In the author's article "Is the lessee bankrupt and the financial leasing lessor entitled to exercise the right to retrieve the leased property?", we have concluded through discussion that if the lessee enters bankruptcy proceedings, under certain conditions such as prior registration, the financial leasing lessor can exercise the right to retrieve the leased property. Based on this premise, in conjunction with Article 752 of the Civil Code, which states, "The lessee shall pay the rent as agreed. If the lessee fails to pay the rent within a reasonable period of time after being urged, the lessor may request payment of the full rent, or may terminate the contract and take back the leased property." The author understands that in the event of the lessee's bankruptcy, there should also be two ways for the financial leasing lessor to claim rights, One is to claim a claim on rent, and the other is to affirm the ownership of the leased property and recover the leased property. The question is, how can these two rights be exercised when the lessee goes bankrupt (including bankruptcy reorganization, the same below)? If the financial leasing lessor has filed a rental claim with the bankruptcy administrator, can it claim ownership of or retrieve the leased property after that? This article will reveal the answers to the above questions by analyzing relevant cases.

Referee gist

According to Article 10, Paragraph 2, of the Interpretation of the Supreme People's Court on the Application of Legal Issues in the Trial of Financial Leasing Contract Disputes (Revised in 2020), "If the lessor requests the lessee to pay all the unpaid rent agreed upon in the contract, and the lessee fails to perform after the judgment of the people's court, and the lessor brings a lawsuit again to request the termination of the lease contract and the recovery of the leased property, the people's court shall accept it.", After the financing lessor has declared its creditor's rights to the bankruptcy administrator, if it has not actually obtained full repayment, it still has the right to terminate the contract, apply for confirmation of ownership of the leased property, and retrieve the leased property. The act of declaring a creditor's right to the manager by the lessor of a financial lease shall not be considered as a waiver of the ownership and right to retrieve the leased property.

Case: Shandong Henglong Grain and Oil Co., Ltd. and Great Wall Guoxing Financial Leasing Co., Ltd. Civil Ruling on Reexamination, Review, and Trial Supervision of Financial Leasing Contract Disputes [Shandong Provincial High People's Court (2020) LMS No. 4314 Decision Date: August 11, 2020]

Summary of the case

1、 On January 25, 2014, Guoxing Company (Party A) and Henglong Company (Party B) signed a "Leaseback Lease Contract", stipulating that Party B shall sell its own property and mechanical equipment to Party A for a price of 120 million yuan for the purpose of "leaseback use", and then Party A shall lease the above mechanical equipment to Party B for use as a lease item; Party B shall pay Party A a rent of approximately 140 million yuan as agreed in the contract. The lease term is 48 months. After the expiration of the lease term, on the premise that all rents and expenses have been fully settled, the lessee can retain and purchase the leased property and obtain ownership, with a retention and purchase price of 100 yuan.

2、 After that, Henglong Company only paid the first five installments of rent to Guoxing Company, but the remaining rent was not paid.

3、 On August 10th, 2016, Guoxing Company sued Henglong Company and others to Xinjiang High Court, requesting payment of unpaid rent, overdue interest, and retained purchase price. The court issued a judgment on May 15, 2017 in support of the litigation claims other than the purchase price retention.

4、 On March 24, 2017, the court of first instance of this case accepted the bankruptcy reorganization application of Henglong Company and others.

5、 On April 27, 2017, Guoxing Company declared its creditor's rights to the manager of Henglong Company, with a total amount of 96296936.44 yuan.

6、 On December 13, 2017, Henglong Company paid a retention fee of 100 yuan to Guoxing Company through bank transfer.

7、 Later, Guoxing Company filed a lawsuit to the court requesting confirmation that Guoxing Company had ownership of the leased property leased to Henglong Company.

