Analysis Of The Nature And Effectiveness Of The Balance Replenishment Agreement

As a credit enhancement measure,the balance replenishment agreement is widely used in the field of debt and investment financing,and in judicial practice,disputes relating to the balance replenishment agreements are increasing.Throughout all the retrieved cases,it can be found that the disputes relevant to the balance replenishment agreement mainly focus on its nature and the issue of efficacy recognition.The nature and validity of a balance replenishment agreement is closely related to the type of agreement.In the field of creditor’s rights and liabilities,the balance replenishment agreement signed by a third party is usually deemed as constituting a debt addition or guarantee contract,and its efficacy shall be adjusted by the provisions pertinent to guarantee and debt addition.In the area of investment and managed products,the third party’s agreement to make up the difference should be an atypical guarantee,and if the third party is a company,it is subject to the rules on external guarantees of the company,while the balance replenishment agreement between the subordinated beneficiary and the senior beneficiary is an independent agreement,and the thinking on its validity changes to determining whether the third party or the subordinated beneficiary’s arrangement to guarantee the capital and income of the senior beneficiary or rigid payment is valid.The validity of the arrangement is determined by the validity of the guarantee of capital and return or rigid payment made by the third party or the inferior beneficiary to the senior beneficiary.In this regard,in addition to the financial institutions as the main body to the investors to make the ex ante capital preservation and income guarantee commitment or rigid payment due to violation of laws and regulations and invalid,financial institutions and other subjects in the ex post agreement or reach a de facto rigid payment behavior should not be easily ruled as invalid,judicial respect for regulatory rules,but also to prevent the judicial regulation of financial.For the distinction between guarantee and debt addition,judicial practice should give priority to the rules of interpretation to explore the true intention of the parties,and apply the presumption rule if no conclusion can be reached on the basis of reasonable application of the rules of interpretation.When applying the rules of interpretation to the agreement in question,the contextual interpretation should take precedence over other interpretations,focusing on whether the contract in question is independent.In addition,Article 552 of the Civil Code introduces for the first time a system of addition of debt in the form of a law,but the subsequent regulation of the system of addition of debt is yet to be improved,as it can be applied by analogy to the general rules relating to the guarantee system in the guarantee contract,but not to the unique rules of the guarantee contract.