Supreme Court: How to determine the amount of compensation to be distributed by the creditor of the first seal?

Source: Yu'an Law Application Research Center

01Case index

(2022) Supreme Law Zhi Fu No. 2, Jiujiang Bank Co., Ltd., Jiujiang Lianxi District Urban Investment (Group) Co., Ltd., etc

02 parties to the case

Reconsideration applicant (person subject to enforcement): Jiujiang Bank Co., Ltd.

Executor of the application: Jiujiang Lianxi District Urban Investment (Group) Co., Ltd.

Executor: Jiujiang Jiaxin Industrial Co., Ltd.

Interested party: Zhang Ping.

03 Basic facts of the case

On March 2, 2021, the Jiangxi Higher People's Court entrusted the Taobao Ali auction platform to conduct a public auction of 17 properties under construction in Jiaxin International Mansion located in the middle of Changhong Avenue in Jiujiang, Jiangxi Province (hereinafter referred to as the 17 properties of Jiaxin International Mansion), which were unsold due to no registration.

On March 12 of the same year, the city investment company submitted a written application to the Jiangxi High Court, requesting that the above-mentioned 17 properties be repaid for debts at an unsold price of 110 million yuan. At the same time, a letter of commitment was issued to the Jiangxi High Court: "It is promised that if other units and individuals in this case are involved in the priority or preferential distribution right of the project payment for the asset, after the court enters the enforcement stage of the relevant effective judgment and there is no dispute, our company will transfer the priority payment determined by the effective legal instrument into the account of your hospital and the account designated by your court within the scope of this distribution." On May 10, 2021, the Jiangxi High People's Court issued the (2019) Ganzhi No. 56-3 Enforcement Ruling: to deliver the 17 properties of Jiaxin International Mansion owned by Jiaxin Company to the urban investment company at a price of RMB 110 million and hand them over to the urban investment company to pay off the debt.

Zhang Ping submitted an opinion, saying:

Zhang Ping was the first creditor to seize the 17 properties of Jiaxin International Mansion, and Zhang Ping's claims for the distribution of the 17 properties involved in the case had priority over the urban investment company. As far as the Jiujiang Municipal Real Estate Bureau is concerned, the notice of assistance in enforcement is the main case, the seizure is the 17 properties involved in the case, and the amount of frozen property in the attached enforcement ruling has increased over time, so the amount of the debt to be distributed in the enforcement case of the Xunyang Court is not 9 million yuan, but the principal and interest of 6.5 million yuan determined by the (2015) Xun Min Yi Chu Zi No. 2390 Civil Judgment.

Zhang Ping has applied to the Xunyang Court for compulsory enforcement, and has entered the enforcement procedure, and the Jiangxi High Court has obtained the right to dispose of the first sealed property based on the "Letter of Request for Transfer for Enforcement". Although Zhang Ping was not a party to the Jiangxi High Court (2019) Ganzhi No. 56 case, the Jiangxi High Court only relied on the commitment of the urban investment company to pay off the debts of 17 properties of Jiaxin International Mansion to the urban investment company, depriving Zhang Ping of the priority right to be repaid as the first creditor, and also depriving Zhang Ping of the right of the court to enforce the law, seriously infringing on Zhang Ping's legitimate rights.

The Jiangxi High People's Court ruled that the real estate involved in the case should be compensated to the right holder waiting for seizure and terminate the enforcement before the first creditor's claim was realized, which clearly violated Article 55 of the Provisions of the Supreme People's Court on Several Issues Concerning the Enforcement Work of the People's Courts (for Trial Implementation).

04Grounds for the trial

After review, the Supreme Court held that the focus of the dispute in this case was: how to determine the amount to be compensated by Zhang Ping for the sale price of 17 properties in Jiaxin International Mansion.