The court held that

Regarding the lawsuit request of Guoxing Company to confirm that the leased property leased by Guoxing Company to Henglong Company belongs to it:
The court of first instance held that Hang Lung Company had obtained ownership of the leased property by paying a retention purchase price of 100 yuan.
Firstly, the effective civil judgment has determined that Henglong Company has the right to repurchase, and Guoxing Company's creditor's rights should be compensated in accordance with the provisions of the bankruptcy law. The Xinjiang High Court issued a civil judgment (2016) Xinminchu Zi No. 79, affirming that "upon the expiration of the lease term, Henglong Company can obtain the ownership of the lease item involved by paying the retention purchase price, that is, whether to obtain the ownership of the lease item involved belongs to the right of Henglong Company's independent choice.". Before the judgment of this case, Henglong Company and Changhua Company had been ruled by the court of first instance to merge, go bankrupt, and reorganize, and are currently in the process of reorganization. Guoxing Company, as a creditor, has declared its creditor's rights to Henglong Company that have been confirmed by the administrator, and should participate in the bankruptcy reorganization process for the confirmed creditor's rights, and be compensated in accordance with the provisions of the Enterprise Bankruptcy Law. According to Article 94 of the Enterprise Bankruptcy Law, the debtor will no longer be liable for repayment of debts that are reduced or remitted in accordance with the reorganization plan as of the completion of the implementation of the reorganization plan. Therefore, on the premise that Hang Lung Company has entered bankruptcy and reorganization proceedings, the condition agreed by both parties that "all rents and related expenses are fully settled" has been achieved. "If, on the ground that Hang Lung did not pay all the rent and other expenses, and did not meet the retention and purchase premise of" all the rent and related expenses have been fully settled "agreed by both parties, the denial of Hang Lung's retention and purchase right would be inconsistent with the above effective judgment, denying that Hang Lung, which has been confirmed in the effective judgment, has the right to choose whether to acquire the ownership of the leased property involved.".

Secondly, upon the expiration of the lease term, Hang Lung Company has the right to acquire ownership of the leased property after paying the purchase retention price. Article 248 of the Contract Law stipulates that "the lessee shall pay the rent in accordance with the agreement. If the lessee fails to pay the rent within a reasonable period of time after being urged to do so, the lessor may demand payment of the entire rent; it may also terminate the contract and take back the leased property.". Article 250 stipulates that "the lessor and the lessee may agree on the ownership of the lease item at the end of the lease term.". In the (2016) Xinminchu Zi No. 79 case, Guoxing Company has made a choice to exercise its rent creditor's rights or property rights in the leased property. Instead of terminating the contract and recovering the leased property, Guoxing Company has chosen to claim overdue rent, accelerated rent, and repurchase fee of 100 yuan. In essence, it advocates continued performance and accelerated maturity of the contract, requiring Henglong Company to bear the liability for breach of contract due to accelerated maturity, "Its claim for payment of all rent and interest by Hang Lung Company and others has been supported by an effective judgment, and it shall be deemed that the lease term has expired.".
The Rizhao Intermediate People's Court of Second Instance overturned the judgment of the court of first instance and held that:

Article 21 (2) of the Interpretation of the Supreme People's Court on the Application of Legal Issues in the Trial of Financial Leasing Contract Disputes stipulates: "If the lessor files a lawsuit for the cancellation of the financial leasing contract and the recovery of the leased property after the lessor has not paid off all the rent, the people's court shall accept the lawsuit. Currently, Henglong Company is in the stage of bankruptcy and reorganization, and the claims declared by Guoxing Company are only recognized as valid claims by the administrator.", However, Guoxing Company has not participated in the distribution of bankruptcy property, and the court of first instance has not ruled to implement the bankruptcy property distribution plan. Guoxing Company's creditor's rights have not yet been realized, and the first instance has determined that the conditions agreed upon by both parties for "full settlement of all rents and related expenses" have been achieved inappropriately.

