General Margin Guarantee: Identification and Rules

The practical and theoretical circles have been focusing on margin account guarantees, with little attention paid to more general margin guarantees. In addition to the margin account guarantee, there are a large number of margin guarantees in practice. If there is a margin, it may not be a margin, and the margin should be screened with the elements of the margin. For all margin guarantees, including margin account guarantees, the attribution of the margin to the giver, the involvement with the occurrence of the secured debt, and the uncertainty of whether the margin interest will occur and its specific amount determine the particularity of the relevant rules.

The issue of general margin guarantees needs to be studied urgently

Article 70 of the Interpretation of the Supreme People's Court on the Application of the Security System of the Civil Code of the People's Republic of China (Fashi [2020] No. 28) stipulates the issue of the guarantee deposit in three paragraphs. The first paragraph continues the provisions of article 85 of the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the Guarantee Law of the People's Republic of China (Fashi [2000] No. 44), which stipulates the rules for guaranteeing the margin account with a certain amount, and adds a guarantee rule for the margin account with an uncertain amount. Paragraph 2 provides for the first paragraph of the security deposit for the purpose of dividing accounts. Paragraph 3 provides for the exclusion of the creditor's right of priority to be reimbursed. Article 70 of the Interpretation takes the guarantee of the margin account as the normative object, and considers the relationship between the creditor who controls the security deposit and other creditors of the person giving the margin.

Margin account guarantee is only one type of margin guarantee. In the more common case of security deposit, the person giving the security deposit directly to the creditor, the security deposit at this time at the moment of handing over to the creditor to achieve the security function, the creditor does not need to claim otherwise to give priority to the security deposit, because the creditor is equivalent to having been paid in priority. The margin guarantee at this time does not constitute a margin account guarantee, but is still a margin guarantee. Whether this more common margin guarantee or the margin account guarantee, when the creditor receiving the security deposit is unable to return the security deposit, there is a problem with the relationship between the deposit giver and the creditor's other creditors. This problem seems to have been ignored in theory, but in practice there are endless problems.

For example, in the "Bankruptcy Case of Guangdong International Trust and Investment Company", the Guangdong Higher People's Court held that "the Securities Business Department did not set up a special margin account for account management, and the fault lies with the Securities Trading Business Department, so it cannot be considered that the ownership of the margin has changed." The Securities Trading Business Department is a branch of Guangdong SDIC, and after the bankruptcy of Guangdong SDIC, the owner of the stock can recover the margin through the bankruptcy liquidation team in accordance with the law." In this case, although the margin account guarantee was not established, the general margin guarantee was still established. It is contrary to general jurisprudence to hold that the person giving the deposit still has the right to recover after the occurrence of monetary mixing. This case may illustrate that the relationship between the giver of the deposit and the other creditors of the recipient of the deposit urgently needs to be further explored by the academic community.

The cross-departmental approach identifies three elements of margin

China's Civil Code does not stipulate a security deposit, and it is impossible to directly identify the security deposit according to the Civil Code, but other legislation stipulates a lot of statutory security deposit. For example, the guarantee deposit for release on guarantee pending further investigation provided for in article 68 of the Criminal Procedure Law, the quality assurance deposit for tourism services provided for in article 31 of the Tourism Law, the tax deposit provided for in article 59 of the Customs Law, the debt repayment deposit provided for in article 97 of the Insurance Law, the consumer rights and interests deposit provided for in article 58 of the E-commerce Law, and the performance bond provided for in article 60 of the Law on Tendering and Bidding. These statutory margins constitute the starting point for the analysis of margins, and the provisions of the statutory margin can be analyzed to analyze the three elements of the margin.

First, the security deposit belongs to the giver. Article 93 of the Customs Law stipulates the "payment" of the security deposit, article 97 of the Insurance Law stipulates that the debt is "paid off" by the security deposit, and article 110 of the Public Security Administration Punishment Law stipulates the "confiscation" of the security deposit. Whether the security deposit is "paid" or "confiscated" or used to "pay off" debts, the security deposit is "attributed" to the person giving the security deposit. The controller of the security deposit cannot "confiscate" or "pay off" the security deposit that already belongs to him, let alone "pay off" the debts of the person who gave the security deposit with the deposit that has already belonged to him. Article 28 of the Regulations on the Administration of Futures Trading even clearly stipulates that margin belongs to members and customers who give margin.

Second, the creditor directly or indirectly controls the security deposit for the purpose of security. Although the margin benefit belongs to the person giving the margin, the margin is controlled directly or indirectly by the creditor for the purpose of the guarantee. According to article 73 of the Criminal Procedure Law, the deposit for release on guarantee pending further investigation shall be paid to the bank. According to Article 97 of the Insurance Law, the security deposit for the repayment of debts of an insurance company shall be paid to the "designated bank". According to Article 67 of the Regulations on the Administration of Futures Trading, the margin shall be deposited in a special account "opened in the futures margin depository bank". According to article 202 of the Maritime Law, "the security deposit shall be deposited in the bank by the average adjuster in the name of the custodian". The creditor's control over the margin may be based on ownership and may be based on direct or indirect control over the margin account, provided that the creditor believes that the purpose of the control can be achieved.

