Research on Legal Issues of Debt Financing

Author: Many Qi
Publisher:
Publishing Time: 2005-03-01
Features: From a legal perspective, debt financing refers to the process by which creditors utilize existing or future claims to facilitate capital. From the original general debt financing to modern financial innovation in debt financing, both the civil law system and the common law system face numerous challenges. This book conducts a systematic study on the legal issues of debt financing and attempts to provide legal countermeasure analyses in response to the demands of economic life. The book is divided into five chapters. The th chapter lays the theoretical foundation for debt financing, while the following four chapters, using a method consistent with both history and logic, discuss the legal issues involved in general debt financing, securities debt financing, factoring financing, and asset securitization financing, progressing from simple to complex. th chapter is a general overview of the legal principles of debt financing. This section establishes the theoretical foundation for debt financing from two aspects. th section discusses the changes in the legal status of property rights and claims in the civil law system. The author begins with the concepts of property rights and claims in civil law, discussing the subtle changes in the distinct and non-confusable relationship between property rights and claims in civil law in modern society, clarifying the trend of mutual integration and increasingly blurred boundaries between property rights and claims in many areas of modern society. The "claim" discussed in this article's debt financing is not an absolute opposition to property rights but a real claim in daily life. On this basis, the article systematically analyzes the economic, social, and institutional roots leading to the change from the superiority of property rights to the superiority of claims, and summarizes three major trends in the enhancement of the status of claims: the evolution from the purpose of property rights to the purpose of claims; the development from the use of property rights to the use of claims; and the modern law of claims shifting from emphasizing the preservation of claims to emphasizing both the utilization and preservation of claims. th section covers the significance, historical development, and legal regulation of debt financing. The author describes the theoretical aspects of debt financing, including its concept, characteristics, and reasons, as well as its special changes in practical significance, ultimately abstracting the historical development and legal regulation of debt financing: according to the historical development of debt financing and the financing methods, it is divided into general debt financing, securities debt financing, factoring financing, and asset securitization financing. From the original single claim transfer financing to securities debt free transfer financing; from debt transfer financing that focuses on the interests of the debtor to debt collateral financing that pays more attention to the interests of the assignee; from one-on-one debt financing to multi-to-multi debt asset securitization financing, the types of legal issues involved are numerous, laying a solid theoretical foundation for the subsequent chapters.
Chapter 2 focuses on the legal issues of general debt financing. General debt financing is the simplest one-on-one utilization of a single claim, involving the basic issues of claim assignment and collateral in traditional civil law. In this chapter, the author discusses the three legal issues of general claim assignment financing, general claim pledge financing, and general claim assignment collateral financing separately. th section first analyzes the concept of general claim assignment financing, which has the function of facilitating capital and invigorating the economy. This ancient claim utilization method has financing characteristics, and many subsequent claim financing methods are based on it. Accordingly, the article summarizes specific legal issues such as the legal confirmation of general claim assignment financing, the various effective claims contained in general claim assignment financing, and the right of offset in claim assignment financing. th section discusses the legal system of general claim pledge financing. From a legal perspective, credit risk is the same as claim risk. One of humanity's major contributions to mitigating claim risk is the creation of the collateral legal system, which equips trading parties with tools to counter such risks. General claim pledge is one such tool. Therefore, the author dedicates a section to discussing the concept and essence of general claim pledge financing, the establishment and development of the general claim pledge financing system, the conditions for the valid establishment of general claim pledge, and the effectiveness of general claim pledge financing. th section covers the legal system of general claim assignment collateral financing. To meet the demands of economic actors to use various new property rights as collateral to enhance their financing capacity, some new forms of collateral, known as "atypical collateral systems," have emerged, with assignment collateral being one of them. The legal issues of assignment collateral are an important and unavoidable aspect of general claim financing. The author points out the relationship between general claim assignment collateral and general claim assignment collateral financing, analyzes the creation and practical application of the general claim assignment collateral financing system, discusses the scope of objects, publicity methods, and the effectiveness of general claim assignment collateral.
