In the process of dealing with non-performing loans, we need to help Chinese creditors enforce the assets of the debt outside of China. As more and more Chinese debtors invest abroad, these offshore assets will be the key to solving China's domestic debt problem.
In order to better realize the overseas collection of non-performing assets, it is important to conduct a detailed analysis and evaluation of the debtor's overseas assets. These assets are usually divided into two categories: financial assets and industrial assets, which have significant differences in characteristics, liquidity and disposal. Therefore, developing an effective execution strategy requires a deep understanding and comprehensive consideration of both types of assets.
In the process of dealing with non-performing loans, the identification and classification of the debtor's foreign assets is an indispensable part. The debtor's foreign assets can be broadly divided into two categories: financial assets and industrial assets.
1.Financial assets: highly liquid assets
Financial assets are highly liquid and can be quickly converted into cash for repayment of debts to creditors. Many creditors use offshore as a destination for storing assets, rather than opening up a second business offshore, so they usually choose to allocate assets in a way that is easy to realize.
This category includes cash, valuable**, receivables, and investments in various types of ** or financial instruments. Cash includes bank deposits, money market accounts, and other cash that is readily available. Valuable items include, bonds, and others that can be fastened in the market. Accounts receivable relates to outstanding amounts owed by debtors or other entities to debtors. Shares or other financial investment products, while providing the debtor with diversified return potential, also provide creditors with relatively high-quality realizable assets.
2.Real Assets: The Challenge of Low Liquidity
Industrial assets are generally less liquid than financial assets. As China's industries go global, it is becoming more and more common for Chinese enterprises to invest in industries abroad, and the proportion of debtors' industrial assets is also increasing.
This type of physical asset is primarily used for production or operations, including factories, mines, docks, and farms and plantations. Factories involve manufacturing facilities and other production sites. Mines involve sites where natural resources are extracted. The terminal involves a facility dedicated to the handling of goods by sea. Farms and plantations involve agricultural land and associated buildings.
3.Differences in liquidity
The liquidity of financial assets is significantly higher than that of industrial assets. They can be easily converted into cash, minimizing delays and maximizing the rate of debt collection. However, industrial assets require a long-term and strategic approach to ensure that they are valued at a fair market value** with minimal loss to creditors.
1) Trading the market.
Financial assets such as bonds can often be liquidated in professional trading markets, such as exchanges. In the trading market, there are many buyers and sellers. This ensures that assets can be converted into cash quickly and efficiently. However, industrial assets require a dedicated market or direct search for buyers, which often involves a longer negotiation and due diligence process.
2) Transaction costs.
*Financial assets usually involve relatively low transaction costs, for example, mainly brokerage fees, commissions, etc. Disposing of industrial assets often involves higher costs, including marketing, valuation, legal fees, and potential environmental liabilities.
3) Due to the deeper market size of financial assets, the impact of a large number of financial assets on them may be limited. However, the market for industrial assets is usually small and can have a significant impact on the value of the debtor's assets if creditors wish to quickly ** the debtor's assets.
4) Risk of loss.
Financial assets are generally subject to market fluctuations, but the risk of total loss is relatively low. Industrial assets are exposed to additional risks such as operational risks, technology obsolescence, legal disputes, and environmental hazards, which can lead to significant losses.
In the area of debt collection, a comprehensive investigation of the debtor's overseas assets is a critical step in successfully resolving the issue. However, there are significant differences in the methods of finding financial assets and industrial assets, which require different strategies and technical means.
1.Financial Assets: The Art of Asset Tracking
For financial assets, the main focus is on detailed tracing, i.e., finding and locating assets. This also includes locating financial assets held by the debtor in a variety of ways, including in an individual capacity, through a company or a third party. Once the assets are found, the investigation process becomes relatively straightforward. Moreover, it can be quickly valued through the public market** after that.
1) Core tasks.
Tracing and identifying assets is the primary goal of conducting an investigation of financial assets. As long as you find out what form these assets are, where they are, how much, and who holds them, you can solve most of the problems of asset investigation.
2) Survey Methodology:
Public records searches: Land registries, company registries, and financial databases can reveal asset ownership and transactions.
Third-party investigations: Hiring a professional firm with expertise in tracking down hidden assets can be very valuable.
Court order: Applying to the court where the asset is located for a court order can compel a financial institution to disclose information about the debtor's account.
3) Valuation. Financial assets have abundant data on the open market, which simplifies the process by allowing creditors to value most financial assets with relative ease.
2.Industrial assets: the need for due diligence
In contrast, a more holistic approach is needed to industrial assets. In addition to tracing assets, due diligence on the operational status of these assets is crucial. This process is very similar to a pre-merger investigation and requires a review of all aspects of the asset and its holding entity.
1) Survey. Tracing the debtor's ownership of the industrial assets is only the first step. On this basis, conducting due diligence on the debtor's overseas industrial assets is essential to assess the true value of the assets and potential risks.
2) Scope of due diligence.
Project company structure: The debtor's offshore industrial assets are often held by a locally registered project company, so we need to determine the legal entity holding the assets, its ownership structure and potential liabilities.
Legal rights: In many cases, qualifications, permits, etc. are the most important assets of an industrial asset, so we need to verify the mining rights, concessions, licenses and permits associated with the asset.