On the issue of how Zhang Ping determined the amount to be compensated for the sale price of 17 properties in Jiaxin International Mansion

Paragraph 1 of Article 26 of the Provisions of the Supreme People's Court on the Sealing, Seizure and Freezing of Assets in Civil Enforcement by the People's Courts (See: Compilation of Enforcement Regulations, 2023 Revised Edition) stipulates that: "For assets that have been sealed, seized or frozen by the people's courts, other people's courts may wait for the sealing, seizure and freezing. Where the sealing, seizure, or freezing is lifted, the sealing, seizure, or freezing that was registered earlier will automatically take effect. "The purpose of creating a waiting list for attachment system is to protect the rights and interests of creditors who claim rights later to the greatest extent possible, and to prevent debtors from taking advantage of legal loopholes to transfer property and evade enforcement responsibilities; The main role is to ensure that creditors awaiting attachment are able to obtain the remainder of the benefit of the earlier attachment creditor.

Article 516 of the Interpretation of the Supreme People's Court on the Application of the Civil Procedure Law of the People's Republic of China (Fa Shi [2015] No. 5) stipulates that: "If the parties do not agree to transfer the case to bankruptcy or the people's court at the place where the person subject to enforcement is domiciled does not accept the bankruptcy case, the enforcing court shall, after deducting the enforcement costs and paying off the preferential creditor's rights, pay off the ordinary creditor's rights in the order of property preservation and the order of sealing, seizing and freezing the property in the course of enforcement." ”

Article 55 of the Provisions of the Supreme People's Court on Several Issues Concerning the Enforcement Work of the People's Courts (for Trial Implementation) (see: Compilation of Enforcement Regulations, 2023 Revised Edition) provides: "Where multiple creditors who have determined the content of monetary payment in multiple effective legal documents apply for enforcement against the same person subject to enforcement, and each creditor has no security interest in the subject matter of enforcement, they shall be compensated in accordance with the order in which the enforcement court takes enforcement measures." ”

The above-mentioned provisions all make it clear that the ordinary claims of multiple creditors shall be repaid in accordance with the order of sealing, seizure and freezing of assets. In the specific distribution of case funds, the priority of property preservation and the amount of preservation should be considered together, and the two are inseparable. The order of preservation determines the order of repayment of claims, and the amount of preservation determines the extent to which the creditor with the priority will be repaid. If the preservation amount is discarded and only the priority of preservation is considered, the interests of creditors waiting for attachment will not be protected, and the systems of property preservation and waiting for attachment will be meaningless.

In this case, Zhang Ping was the first creditor of the real estate involved in the case, and her claims against Charles Schwab were ordinary creditor's rights, so Zhang Ping's sale price of the real estate involved in the case should be repaid in priority over that of the urban investment company. As for the specific amount of compensation to be paid by Zhang Ping, according to the ascertained facts, on September 18, 2017, the Xunyang Court seized the property rights transaction of Building 1 of Jiaxin International Mansion with the (2016) Gan 0403 Zhi 480 Enforcement Ruling and the Notice of Assistance in Enforcement, with a limit of RMB 9 million, and successively executed the ruling on October 30, 2018 with (2016) Gan 0403 Zhi 480 No. 1. On April 20, 2020, the (2016) Gan 0403 Zhi 480 bis enforcement ruling was carried out for continued seizure. Due to the failure of Jiaxin Company and others to perform the obligations determined by the effective judgment, and over time, the amount of debts that Jiaxin Company and others should repay Zhang Ping in accordance with the effective judgment continued to increase, so the amount of seizure increased from 9 million yuan and 9.5 million yuan to 12 million yuan in April 2020.

As mentioned above, the role of the waiting for attachment is intended to ensure that the creditor waiting for attachment can obtain the remaining part of the benefits obtained by the earlier attachment creditor from the seizure, and the amount of compensation for the first sealing creditor should be limited by the amount of attachment, so the amount of Zhang Ping's priority should be limited to 12 million yuan as stated in the Xunyang Court (2016) Gan 0403 Zhi 480-2 Enforcement Ruling.

The Jiangxi High People's Court held that the amount of Zhang Ping's distributeable creditor's rights was the principal and interest of 6.5 million yuan determined by the Xunyang Court (2015) Xun Min Yi Chu Zi No. 2390 Civil Judgment, which only considered the order of seizure and did not consider the amount of seizure, which was inconsistent with the law and should be corrected. For Zhang Ping's creditor's rights exceeding the seized amount of 12 million yuan, Zhang Ping can continue to apply for enforcement of the property of Jiaxin Company and other persons subject to enforcement.