Chapter 3 studies the legal issues of securities debt financing, which involves commercial law. Once a claim takes the form of a security and achieves high liquidity, it can form a simpler and more convenient financing method than general claim financing. Due to space limitations, this chapter only discusses the legal issues of securities debt financing with bills as an example, corresponding to general claim financing. Bill discounting is a typical bill financing method, so th section first discusses bill discounting financing and the bill market. The author analyzes the legal characteristics of bill discounting financing, including the statutory nature of bill discounting institutions, the practical nature of bill discounting contracts, and the fact that the legal relationships in bill discounting financing are mainly regulated by the Bill Law. The author also points out the risks and legal preventive measures of bill discounting financing, and finally explains the main problems and causes in China's current bill market, proposing legal suggestions for its development. th section discusses the legal issues involved in bill transfer financing. From the legislative perspective of various countries, the methods of bill transfer financing are divided into endorsement transfer and simple delivery, with transfers being much more convenient than general claim assignment. However, the effectiveness of bill transfer is also more complex than general claim assignment, because while the law grants efficiency to securities claim transfer financing, it must also create a safer system of rights protection. Therefore, the author discusses the rich legal issues contained in the general endorsement effectiveness of bill transfer, the effectiveness of the interruption of defenses in bill transfer, and the guarantee effectiveness of bill transfer. Additionally, the author believes that bill pledge financing and bill transfer financing have obvious differences, so the third section is dedicated to discussing the legal system of bill pledge. Although bill pledge is not as convenient as bill transfer, it is still a real existing bill financing method. Therefore, the article only discusses the constitutive requirements and endorsement of bill pledge financing that are different from bill transfer financing.
Chapter 4 covers factoring financing, a typical claim financing method in modern trade relations. Although it is divided into recourse factoring and non-recourse factoring, factoring financing always manifests as claim (accounts receivable) transfer financing and never as claim collateral financing. In other words, factoring financing is a flexible application of claim assignment financing in both domestic and international trade under civil law. The author first points out that factoring, as a new financial service, is essentially a claim financing method with special advantages different from general claim financing and unique characteristics different from securities claim financing. Second, the legal relationships in factoring financing refer to the legally recognized rights and obligations between the parties involved in conducting and accepting factoring financing. The author, with the factoring company at the center, elaborates on the rights and obligations between the factoring company and the seller, as well as between the factoring company and the buyer. Third, based on the analysis of the rights and obligations between the parties in factoring financing, the author focuses on discussing the external legal effects of factoring, i.e., whether the factoring company can have priority when it encounters rights conflicts with other parties during the factoring financing process, and makes legal analyses and reasonable choices from the perspective of protecting the interests of all parties. Finally, the article attempts to explore the general patterns of risk occurrence in factoring financing and proposes legal suggestions for risk prevention in China based on its specific conditions.
Chapter 5 is the socialized financing method of claims, namely asset-backed securities financing. The author, in th section, analyzes the concepts of securitization, asset securitization, and asset securitization financing in a step-by-step manner, analyzing the advantages of asset securitization financing. Asset securitization financing is different from the various financing methods mentioned above; this multi-to-multi socialized financing method is a kind of "alchemy" financing method. As a structured financing method, it has complex steps and distinct characteristics, not only being an innovation in financial products but also an innovation in financing theory. The article analyzes the legal mechanism construction of asset securitization financing, including the subject structure and object structure of asset securitization and its structural utilization process. Subsequently, based on the financing process of asset securitization, the article elaborates on the five specific legal issues involved one by one: First, the assignment of claims in asset securitization financing. Due to the large number of claim assignment actions in asset securitization financing, the claims here must possess characteristics suitable for securitization. Although there are two types of claim financing here—true sale and collateral financing—collateral financing may have catastrophic consequences in asset securitization, and the author does not advocate this practice. However, true sale is not easy either; it often requires reclassification by the court. Second, the special purpose entity for acquiring claims. According to the laws and financing practices of various countries, special purpose entities can be divided into different forms such as corporate, trust, limited partnership, and fund types, each of which can achieve different tax effects and financing conveniences. Countries can choose the most suitable form of special purpose entity establishment based on the degree of legal restrictions and the familiarity of investors. Third, the bankruptcy isolation of fragmented claims. Bankruptcy isolation is one of the important legal innovations in asset securitization financing. Without special legal protection, special purpose entities would face many risks that are difficult to eliminate. Only by making efforts in accounting systems, business scopes, and legal supervision can special purpose entities truly achieve "distance from bankruptcy." Fourth, the credit enhancement and rating of fragmented claims. Asset securitization financing has unique external and internal credit enhancement and rating methods. After being upgraded, the securities backed by assets often have a credit rating higher than their intrinsic value, so the law confirms the statutory status of credit rating. Fifth, the final step is the securitization of fragmented claims. Various countries have established to different degrees the legal status of issuing asset-backed securities. As a country with a highly developed securities market, the United States not only issues asset-backed securities in multiple forms but also makes many exemptions and requirements for such securities in its securities law, which reduces financing costs for asset securitization and is worth by other countries. The final section discusses, based on the analysis of the legal issues mentioned above, the legal obstacles to asset securitization financing in China and its perfect legal countermeasures.