New Provisions on Charge over Account

The Supreme People¡¦s Court has promulgated the Several Issues in Hearing Cases involving Loans with Pledges of Entrusted Tax-refund Accounts Provisions on September 27 2004 (the Provisions). The Provisions have, among other things, provided some detailed provisions on the granting of a charge over the account to the bank. And the Provisions offer significant development of the PRC Security Law (中华人民共和国担保法)in relation to charge over accounts.

Charge over Account

Under the PRC Security Law (中华人民共和国担保法), there is no such concept as charge over account. A more common form of security in the PRC is a pledge. A pledge, under PRC law, is categorized into two classes: pledge of movables and pledge of rights. ¡§Movables¡¨ here shall be the assets that are identifiable and ascertainable.

As money is fungible and constantly revolving, it is not generally regarded as a movable asset capable of being pledged. Thus, for a long time, pledge of money maintained in an account was not recognized under PRC law unless through a pledge of deposit certificates (which fall within the scope of a pledge of rights). It was not until the recent promulgation of the Several Issues Concerning the Application of the PRC Security Law Interpretations (2000) (Interpretations) that the treatment of PRC law towards pledge of money maintained in an account changed.

According to Article 85 of the Interpretations, money, after being placed in a specifically earmarked account, could be pledged as a kind of movable asset. The pledgee creditor has first priority over the money deposited in the earmarked account. Though usually known as a ¡§charge over bank account¡¨ in some common law jurisdictions, such kind of security is in fact a pledge of movables in the PRC ¡V i.e., pledge of the money in the charged account.