Viewpoint... The issue of the effectiveness of the pledge of margin accounts.
Published:
2024-03-04
There are different views and interpretations on the validity of the pledge of the margin account, the nature of the pledge of the margin account, and the validity of the establishment of the pledge of the margin account, whether at the level of interpretation provided by law or at the level of judicial practice. In this paper, the author will be based on China's first legal provisions, combined with some cases of judicial practice, the above-mentioned issues are discussed.
Foreword
In recent years, with the development of China's market economy, the connotation and form of financial-related business has also been developed and innovated. In recent years, the number of margin account pledges in the financial business under the market economy has been increasing year by year, and the pledge of margin accounts has been favored by creditors, especially in the financial industry, because of its convenient establishment, relatively stable value of the subject matter of the pledge, and more convenient way to realize the pledge rights. However, there are different views and interpretations on the validity of the pledge of the margin account, the nature of the pledge of the margin account, and the validity of the establishment of the pledge of the margin account, whether at the level of interpretation provided by law or at the level of judicial practice. In this paper, the author will be based on China's first legal provisions, combined with some cases of judicial practice, the above-mentioned issues are discussed.
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The legal basis of the pledge of the 1. margin account.
The relevant legal provisions of the pledge of (I) margin accounts.
The pledge of margin account belongs to a new type of guarantee arising from practice, and since the beginning of its birth, there has been no established legal provision to regulate it. Article 85 of the Interpretation on Several Issues Concerning the Application of the the People's Republic of China Guarantee Law (hereinafter referred to as the "Interpretation of the Guarantee Law") issued by the Supreme People's Court in 2000 stipulates the pledge of the deposit account: "After the debtor or a third party specifies its money in the form of special account, seal fund, deposit, etc., it shall be transferred to the creditor for possession as the guarantee of the creditor's rights. When the debtor fails to perform the debt, creditors may be paid in priority with that money."
Article 70 of the Interpretation of the Supreme People's Court on the Application of the Guarantee System of the the People's Republic of China Civil Code (hereinafter referred to as the "Interpretation of the Guarantee System of the Civil Code") implemented on January 1, 2021 stipulates that the pledge of the deposit account is as follows: "The debtor or a third party shall set up a special deposit account for the performance of the guaranteed debt and be actually controlled by the creditor, or deposit its funds into the deposit account established by the creditor, if the creditor claims to give priority to the payment of the money in the account, the people's court shall support it. If the parties claim that the creditors who actually control the account do not have the right of priority in the payment of the funds in the account on the grounds that the funds in the margin account are floating, the people's court shall not support it." With the implementation of the Interpretation of the Guarantee System of the Civil Code, the Interpretation of the Guarantee Law is invalid, and the Interpretation of the Guarantee System of the Civil Code is an effective legal provision for the margin system under the current legal system.
Interpretation of the current legal provisions on the pledge of (II) margin accounts.
The author will interpret the current effective Civil Code Guarantee System Interpretation from the interpretation of historical interpretation. Compared with the provisions of Article 85 of the Interpretation of the Guarantee Law, Article 70 of the Interpretation of the Guarantee System of the Civil Code deletes the expressions of "form specialization" and "transfer to creditor possession", and uses "establishment of a special margin account and actual control by the creditor, Or deposit its funds into the margin account established by the creditor" to express. The author believes that the above-mentioned changes in the current law are the refinement of the expressions of "form specificity" and "transfer of creditor's possession" in the Interpretation of Guarantee Law, specifically, the standard of effective establishment of pledge of guarantee account is stipulated in the way of enumeration: the current law "establishing special guarantee account" is the concrete expression of "form specificity" in the Interpretation of Guarantee Law, "A margin account established by the creditor under the actual control of the creditor and deposited into the creditor" is a figurative expression of "transfer of creditor possession. From this point of view, both the Interpretation of the Guarantee Law and the Interpretation of the Guarantee System of the current Civil Code include the specificity of the pledged property and the transfer of possession of the pledged property.
Although the Interpretation of the Guarantee System of the Civil Code provides concrete provisions on the effective elements of the above-mentioned security pledge, there are still disputes about the criteria for the specificity of the pledged property and the transfer of possession in the specific judicial practice.
Practical Disputes over the Elements of Valid Establishment of Pledge of 2. Margin Account
From the perspective of legal provisions, the elements for the effective establishment of a pledge of a margin account should include the following three substantive elements: first, there is a valid agreement between the parties to the establishment of the pledge; second, the margin account used for the pledge should have the characteristics of specificity; and third, the margin account used for the pledge should be under the actual control of the pledgee. There is no dispute in practice about the elements of the establishment of the pledge consensual, while there is greater practical controversy about the remaining two elements.
