Supreme People's Court, Questions Relevant to Whether Leaseholds of Allocated State-owned Land of Bankrupt Enterprises Should be Listed Under Property Available in Bankruptcy, Etc. Official Reply

Issued: April 16 2003
Effective: April 18 2003
Applicability: The Official Reply applies to cases being tried or have not been tried, with the exception of retrial cases whose decision or judgment has been legally effective.

Main contents: The Official Reply states that State-owned leaseholds of a bankrupt enterprise (excluding State-owned enterprises included in the State merger and bankruptcy plan) acquired by means of allocation are not property available in bankruptcy (Item One). Mortgages created over such State-owned leaseholds or over State-owned leaseholds together with the structures attached thereon, however, shall be valid if statutory examination and approval procedures have been fulfilled and mortgage registration has been carried out in accordance with the law (Items Two and Three). Mortgagees may enjoy priority in receiving compensation only after an amount equivalent to the fee for the allocation of leaseholds payable has been paid from the proceeds of the auction or discounted sale of the mortgaged subject matter (Item Two). If a structure is attached to a State-owned leasehold that is acquired by means of granting or assignment, the mortgage created over the structure together with the leasehold shall be deemed to be valid even if relevant approval has not been obtained.
Related legislation: PRC Land Administration Law (Revised), Aug 29 1998, CLP 1998 No.9 p27; PRC Administration of Urban Real Property Law, Jul 5 1994, CLP 1994 No.8 p23; PRC Security Law, Jun 30 1995, CLP 1995 No.6 p21 and Questions Concerning the Validity of a Mortgage Contract Signed by a State-owned Industrial Enterprise With the Creditor Using Such Property as Machines and Equipment as Mortgaged Property Official Reply, Jun 18 2002, CLP 2002 No.7 p8