What is Property Preservation under Civil Litigation Procedure in China?
In China’s civil and commercial dispute resolution process, Property Preservation is a crucial measure to prevent the malicious transfer of property to evade debts. It acts as a vital protective barrier during litigation or arbitration, exerting pressure on the defendant and compelling it to fulfill its debt obligations. This article offers a clear analysis of its value, scope, and common misconceptions.
1. Why is Property Preservation Necessary?
A primary concern when litigating or arbitrating in China is winning the case only to discover that the opposing party has surreptitiously dissipated or transferred key assets essential for enforcement. The core function of Property Preservation is precisely to mitigate this risk. It allows a party to apply for property preservation to the court when filing the case, seeking preliminary restrictive measures against the respondent’s assets.
The core value of Property Preservation：
- Preventing Asset Transfer: Measures such as freezing bank accounts, sealing real estate, or impounding vehicles effectively prevent the opposing party from transferring, concealing, or selling off assets.
- Securing Future Enforcement: It preemptively identifies and secures assets that can satisfy a future judgment, thereby avoiding the predicament of a “hollow judgment”–winning the case but being unable to collect.
- Applying Performance Pressure: Preservation measures can significantly disrupt the respondent’s business operations, incentivizing them to proactively seek settlement or fulfill their obligations.
- Facilitating Dispute Resolution: It creates a more advantageous foundation for settlement negotiations, mediation, or other Alternative Dispute Resolution (ADR) mechanisms.
2. What Assets Can Be Preserved?
According to the relevant provisions of the Civil Procedure Law of the People’s Republic of China (CPL, 《中华人民共和国民事诉讼法》) and its Judicial Interpretations, the primary categories of preservable assets include:
- Bank Accounts:Freezing deposits is the most common measure, can directly restrict the transfer of deposits in the bank account.
- Real Estate: Propertiesand land use rights can be sealed, prohibiting sales, mortgages.
- Stocks, Bonds, Fund Units:Can be frozen through relevant registration and clearing institutions, restricting transactions.
- Vehicles, Vessels, Aircraft:Can be sealed and restricted for sales and mortgages through the relevant traffic control, vessel, or aircraft registration authorities.
- Equity/Investment Interests:Shares in limited liability companies, partnership interests, etc., can be frozen, restricting transfer and, depending on the scope of the application and the court’s ruling, the exercise of shareholder rights.
- Machinery, Equipment, Raw Materials, Inventory/Goods:The court may move the above items to a designated place and seal them up, restricting the transfer of anyone.
- Intellectual Property Rights:Proprietary rights within patents, trademarks, and copyrights can be frozen, prohibiting assignment or licensing.
- Cash Value of Insurance Policies (if enforceable):The cash surrender value of policies that have such value and are legally subject to compulsory enforcement can be frozen.
- Accounts Receivable:The court can notify the account debtor (the third party owing money to the respondent) to perform its payment obligation directly to the court.
- Rental Income:The court can order tenants to pay rent directly into a court-designated account.
- Other Property-Value Rights:Any rights possessing transferability and monetary value, such as future revenue arising under specific contracts, may theoretically be subject to preservation (subject to case-specific analysis and court approval).
3. What Should We Provide for Property Preservation
（1）Application letter for property preservation
（2）Property Clues:
- Bank Account: we need to provide the court with the bank account number of the respondentwhen applying for preservation. If you are unaware of the bank account number, you may consult with us for assistance in checking.
- Real Estate:the detailed address of the real estate is required to be provided
- Machinery, Equipment, Raw Materials, Inventory/Goods:we need to provide the location, product name, quantity, model, brand or other related information.
4. Liability for Wrongful Preservation
Property Preservation is a sharp “double-edged sword.” If applied for improperly or excessively, the applicant bears corresponding liability for damages. This is why courts usually require applicants to provide sufficient security when applying for property preservation. The form of security can be cash security (usually 30% of the amount preserved) or a guarantee letter a qualified institution (such as an insurance company or guarantee company)
The primary scenarios triggering liability include:
- Compensation after losing the case:If the applicant ultimately does not prevail on the claim for which preservation was sought, they are generally liable to compensate the respondent for all losses caused by the wrongful preservation. For example: Company A wrongfully freezes Company B’s bank account, causing B to lose a crucial business opportunity. A must compensate B for lost profits and potential reputational damage.
- Excessive Preservation:Even if the applicant partially wins the case, if the value of assets preserved significantly exceeded the amount ultimately awarded by the court (e.g., freezing ¥10 million but only winning ¥2 million), the applicant is liable for damages caused by the excessive portion of the preservation.
- Failure to Timely Lift Preservation: Once the grounds for preservation cease to exist (e.g., the claim is dismissed, the parties settle and the settlement is performed), the applicant has an obligation to promptly apply to the court to lift the preservation measures. Failure to do so resulting in additional losses renders the applicant liable for those expanded damages.
- Scope of Compensable Losses: Liability may cover direct property damage (e.g., operational losses due to wrongful frozen accounts, increased financing costs, losses from forced asset sales at depressed prices), lost profits (expectation damages), and, in extreme cases, indirect losses like reputational harm.
Conclusion
Property Preservation is a potent procedural tool within the Chinese legal system, significantly reducing the risk of “enforcement difficulties”. Given its high degree of technicality and the potential for significant liability consequences, it is strongly advisable to seek legal advice from qualified Chinese lawyer before applying for Property Preservation.
A experienced lawyer can help you:
- Investigate the assets of the defendant.
- Analyze the chance of the case and the risk of property preservation
- Gather necessary evidence.
- Prepare and arrange sufficient and appropriate security.
- Strategically navigate the application process to maximize the protective benefit.
- Minimize the legal risks associated with wrongful or excessive preservation.
Through careful planning and expert guidance, this “double-edged sword” can be effectively wielded as a robust shield to safeguard your legitimate rights and interests in China.
Saway Wang
Email: sawaywang@billionslawyer.com
Tel/Whatsapp: +86 18017682422
