sale and leaseback. A same cross-border sale and leaseback transaction could be deemed as financial leasing, or sale with secured interests, hire purchase, and other forms of non-financial leasing transaction. Based on experiences of other states, support from governments in the form of favorable policies and complete legal system of financial leasing is the prerequisite for the development of financial leasing industry. Since cross-border sale and leaseback is in its infancy in China, it should be tightly-regulated in the near future, in order to guarantee a sound development of cross-border financing market.Chapter III sorted out the legal framework which includes currently applicable legal rules and regulations on cross-border sale and leaseback in China, further studied the defects of legal rules and regulations on cross-border sale and leaseback in China, and the cause of it. The legal basis regulating cross-border sale and leaseback in China is consists of “Contract Law of People’s Republic of China” and “Interpretations of the Supreme People’s Court on the Application of Law in the Hearing of Cases of Disputes over Financial Leasing Contracts.” The provisions in those laws are general, and lack of specific guidelines for defining a sale and leaseback transaction. As a result, the thesis comes up with suggestions to improve the legal rules and regulations on cross-border sale and leaseback in China accordingly. First, open the capital account with steady steps. Second, the financial characters of sale and leaseback should be expressly provided in laws. Third, refine and improve the regulatory regime of cross-border sale and leaseback in China.Conclusion part articulated that cross-border sale and leaseback transaction is only a form of international financial leasing, and current rules and regulations in China are in lack of the appropriate standard by which to evaluate whether a leaseback is true financial leasing, but overall, cross-border sale and leaseback transaction in a good faith of financing purpose should be considered as international financial leasing, and the substantial characters of that kind of financial leasing should be categorized as that of international commercial loan. Given that cross-border sale and leaseback transaction in essence is contractual arrangements between non-state parties, even though it has its financial feature, in the future of improving and reconstructing of legal framework of cross-border sale and leaseback in China, the author suggested that choosing alternative and complementary rules to regulate cross-border sale and leaseback instead of using mandatory or imperative regulations to limit cross-border sale and leaseback transaction should be the general principle of refining rules and regulations of cross-border sale and leaseback in China.