Balance Of Interests In Enforcement Challenge Claims Under Equity Cession Security Arrangements

In judicial cases of equity execution objections,if an outsider precludes a creditor from enforcing enforcement on the basis that he or she is the actual owner of the equity interest,the enforcement court will,in accordance with the relevant provisions of the Provisions of the Supreme People’s Court on Several Issues Concerning the Handling of Execution Objection and Reconsideration Cases by the People’s Courts,determine whether the outsider is the equity interest in accordance with the registration of the industrial and commercial administration authorities and the information published in the enterprise credit information public disclosure system.right holder.If the outsider is not satisfied with the ruling made by the enforcement court,he or she may file a lawsuit against the enforcement in order to confirm the substantive ownership of the equity interest in the trial proceedings.In the framework of the equity transfer guarantee,as the guarantor registers the transfer of the equity in the name of the guarantor,the guarantor becomes the "nominal shareholder" of the equity and the guarantor is the "de facto shareholder" of the equity,and the inconsistency in the appearance and substance of the attribution of the equity The inconsistency between the appearance and substance of the ownership of the equity interest has led to a large number of disputes over the true ownership of the equity interest and its related rights in the context of enforcement as represented by the determination of the actual ownership of the equity interest.Disputes that may arise during the enforcement phase of a security transfer of equity focus on two levels: firstly,whether the guarantor can file an enforcement challenge on the basis that it is the actual owner of the "nominal equity" registered in the guarantor’s name when the creditor of the guarantor applies for enforcement,and whether the court should uphold the guarantor’s enforcement challenge.In light of the current law and the decisions on disputes over shareholdership in equity transfer guarantees,the prevailing view is that the guarantor in an equity transfer guarantee is essentially only a creditor entitled to the equity security,not a legal shareholder of the company,and that the ownership of the equity still belongs to the guarantor,and therefore the creditor of the guarantor will face the risk that the guarantor will object to the enforcement of the equity when it applies for enforcement.Risk.Secondly,whether other creditors of the guarantor are entitled to apply for enforcement of the "ceded security interest" if they prove,on the basis of conclusive evidence,that the subject equity interest was only used as security and not transferred in good faith,and whether the guarantor can use its priority right to block enforcement.In this regard,the prevailing court decision is that the security right holder’s right to priority of payment can be protected.It goes without saying that the key to resolving such disputes lies in the determination of the ownership of the underlying equity in the framework of a security by way of a transfer of equity.Whether the security right holder acquires the status of a shareholder in the legal status of the security interest in a transfer of equity requires an examination of whether the registration of a formal transfer of the equity interest to the security right holder will have the effect of a change in the equity interest.The secured claim is merely the motive for the transfer of the equity interest and this motive does not actually affect the effectiveness of the content provisions of the contract of transfer of the equity interest and therefore the legally valid meaning of the transfer of the equity interest should be recognised.From the company’s recognition of the effective mode of equity changes,the equity transfer contract is effective and in the form of the company’s shareholder register,industrial and commercial change registration for recognition,the transferee is successfully become a shareholder of the company,so in the legal form of the security right holder to obtain the shareholders qualification.However,in the internal relationship between the transfer of equity and the guarantee,the actual exercise of equity by the security right holder must be limited to the scope of the realisation of the claim and is subject to the substantive security purpose,and the exercise of equity beyond the scope of the security purpose will be liable to the guarantor for breach of contract.Current civil law regulates the security of an equity transfer as an atypical security,addressing only the internal contractual effectiveness of the guarantor and the security right holder,but not the external legal relationship.According to Article 68 of the Interpretation of the Supreme People’s Court on the Application of the Civil Code of the People’s Republic of China to the Security Regime,after the parties have completed the "publicity of the change of property rights",the creditor is entitled to priority payment for the property by reference to the provisions of the security right.In the case of a security interest transfer,the term "change in property rights" refers to the registration of a change in the transfer of the equity interest,but corporate law as an organisational law is subject to strict appearanceism and the effect of the registration of a change in the equity interest will go beyond the function of creating a security right,thereby enabling the creditor of the security right holder to rely on the public information that the equity interest is the security right holder’s This would enable the creditor of the security right holder to enforce the equity in the event of the security right holder’s refusal to meet its obligations as they become due,based on its reliance on the public information that the equity is the property of the security right holder.The appearance doctrine protects the security of transactions not in relation to a specific transaction,but in relation to the convenience,efficiency and stability of the overall commercial transaction environment,and therefore has scope for application in disputes over the enforcement of security interests.In order to avoid the risk of enforcement by the creditor of the guarantor of the security interest and to return the security interest to its essence,the meaning of the security interest should be disclosed at the same time as the registration of the change in the security interest in order to limit the application of the appearance doctrine.Where both the guarantor and the external creditor of the guarantor apply for enforcement of the subject equity interest,a judgement needs to be made as to the order and degree of reliance placed on the fact that the equity interest is held by each party and priority should be given to protecting the party with the greater reliance interest.