Viewpoint... The administrator's perspective on the issue of compound interest and penalty interest review in bankruptcy claims.
Published:
2024-10-09
When the administrator reviews the declared claims, it will inevitably involve both principal and interest claims. In general, interest in a broad sense includes interest, compound interest, and penalty interest over the term of the loan. The administrator's review and determination of compound interest and penalty interest will be much more complex than the review and determination of interest over the term of the loan. This paper will analyze and summarize the related issues of compound interest and penalty interest review.
When the administrator reviews the declared claims, it will inevitably involve both principal and interest claims. In general, interest in a broad sense includes interest, compound interest, and penalty interest over the term of the loan. The administrator's review and determination of compound interest and penalty interest will be much more complex than the review and determination of interest over the term of the loan. This paper will analyze and summarize the related issues of compound interest and penalty interest review.
The clarification of 1. compound interest and penalty interest.
There is no clear definition of compound interest in our current law. However, according to Article 20 of the Regulations on the Administration of RMB Interest Rates, compound interest refers to the interest charged at the contractual interest rate on the interest that cannot be paid on time during the loan period. Generally refers to the interest earned after the calculation of interest on the outstanding interest due and payable, which is a kind of default liability arising when the borrower fails to pay interest on time. Here, it should be noted that there is a dispute over whether compound interest can be calculated "outside the loan period". The main reason is that Article 20 of the "Regulations on the Administration of RMB Interest Rates" stipulates that "compound interest shall be calculated according to the penalty interest rate after the loan is overdue" and Article 25 "Overdue loans or misappropriation of loans shall be calculated according to the penalty interest rate from the date of overdue or misappropriation. Compound interest usually refers to the interest that cannot be paid on time during the term of the loan at the contractual rate of compound interest, which is calculated as the period of interest x compound interest rate x time.
Penalty interest is interest of a certain punitive nature charged by the lender in the event of a specific default by the borrower. According to Article 25 of the Regulations on the Administration of RMB Interest Rates, penalty interest includes "overdue loans" and "misappropriation of loans", with overdue loans being the most common. That is, if the principal of the loan is not paid off after the maturity of the loan, the penalty interest shall be charged at the penalty interest rate from the date of the overdue principal. The specific calculation formula is: penalty interest = outstanding principal x penalty interest rate x time. If the borrower both misappropriates the loan and is overdue, it should choose its weight and cannot be superimposed.
Can the 2. penalty interest be compounded?
In practice, financial institutions often use penalty interest as a rolling calculation base for compound interest when declaring claims. When examining and determining claims, the administrator should note that, according to the mainstream judicial view, compound interest is calculated on the basis of unpaid interest payable during the term of the loan and does not include penalty interest. However, if there is a method of calculating compound interest in the loan contract, the administrator should also make a comprehensive judgment while respecting the autonomy of the parties.
In the minutes of the 20th judges' meeting in 2021, the Second Circuit Court of the Supreme People's Court held that if the loan contract has a clear agreement on the late interest settlement date and the collection of late penalty interest, there may also be the problem of the calculation of compound interest on the penalty interest. In view of the fact that the current law does not prohibit the collection of compound interest on penalties, in accordance with the principle of autonomy, the parties should be allowed to make such transaction arrangements, but not exceed the statutory interest rate ceiling. Considering that financial lending contracts are usually form contracts drawn up in advance by one of the financial institutions, it is up to the financial institution to prove that the obligation to prompt and explain has been fulfilled as to whether there is a penalty interest and how to calculate the compounding clause.
3. whether non-financial institutions can collect penalty interest and compound interest after the transfer of financial claims.
Regarding this issue, it must be mentioned that the Supreme People's Court issued the "Minutes of the Symposium on the Trial of Cases Involving the Transfer of Financial Non-performing Credits" (hereinafter referred to as the "Minutes") on March 30, 2009.
First, the scope of application of the Minutes should be clarified. The essence of the problem to be solved in the "Minutes" is how to solve and resolve the historical problems formed during the planned economy period. The transfer of creditor's rights in the minutes includes:(1) in 1999 and 2000, the above four financial asset management companies paid the acquisition costs from the Bank of China, the Agricultural Bank of China, the Construction Bank of China, the Industrial and Commercial Bank of China and the China Development Bank under the unified arrangement of the state in the form of refinancing or financial guarantee of commercial paper;(2) From 2004 to 2005, the above four financial asset management companies acquired commercial non-performing debts from Bank of Communications, Bank of China, China Construction Bank and Industrial and Commercial Bank of China under the leadership of government authorities. Although there are still cases of breakthrough in the scope of application in judicial precedents, it is not appropriate for the administrator to expand the scope of application of the Minutes in the determination of the review of claims.
Secondly, in order to cater to the development trend of marketization of the transfer of financial claims, if the financial loan contract stipulates compound interest and penalty interest, other enterprise legal persons can claim the relevant rights from the debtor according to the original loan contract after the transfer of non-performing claims.
Rules for the Review of Overdue Interest Rates on Private Lending in 4.
Penalty interest and compound interest are usually only applicable to financial lending. According to the Provisions of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases, if there is an agreement between the borrower and the lender on the overdue interest rate, it shall be agreed upon, but not more than four times the market quoted interest rate for the one-year loan at the time of the establishment of the contract. For the lender and the borrower both agreed on the overdue interest rate, but also agreed on the default or other fees, but the total shall not exceed the one-year loan market quotation rate at the time of the establishment of the contract four times.
In order to prevent excessive interest rates, the manager should reduce the total amount of more than "four times the market quoted rate for one-year loans at the time of the establishment of the contract. However, the lawyer's fee and litigation preservation liability insurance premium in private lending are necessary expenses for the lender to safeguard its legitimate rights and interests, and are not financing costs. They should not belong to the "other expenses" stipulated in Article 29 of the provisions of the Supreme People's Court on Several Issues concerning the application of law in the trial of private lending cases ".
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