Operational Analysis: We also assess the operational health of the asset, including production volumes, state of technology, and compliance with labor and environmental regulations.
Public Relations: We assess the company's relationships with local**, community and stakeholders to ensure that the property can be operated locally without local obstacles.
3) Valuation. Due to the uniqueness and potential complexity of industrial assets, the valuation of industrial assets often requires specialized knowledge.
A detailed investigation of industrial assets can not only systematically paint a complete picture of the assets, but also provide a more informed basis for creditors' liquidation decisions, enabling creditors and their lawyers to deal with the complex issues related to industrial asset recovery, and ultimately achieve successful debt collection.
In the complex world of debt resolution, understanding and leveraging the differences between financial and industrial assets is critical to developing a successful execution strategy. Creditors and their lawyers face a variety of options when dealing with these two categories, requiring a combination of legal, market, and operational factors.
1.Financial assets: litigation-based
Financial assets are characterized by their inherent liquidity, providing creditors with a range of relatively quick solutions. For example, direct transfers of bank deposits and ready-made sales such as bonds can be completed in the shortest possible time. Due to market volatility, the means of monetising real estate, including houses and other properties, may be slightly more complex, but the market is more liquid than industrial assets, which ensures a relatively smoother execution process.
Because financial assets are easily liquidated, we can enforce them in litigation proceedings.
Creditors can apply for recognition and enforcement of Chinese court judgments or arbitral awards in the foreign court where the assets are located, or they can file a lawsuit directly in the local court. With the support of the local courts, these assets can be sealed, seized and frozen in enforcement proceedings. Cash assets can be deducted directly, and other assets can be sold through local judicial auction procedures. Due to this type of liquidity, even if resorting to judicial procedures, the monetization efficiency is not too low.
2.Industrial assets: negotiation-oriented
In stark contrast to financial assets, industrial assets face unique challenges due to their tangible and professional characteristics. The plant has complex machinery and production lines, and the mine has valuable resources that require a large number of processing and extraction procedures. The ongoing operational demands of docks, farms, and plantations add further complexity.
The disposal of industrial assets involves the issue of equity in the project company. Since the debtor often holds industrial assets through the project company, the debtor can only enforce the equity it holds, but cannot directly dispose of the assets in the name of the project company. This indirectness makes it more difficult to dispose of industrial assets.
Therefore, in the complex landscape of industrial asset liquidation, negotiation and asset restructuring have become key components. Negotiations play a central role in the liquidation of industrial assets, providing a forum for all parties to discuss and agree on mutually beneficial terms. These negotiations may involve multiple parties, including creditors, potential buyers, and existing management or ownership.
1) Negotiation: Negotiation is a key tool for resolving complex issues in the liquidation of industrial assets. Determine the value of assets through negotiation, develop a liquidation plan, and resolve disputes that may involve multiple parties.
2) Asset restructuring: Through asset restructuring, creditors can maximize the benefits of industrial assets. This may involve a re-evaluation of production lines, technologies, and market suitability to ensure optimal performance of assets.
3) Transfer of business operations: In some cases, transferring business operations to a new owner may be the most viable option. This entails negotiating with potential buyers to identify those who are suited to manage these complex assets with the expertise and resources.
In order to encourage the debtor to actively cooperate with the negotiation and restructuring of industrial assets, it is also indispensable to conduct litigation and enforcement of financial assets and industrial assets, that is, the so-called "negotiation by fighting". In particular, for financial assets, they are usually the personal assets of the actual controller of the debtor, and the main funds required for the daily needs of the debtor's family and business, and their seizure or freezing will affect the overall arrangement of the actual controller. Therefore, debt collection for financial assets can effectively prompt debtors and creditors to enter into comprehensive restructuring negotiations.
For Chinese creditors, dealing with offshore assets involves a number of challenges and opportunities. In the complex area of NPL resolution, understanding and skillfully leveraging the differences between financial and industrial assets is key to ensuring a successful execution strategy. The high liquidity of financial assets provides a relatively quick resolution to litigation, while the complexity of industrial assets requires more deliberate negotiations and asset restructuring.
As a creditor in China, you need to consider a combination of legal, market and operational factors when handling cases involving foreign assets. For financial assets, financial assets can be realized relatively efficiently through sealing, seizure, freezing, auction, etc., after obtaining support from overseas courts. For industrial assets, negotiation and asset restructuring have become the main enforcement paths, requiring creditors to reach a mutually beneficial agreement through negotiation and in-depth understanding of the characteristics of industrial assets.
Throughout the implementation process, it is critical to work with legal and financial professionals in the field of cross-border debt collection. Expertise can ensure efficient and effective enforcement of creditors' offshore assets and respond quickly to complex legal issues that may be involved. Through negotiation and asset restructuring, Chinese creditors are able to maximize the value of industrial assets and minimize potential losses, while quickly realizing financial assets in the disposition.
With careful planning and meticulous execution, Chinese creditors will be able to effectively deal with different types of assets when dealing with offshore assets, ultimately achieving the best possible debt settlement outcome. In this complex and diverse environment, leveraging the differences between financial and industrial assets will provide a solid foundation for creditors to do business on a global scale.