Third, the security deposit should be returned to the person to whom the conditions have been fulfilled. In the above provisions relating to statutory security deposits, the return of security deposits is often defined as "return". The purpose of establishing a security deposit is to guarantee the obligor's performance of its obligations, and once the obligation is fulfilled or the obligation is extinguished, the purpose of establishing a security deposit has been achieved or is no longer necessary to be realized, and the security deposit should be returned according to the "attribution" of the security deposit. The return may be the return of the original, it may be the return of the price, it may be the return of the "claim", or even just the creditor's relinquishment of control over the security deposit.

The statutory margin has the above three elements, and the same is true of the intended margin. Some are called margins, because they do not have the above three elements, they do not constitute a guarantee deposit, such as a project quality assurance deposit, the debtor's ordinary deposit in the bank. Article 17 of the Interpretation of the Supreme People's Court on Issues Concerning the Application of Law in the Trial of Cases Involving Disputes over Construction Project Contracts (I) (FaShi [2020] No. 25) stipulates that the project quality assurance fee does not have the person to whom the security deposit is given, nor is there direct or indirect control by the creditor, and it is "paid" instead of "returned" to the giver after the conditions are fulfilled. As Associate Professor Long Jun said, this "engineering quality assurance fund" is actually a kind of deferred payment of the price rather than a guarantee. When the bank is unable to successfully realize the claim, it will often claim that the debtor's ordinary deposit in the bank constitutes a margin. Although the debtor's deposit in the bank belongs to the debtor and is also in an account controllable by the bank, the purpose of ordinary deposits is often not to guarantee the bank's claims, and the lack of one of the three elements of the margin does not constitute a margin.

Special rules

Whether it is a statutory security deposit or an intended security deposit, it can be defined as: "In order to secure a specific debt, the money that is handed over directly or indirectly by the creditor shall be returned to the person giving the security deposit after the purpose of the guarantee has been achieved". Based on the characteristics of margin, there are relevant special rules.

First, the margin "belongs" to the margin giver, which determines that the giver has priority over the margin interest. Generally speaking, the priority of the giver to the security deposit interest is hidden, and after the purpose of the guarantee is realized, the security deposit should be returned to the security deposit giver, and there is no right holder competing with the security deposit giver, and there is no need to discuss the priority. However, when creditors are bankrupt or other creditors claim rights, there will be a problem of priority and inferiority of different rights holders. Compared with other creditors who receive the security deposit, the deposit giver and the recipient do not have the intention of transferring the security deposit rights, and the deposit giver uses his own money as security, so it is different from other types of creditors of the deposit recipient. Different from the margin account guarantee, the general margin guarantee is concealed due to the lack of publicity to third parties, and whether it constitutes an invisible guarantee is also worth further exploration.

Second, the occurrence of the margin is intended to secure a specific debt, and the special relationship between the margin and the secured debt determines the special set-off rules between the two debts. When the debtor gives the deposit, it already has the meaning of "I am willing to give the deposit to you because I am indebted to you" and "If you cannot return my deposit, I will not pay you off the debt". From the perspective of creditors, there is the meaning of "the reason why I want you to bear the debt is because you have paid the security deposit" and "if you cannot pay the security deposit, then I do not want you to bear the debt". The meaning of this association determines that the person giving the deposit has a reasonable expectation of set-off, and that the debt returned to the deposit and the debt secured by the deposit belong to the category of "the same contract" determined by the new provisions of the second paragraph of article 549 of the Civil Code, and the set-off of the two should be carried out in accordance with this new regulation, and the set-off benefits of the person giving the deposit shall not be affected by the assignment of the creditor's claim.

Third, the occurrence and amount of the security deposit interest are uncertain, which determines the particularity of the creditor's declaration of the creditor's claim when the creditor is bankrupt. For the person giving the security deposit, there is usually no problem of declaring the claim, but when the creditor who receives the security deposit goes bankrupt, the security deposit giver must protect his own interests by declaring the claim, but the occurrence and specific amount of the security deposit at this time are uncertain. For example, if the debtor who is the giver of the security deposit defaults, the security deposit shall be returned after deducting the debt or other expenses in accordance with the security deposit agreement, and the time and specific amount of the security deposit will not be determined when the creditor receiving the security deposit is in bankruptcy. The uncertainty of the timing of the return of claims means that the creditor has not actually obtained the claim and its claim cannot be claimed; At this time, whether the security deposit giver can claim rights and how to claim rights is obviously different from the general maturity determination of claims.

(Author Affilications:Wang Jian Law School, Soochow University)

Source: China Social Science Network China Social Science Daily