New Rules by the Supreme Court of China on Private Loans Effective from Sept 1
The Rules on the Application of Law in the Adjudication of Private Loan Cases issued by the Supreme Court of China (the “Rules”) became effective from Sept. 1st. The Rules were made to replace the previous ones that were made in 1991 and have been out of date under the current situation that private loaning is very active and popular.
I. Companies borrowing/lending among one another is lawful
Under the previous rules that govern the private loaning for the past 24 years, inter-company loaning is taken as in violation of the finance supervision of the state and thus null and void. This is totally changed by the Rules. The Rules provided that it is lawful and protected by law that companies borrow/ lend money among each other, or borrow money from staff, for the purpose of running business (other than financing business).
II. Maximum interest rate
The Rules provide that the maximum interest rate that is supported by court is 24% per annual. That is to say, as long as the interest rate agreed between the parties is not higher than 24% per annual, the claim of interest will be supported by court; while if the interest rate agreed between the parties is higher than 24% per annual, the part of interest claim exceeding 24% per annual will not be supported by court.
The interest rate between 24% and 36% per annual is the natural debt, which means if the borrowing party voluntarily pays the interest up to 36% per annual, such payment cannot be recalled, and any cause of action to claim back the voluntary payment of such interest will not be supported by court. However, the part beyond 36% per annual is invalid agreement and shall be restored. If the voluntary payment of interest is beyond 36% per annual, the exceeding part can be claimed back through a civil action.
III. Where unlawful raise of fund is involved in a private loaning case
Where the borrowing/loaning facts of a private loaning case is actually suspected of the crime of unlawful raise of fund, the court shall decide not to accept the case or dismiss it, and then transfer the clues and evidences of the facts to public security or procuratorate authorities.
Where a crime is related to the private loaning case but not arising out of the same fact, the court shall continue to adjudicate the private loaning case while transferring the clues of the crime to the investigation authority.