Special procedure on security rights a ‘bright spot’ for creditors

The special procedure for realising security rights that appears in the new Civil Procedure Law came into effect on 1 January 2013, and has become one of the bright spots in the law. Even though various legislation gives security rights holders the right to preferentially receive payment from the proceeds derived from an auction or liquidation (collectively referred to as disposal) of the collateral, such holders, in realising their rights, had to go through a litigation procedure and first had to pay high litigation costs, making for heavy relief costs.

The special procedure set forth in articles 196 and 197 of the new Civil Procedure Law simplifies this procedure: once the court finds that the applicant’s application is in compliance with the law, it may directly render a ruling for the disposal of the collateral, and the applicant may apply to a court for enforcement on the strength of the ruling; additionally, it is not necessary to pay a case acceptance fee to initiate the special procedure, and a case is generally concluded within 30 days.

Implementation prospects

It is expected that corresponding detailed rules will be issued in future to fill in the gaps in the Civil Procedure Law. Due to an outbreak of disputes in its jurisdiction, Zhejiang Provincial Higher People’s Court was the first to issue its Opinions on Trying Cases Involving the Realisation of Security Rights.