(I) margin account specificity
It is generally agreed in both academic and practical circles that margin account specificity should include both account specificity and the criteria for the specificity of funds in the account. Account specificity means that the margin account should be established solely for the purpose of the pledge security act and should not be used for any other purpose. However, there is great controversy in the practical circles as to what conditions can be called "account specificity and fund specificity.
The view was expressed that the margin account and funds used for the pledge should, in addition to satisfying the purpose of the pledge only, meet the criteria of a clearly different appearance from other accounts of the pledgee. For example, in ruling No. 2513 of the Supreme People's Court (2017), the court held: "A pledge of a security deposit is a pledge of money in the form of a specific security deposit, which is a pledge of movable property in nature and is essentially a pledge of funds in a security deposit account, not an account pledge. The specialization of money in the form of margin should be characterized by both account specialization and fund specialization, I .e. the account is functionally only used to store margin and cannot be used for ordinary settlement business; it should also be different from ordinary settlement accounts in terms of formal appearance. The specialization of funds is reflected in the fact that technical measures should be taken to distinguish between ordinary funds and margin after the funds are stored, so as to avoid mixing."
It has also been argued that the margin accounts and funds used for the pledge are substantially different from the other accounts of the pledgor and meet the specific criteria if they are used only for the purpose of the pledge. For example, the Supreme People's Court (2017) Supreme Famin Shen No. 1829 ruled that: "The signing of a security deposit pledge contract stipulates a special account and account number for the security deposit, and the money in the account has been specified ...... Whether the name of the account pledged for the security deposit is a special security deposit account or the pledgee's own account does not affect the establishment of the pledge."
(II) the actual control of the pledgee over the margin account
Regarding the actual control standard of the pledgee's deposit account, most of the theoretical and practical circles believe that if the pledgee can substantially control the pledgee's misappropriation of the deposit, and the pledgee can directly deduct the deposit after the expiration of the performance period of the main creditor's right, it should be regarded as the pledgee's actual control standard for the deposit account and the deposit account pledge can be established.
However, there are still some views that the actual control of the pledge account by the pledgee belongs to the transfer of possession, and the transfer of possession is the publicity form of changes in real rights (including other real rights). Therefore, based on the publicity principle of changes in real rights, the pledge of the pledge account should have the transfer elements of control (possession) that other third parties can identify on the basis of the actual control of the pledgee. For example, the Fujian Provincial Higher People's Court (2014) Min Min Min Zhong Zi No. 692 Judgment holds: "In practice, no matter whether the deposit account is opened in the name of a commercial bank or in the name of a pledgor, creditors are required to realize the transfer of control over the deposit account, and the account should be specially marked as 'security' to distinguish it from the ordinary account of the pledgor, and the pledgee will deposit a certain amount of funds into this special account, the funds in the account can only be used as payment under the guarantee, so that the funds are specific and earmarked, so that the legal relationship of property rights is clear and transparent, and the third party can directly identify the establishment of the account fund pledge and the fact of the transfer of control from the outside." Mr. Chen Benhan, the theoretical circle, also holds this view and in the "Discussion on Certain Issues of Guaranteed Margin Accounts ---<民法典担保制度司法解释>It is described in article 70.
The effect of 3. margin account pledge is explored.
In the light of what I have mentioned above, whether it is based on the margin account and the specific elements of funds or the actual control elements, the current theoretical and practical circles on the validity of the pledge of the margin account is mostly focused on whether the appearance of the margin account used to establish the pledge guarantee is clear. In my view, the effectiveness of a pledge on a margin account should not be based on whether the appearance of the account is clear or not. The reasons are as follows: firstly, based on the interpretation of the text and in combination with the provisions of the Interpretation of the Guarantee System of the Civil Code, the core of the effectiveness of the pledge of the deposit account lies in "the actual control of the creditor" rather than focusing on the publicity method of transfer possession; secondly, the essence of the actual control of the pledgee over the deposit account is the act of transfer possession (delivery), referring to the effectiveness rules of the pledge of movable property, transfer of possession (delivery) is itself a form of publicity of property rights, so the provisions of the Interpretation of the Civil Code Guarantee System meet the publicity requirements for the creation of other property rights. The clarity of the appearance of the margin account used for the pledge should not be an element of validity for the establishment of the pledge of the margin account, but may be established as an element of confrontation by reference to the rules of the pledge of movable property.
Conclusion
Based on the current legal provisions, the author makes a preliminary inquiry into the validity of the pledge of the margin account by applying the relevant principles of interpretation and combining the practical trial, and thinks that the pledge of the margin account has the validity of the establishment under the conditions of meeting the real agreement of both parties and the effective substantive control of the right holder. However, in practice, because the law does not explicitly regulate the controversial points listed in this article, when carrying out relevant practical operations, the author believes that after probing and analyzing the aforementioned validity elements, risk tips and management should also be carried out on issues such as the appearance elements of the margin account, so as to protect the legitimate rights and interests of the parties to the greatest extent.
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