In financial markets, debt relationships between creditors and debtors are common. When a debtor is in financial trouble or goes bankrupt, creditors are faced with the question: how to get paid off the debtor's property? If the debtor's property is sufficient to satisfy all claims, then the problem is relatively simple, as long as the execution is carried out in accordance with the procedure established by law. However, if the debtor's assets are insufficient to satisfy all claims, the problem becomes complicated by the conflict of interest and the principle of distribution between multiple creditors. So, how is the order of repayment of multiple creditors determined? This article will answer this question for you from a legal perspective and in combination with the latest judicial practice.
The order of repayment of multiple creditors mainly depends on the following three factors: the nature of the claim, the time of establishment of the claim and the procedure for enforcement.
1. The nature of the creditor's right
The nature of the claim refers to whether the claim has priority or security interest. Priority refers to the right of certain creditors in the same property to have priority over other creditors in the order of repayment. A security interest refers to a special right created by a creditor in the debtor's property in order to ensure the realization of the creditor's rights, such as mortgage rights, pledge rights, etc. According to the second paragraph of 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), where multiple creditors have different types of claims, the claims based on ownership and security interests shall be repaid in priority over monetary claims. This means that if the creditor has ownership or security interest in the debtor's property, then he can get paid from the property in priority over other ordinary creditors (such as borrowers, merchants, etc.). For example, if the bank has a mortgage on the debtor's property, then the bank can be paid off from the auction proceeds of the property in priority over other creditors.
2. The time of establishment of the creditor's right
The time of establishment of a claim refers to the time when the claim arises or the time when the security interest is registered. According to the second paragraph of 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), if there are multiple security interests, they shall be repaid in accordance with the order in which each security interest is established. This means that if multiple creditors have security interests in the same property, their order of repayment will be determined according to the time of registration of the security interest. For example, if the debtor's car is first pledged by Company A and then by Company B, then Company A can be repaid from the sale proceeds of the car in priority over Company B.
III. Procedures to be Implemented
The enforcement procedure refers to the time when the creditor applies to the court for enforcement or the court takes enforcement measures. According to the first paragraph of 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), where multiple creditors who have determined the content of monetary payment in multiple effective legal documents separately 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. This means that if multiple creditors are ordinary creditors, then their repayment order will be determined according to the time when the court takes enforcement measures, with the first to be executed and the latter to be executed. For example, if the debtor's deposit is first frozen by Company C and then frozen by Company D, then Company C can be repaid from the deposit in priority over Company D.
Conclusion
To sum up, the order of repayment of multiple creditors mainly depends on the nature of the claim, the time of establishment of the claim and the procedure for enforcement. The creditor shall, according to the circumstances of its own creditor's rights, reasonably choose the timing and method of applying for enforcement, so as to protect its legitimate rights and interests. At the same time, creditors should also respect the legitimate rights and interests of other creditors, avoid malicious competition or collusion and cheating, and maintain the fairness and order of the financial market.