Identification Of The Legal Effect Of Inter-enterprise Loan Contracts In China

With the development of China's market economy, the original single financing channel can not meet the needs of social development, so a large number of enterprises borrow funds from each between themselves for the purpose of financing. As for the legal effect of inter-enterprise loan contracts, although current laws expressly provide that such contracts are null and void, in practice the people's courts often apply the provisions of Article 52 (5) in the Contract Law of the People's Republic of China to rule that such inter-enterprise loan contracts are invalid. The recognition of the effect of inter-enterprise loan contracts and the change of unreasonable laws and regulations are of great significance to the development of China's market economy, and even the building of China's rule of law. Through the analysis of the legal effect of inter-enterprise loan contracts, this paper will demonstrate the effect of inter-enterprise loan contracts and put forward suggestions for the improvement of laws and regulations to regulate inter-enterprise loan contracts.In addition to the introduction and conclusion, this paper is composed of five parts.The first part is an overview of inter-enterprise loan contracts. The first point introduces the concept and the characteristics of inter-enterprise loan contracts so as to have them distinguished from the loan contracts between natural persons, individuals and financial institutions, and enterprises and financial institutions. The second point introduces the types of inter-enterprise loan contracts. Inter-enterprise loan contracts include the contracts directly in the form of loan contracts and the disguised loan contracts in the form of non-loan contracts.The second part describes the legal identification of inter-enterprise loan contracts. The first point introduces the provisions of the current laws and regulations on the subject scope of the lenders of loan contracts. From the Economic Contract Law, the General Rules on Loans, the Opinions of the Supreme People's Court on the Several Issues Involved in the Implementation of the General Principles of Civil Law of the Republic of China to the Contract Law, the subject scope identified of the lenders is gradually expanded in China. Now the subjects who can be engaged in financial loan businesses include the four major state-owned commercial banks, local commercial banks, foreign and joint venture banks, rural cooperative banks, small loan companies, some foundations within the framework of laws and regulations and with the approval by the people's governments as well as natural persons, excluding non-financial enterprises. The second point introduces the provisions of the current laws and regulations on inter-enterprise loan contracts. The current laws and regulations have different perceptions on the effect of inter-enterprise loan contracts. The Company Law recognizes the loan between the corporate legal persons, the Contract Law fails to make provisions on the validity of inter-enterprise loan contracts and other regulatory documents support or deny the effect of inter-enterprise loan contracts. The third point is the comparison of the effect of inter-enterprise loan contracts between the two legal systems. Civil law and common law countries do not always deny the loan between enterprises especially between companies and set conditions for the inter-enterprise loan. The fourth point introduces the treatment of inter-enterprise loan contracts by the judiciary organs in practice. In practice, the courts unanimously decide that inter-enterprise loan contracts are invalid and generally do not support the request for payment of interest and some courts even decide the collection of interest.The third part demonstrates that inter-enterprise loan contracts shall be valid. The first reason is that this reflects the principle of freedom of contract in the validity of inter-enterprise loan contracts, and the loan contracts concluded by the enterprises under the precondition of fairness and voluntariness shall be protected by the law. The second reason is that inter-enterprise loan contracts fall out of the circumstances provided by Article 52 in the Contract Law; the conclusion of the loan contracts does not impair the public interest, nor does violate mandatory provisions of laws or administrative regulations and such contracts fall out of the scope of the invalid contract.The fourth part elaborates the legal implications of the identification of the effect of inter-enterprise loan contracts. The identification of the effectiveness of inter-enterprise loan contracts is conducive to reflecting the principle of freedom of contract provided by the Contract Law of the People's Republic of China.The fifth part puts forward suggestions for the regulation of inter-enterprise loan contracts. The first is to strengthen the reform of the legislation. Drawing on the successful experience of other countries and the regulations and policies, gradually liberalize the prohibitory provisions on the inter-enterprise loan, quantify criteria, regulate the legal entry, improve enterprise credit system and formulate and improve relevant laws, regulations and rules. The second is to strengthen the government's reform and management. The government should set up registration authorities for inter-enterprise loan contracts to regulate inter-enterprise loan and approve necessary contracts and in the meantime speed up the reform of the financial system, especially the pace of the reform of the inter-enterprise financial system. The third is to reform operating ideas of commercial banks, that is, to reform marketing concepts, set up credit intermediate management companies to provide the necessary legal advice. The fourth is to elaborate several issues which need attention: related management of listed companies on how to prevent major shareholders from treating listed companies as ATM; and to prevent enterprises especially affiliated enterprises from using the inter-enterprise loan to avoid taxes.