Study On The Legal Elements Of "True Sale" In Asset Securitization

“True sale” accomplishes a separation of the asset and the property of originator’sestate in event of its bankruptcy, and is the requirement for asset transfer operatingsuccessfully. Based on the practice of asset securitization at home and combined withthe laws and regulations related to “true sale”, the thesis deals with the legal issues of“true sale”, which includes five parts.The first part is about the way to transfer asset. A proper way to transfer is thefoundation for “true sale”. Four ways are mainly used in the securitization practice athome and abroad. These ways are renovation, sub-participation, assignment and trust.In accordance with China’s legal environment and market practice, assignment andtrust are suggested.The criteria of “true sale” are discussed in the second part. At the beginning ofthis part is the legal context of “true sale”. This thesis holds that the “true sale” refersto the bankruptcy remoteness. That is to say, it creates a separation of the asset and theproperty of originator’s estate in event of its bankruptcy after the originatoreffectively transfers the asset to the SPV. With regard to the criteria of “true sale”,there’re two most prominent positions. One is substantive standard, and the other isformalism. Substantive standard focuses on the economic essence of the transactionwhile the point of the formalism is the principle of autonomy of will. For our country,in light of the feature of the initial stage of asset securitization and some experienceget from trial stage，it is wise to choose the substantive standard.The third part involves the legal elements of “true sale”. There exist some accounting rules about “true sale” which are specified in 《Accounting standardNO.23for enterprise》 and 《The supervision and regulation of credit loansecuritization for financial institutions in trial stage》. But it is not certain whatconstitutes a bankruptcy “true sale”. This paper describes3legal elements of “truesale”: Ⅰ.effective conveyance; Ⅱ. both parties reach an agreementon conveyance;Ⅲa separation of the asset and the property of originator’s estate in event of itsbankruptcy. However, some deals that don’t conform to rules of “true sale”, may facethe risk of recharacterization, retrieval, revocable transaction and commingling.The fourth part deals with the counter requirement of “true sale”. This thesisargues that the fact of conveyance should be known by some means to the public onaccount of the interest of investors involved in issuing securities if “true sale”intends to have an effect against any third party. And it is necessary to form the rulesof publicity for transfer of asset. This thesis insists that the registration is a suitableway for the publicity of assignment and trust.The final part is to analyze the “true sale” problem in a practical level. In assetsecuritization practice, there’re two typical mode: credit loan securitization andspecific asset management project. Credit loan securitization employs the trust as theway to transfer assets. Although some problems need to be resolved, the asset transferin the practice of credit loan securitization can be identified as a true sale. By contrast,the situation of specific asset management project is a little complicated. The factorsaffecting the “true sale” are assets based on the rights to earning, counter guaranteeprovided by the originator, commingling of proceeds, right to redeem and Retentionof Option to Repurchase, the originator’s promise to recover, the bankruptcy risk ofthe manager of project and the irrationality of limiting the security company toprovide the trust service.