Legal issues for Chinese enterprises in the Secured Transaction Law of Laos

Guests from over 150 countries and 90 international organizations participated in the recently concluded second Belt and Road Forum for International Cooperation held in Beijing. However, there are bound to be twists and turns along the Belt and Road Initiative journey – the differences in legal concepts across these countries could become one of the most notable issues.

For instance, securities laws vary greatly from country to country. As a Chinese lawyer, the author noticed some issues in the Secured Transaction Law of Laos while providing legal services to some projects there. These issues could be easily neglected by some Chinese enterprises that have not looked deep enough into the local legal environment. This article discusses three major differences between the laws in the two countries based on the authors’ personal experience.

The Secured Transaction Law of Laos only provides a general guarantee, and it is extremely easy for a debtor to be deemed as being unable to fulfil the debt obligations. According to the Secured Transaction Law of Laos, a creditor should first pursue a claim against the debtor and then make a claim against the guarantor if the debtor is unable to perform his or her obligations. A creditor does not have the right to choose whether to make the debtor fulfil the debt obligations or ask the guarantor to assume the guarantee liability within the scope of the guarantee. In that sense, the type of guarantee provided in the Secured Transaction Law of Laos is similar to the general guarantee stipulated in the Securities Law of the People’s Republic of China. There is no provision relating to joint liability guarantee in the Secured Transaction Law of Laos.

Pursuant to the laws and regulations in China, a general guarantor is entitled to assert beneficium ordinis, which mean a general guarantor may refuse to assume the guarantee liability if the dispute over the principal contract has not yet undergone judicial trials or arbitration proceedings and the debtor remains incapable of performing his or her obligations despite an enforcement order against his or her properties.

However, under the Secured Transaction Law of Laos, a creditor is entitled to ask the guarantor to assume the guarantee liability as long as the creditor has sent a prior notice to the debtor to perform his or her debt obligations and the debtor has failed to perform such obligations within the specified time. In addition, there is no provision regarding the time limit of fulfilling the debt obligations, which means that the creditor may ask the debtor to repay the debt within a working day. Otherwise, the creditor can ask the guarantor to assume the guarantee liability.

It can be seen that a debtor can be easily deemed as being “unable to fulfil the debt obligations” under the Secured Transaction Law of Laos. A creditor is only obliged to send a notice to the debtor to repay the debt and does not have to consider whether the principal contract has undergone judicial trials or arbitration proceedings and whether the debtor remains incapable of performing his or her obligations despite an enforcement order against his or her properties. Therefore, judging from the difficulty for a creditor to protect his or her guarantee interests, the legal effect of guarantee in Laos is more or less the same as that of joint liability guarantee in China.