In summary, Article 242 of the Contract Law of the People's Republic of China stipulates: "The lessor enjoys the ownership of the leased property, and if the lessee goes bankrupt, the leased property does not belong to the bankruptcy property." According to the provisions of the Leaseback Lease Contract, the ownership of the leased property in the case has been transferred from Henglong Company to Guoxing Company, and now Henglong Company claims that it obtained the ownership of the leased property in the case by paying 100 yuan of purchase retention money to Guoxing Company, However, the conditions stipulated in the contract for the lessee to exercise the right of retention and purchase have not been fulfilled. According to the contract and legal provisions, the ownership of the leased property involved in the case still belongs to Guoxing Company.

The Shandong Provincial Higher People's Court of retrial affirmed the verdict of the court of second instance and held that:

Article 21 (2) of the Interpretation of the Supreme People's Court on the Application of Legal Issues in the Trial of Financial Leasing Contract Disputes stipulates: "If the lessor files a lawsuit for the cancellation of the financial leasing contract and the recovery of the leased property after the lessor has not paid off all the rent, the people's court shall accept it." In this case, Henglong Company is in the stage of bankruptcy and reorganization, and the claims declared by Guoxing Company are only recognized as valid claims by the administrator, Guoxing Company has not participated in the distribution of bankruptcy property, and its creditor's rights have not been realized. If the rent has not been repaid, there is a rent creditor's right. The declaration of creditor's rights by Guoxing Company in the bankruptcy proceedings does not affect its claim to the ownership of the equipment involved. In addition, the retrial court also held that the financial leasing contract involved in the case was a contract that had not been fully performed by both the lessee and the other party. According to Article 18 of the Enterprise Bankruptcy Law, the court of first instance ruled to accept the bankruptcy reorganization application of Henglong Company on March 24, 2017. If the administrator did not notify Guoxing Company to continue performing the contract, it should be deemed that the Leaseback Lease Contract in the case was dissolved on May 24, 2017, and Guoxing Company has the right to claim ownership of the leased property under the contract, The court of second instance held that the conditions agreed upon by both parties for "full settlement of all rents and related expenses" were not fulfilled and were not inappropriate. According to the "Leaseback Lease Contract", the ownership of the leased property in the case has been transferred from Henglong Company to Guoxing Company. Currently, Henglong Company claims that it obtained the ownership of the leased property in the case by paying a purchase retention payment of 100 yuan to Guoxing Company, but the conditions agreed in the contract for the lessee to exercise the purchase retention right have not been fulfilled, and the ownership of the leased property in the case still belongs to Guoxing Company. The second instance judgment also found that this was not improper. Based on this, the retrial court ruled to reject the retrial application of Shandong Henglong Grain and Oil Co., Ltd.

Evaluation and Analysis of the Key Points of Judgmen

First of all, it should be noted that the legal facts and trial of this case occurred before the implementation of the Civil Code. Therefore, it is correct for the three levels of courts to make decisions using the laws before the implementation of the Civil Code. Regarding the question raised at the beginning of this article, the author believes that there have been no substantive changes in the legal provisions before and after the implementation of the Civil Code.

Secondly, there are currently no clear legal provisions and guiding cases to follow regarding the bankruptcy (or reorganization) of the lessee and whether the financial leasing lessor can retrieve the leased property from the administrator. However, the author has discussed and reached a tendentious opinion in the article "Is the lessee bankrupt, does the financial leasing lessor have the right to exercise the right to retrieve the leased property?", that is, if the lessee goes bankrupt (reorganizes), and certain conditions such as prior registration are met, the financial leasing lessor has the right to retrieve the leased property. The specific reasoning process will not be repeated in this article.

Based on the above premise, let me return to the question I want to answer in this article: In the case of a lessee's bankruptcy, if the financial leasing lessor has filed a claim with the bankruptcy administrator, can it still claim ownership of the leased property or retrieve the leased property?

