| Channel and financing businesses have long dominated China’s trust industry,with most commercial trusts pursuing short-term benefits via regulatory arbitrage,but they actually develop in a legal limbo.With the implementation of the new asset management rules and trust classification regulations,trust companies have begun their transition to “service-oriented” trustees.As a typical model of service trust,civil trusts are often used by high-net-worth individuals and families to preserve and distribute their assets,which exactly reflects the original characteristics of trust structure.The superiority of trust structure stems from a principle named “independence of trust property”,which means that once a trust is set to go into effect,the trust property can be shielded from current or potential creditors,reach safety and achieve bankruptcy remote.The independence principle has,however,consistently been tested.For one thing,the judicial position of the channel trusts is still unclear following the end of the transition period of the new asset management rules.Another huge hurdle for the judiciary is how to decide cases,in which the settlor’s creditors ask for executions against the trust property.That’s why the relationship between the settlor and its creditors is chosen in this paper,from three aspects of the external trust relations.There is no doubt that once the trust property is transferred,it shall be shielded first from the settlor’s creditors,which is just one primary cause of the conflict between the settlor and its creditors.Taking things a step further,while the trust helps the settlor to prevent unfixable loss,it may simultaneously impact creditors’ rights with the reduction of the settlor’s liability property.China’s Trust Law authorizes the settlor’s creditors to take measures of property preservation and execution,revoke the trust,and even ask for an annulment,which is intended to prevent trust abuse but may also weaken the value of the independence principle.No trust without the independence of trust property.For the sake of a balance of interests,trust abuse should be decided as an exception to the independence principle,and the attachment or enforcement of trust assets can only be justified when the settlor’s illegality is verified.Given that these relevant clauses are relatively vague,to enhance their feasibility and draw a line between the independence principle and its exception,reexamining the theories of trust systems and legal loopholes is therefore important.Basing itself on the above,this paper takes a step-by-step approach to making its case via the methods of literature review,normative analysis,and comparative research.Beginning with research on the formation of independence of trust property,it shall be a further understanding of the logic behind that this principle took root in Japan’s localization of “dual ownership” from common law,which was originally used to evade the rigid and unfair rules under the protection of the Chancery but can sometimes cause trust abuse.In the next part,by analyzing the connotation and effects of current trust rules,there is no doubt that independence of trust property is also accepted in China’s Trust Law,but some puzzles remain unsettled so far,among which the preconditions for a valid trust and the trust registration and publicity system are two key points.To some extent,these inadequacies do influence the effects of trust and leave certain room for law avoidance.At issue in judicial practice is whether the trust property remains the settlor’s personal property and the trust is actually abused as a means of liability avoidance.But it is obvious that the current rules are insufficient to establish uniform standards for adjudication.To establish the balance between principle and exception,clarifying the identification criteria of trust abuse and the boundaries of creditors’ relief rights is a must.As for trust abuse,this paper defines its limitations from objective and subjective perspective.Firstly,there are two key criteria for an objective loss: fair consideration and solvency.The trust set by an insolvent debtor can only be valid when fair consideration is obtained.Secondly,subjective malice can exist in two ways.For one thing,there is no real fiduciary intent in the case of a “sham trust”,and for another,the trust purpose is determined to be illegal,which must be supported by objective facts such as the degree of the settlor’s excessive control and insolvent within a short time.Some typical precedents of fiduciary fraud in Anglo-American law system countries can be used for reference in this section.Combining these cases with China’s legal context and judicial challenges,this part tries to put forward feasible suggestions for the trial.It is only when a trust is judged to be sham or illegal that the almsgiving measurements can be justified to protect creditors.For the proper exercise of rights,clarifying the effects of the two remedy notions provided by current trust law is vital,both for creditors and the courts.Once the appeal of an invalid trust is supported,the trustee shall return the trust property and all earnings to the settlor,which will break the independence of trust property.Therefore,the judicial decision must be extremely prudent and convincing.Comparatively,the effects of a revoked trust are still an issue,because of different interests involved in civil trust and commercial trust.This study holds the view that a civil trust can be declared void via revocation,but the legal force cannot be retroactively changed in a commercial trust involving the interests of public investors.As a result,the applicable range of the remedy is subject to the trust benefits but not the property,which can exactly balance the principle and exception. |