The legal provisions related to the above issues have not changed substantially before and after the implementation of the Civil Code, but the judicial results in practice are not uniform. After searching and analyzing similar cases, the author found that current mainstream judicial practice believes that the lessee is bankrupt, and the financial leasing lessor can still claim ownership of the leased property or retrieve the leased property after filing a claim with the administrator. In addition to this view held by the court of second instance and the court of retrial in this case, there are also examples of the "extended reading" section of the Shandong High Court hearing the "second instance case of the dispute over the general recall right of Beijing Jingcheng International Finance Leasing Co., Ltd. and Shandong Fangming Chemical Co., Ltd.", the "second instance case of the dispute over the lease contract of Maanshan Shengmao Property Management Co., Ltd. and Great Wall Guoxing Financial Leasing Co., Ltd." "The second instance of the dispute over the confirmation of ordinary bankruptcy claims of China Eastern Asset Management Co., Ltd. and Sichuan Changzheng Machine Tool Group Co., Ltd." heard by the Sichuan High Court, and the first instance of the dispute over financial leasing contracts between Bank of Communications Financial Leasing Co., Ltd. and Giant Auto Trade Group Co., Ltd. and Sino American Tiandao (Beijing) Biotechnology Co., Ltd. heard by the Shanghai Financial Court all hold this view. ". The main reason for courts adopting this rule of adjudication is that Article 752 of the Civil Code stipulates that the lessee shall pay the rent as agreed. "If the lessee fails to pay the rent within a reasonable period of time after being urged to do so, the lessor may request payment of the entire rent;"; You can also terminate the contract and take back the lease item. (Corresponding to Article 248 of the original Contract Law) and Article 10 (2) of the Interpretation of the Supreme People's Court on the Application of Legal Issues in the Trial of Financial Leasing Contract Disputes (Revised in 2020) (hereinafter referred to as "the Interpretation of Financial Leasing") provide that if the lessor requests the lessee to pay all the unpaid rent agreed upon in the contract, and the lessee fails to perform after the judgment of the people's court, the lessor shall file a lawsuit to request the termination of the lease contract "If the lease item is taken back, the people's court shall accept it.". (Corresponding to the second paragraph of Article 21 of the original interpretation of financial leasing), it can be seen that paying the full rent and rescinding the contract, as well as taking back the leased property, are two ways of safeguarding the rights of the financial lessor that are endowed with equal value by law. In theory, both of them can achieve the commercial purpose of signing the financial leasing contract in the same value. When the lessor of a financial lease fails to fully recover its rent, the lessor of the financial lease still has reasons to request the termination of the contract, confirm its ownership of the leased property, and retrieve the leased property. This is also true in the case of bankruptcy (reorganization) of the lessee. Even if the financial leasing lessor has declared its creditor's rights to the bankruptcy administrator, it is possible that the financial leasing lessor did not ultimately participate in the distribution of the bankruptcy property, or did not obtain full repayment in the distribution of the bankruptcy property. At this time, if the financial leasing lessor's declaration of creditor's rights affects its claim of ownership of the leased property, it is equivalent to the financial leasing lessor's rights being unreasonably deprived or impaired. "If there is no express provision in the law, the rights of any person cannot be deprived or derogated from.". At the same time, financial leasing lessors exercise this option to place their rights and interests in an uncertain or unfavorable state, which may be a risk that they cannot foresee when making a choice, which is unfair to financial leasing lessors. Of course, this is not in line with the legislative intent of the above legal provisions. Obviously, the legislative intent of the above legal provisions is that the combination of the above two rights protection methods can protect the observant lessor from obtaining full repayment. Therefore, the author's view is that in financial leasing transactions, the lessor's declaration of creditor's rights in bankruptcy proceedings cannot be considered as having made the only choice between rent creditor's rights and ownership of the leased property, nor can it be considered as having waived the ownership and retrieval rights of the leased property.

So, how do you understand the provisions of Article 10, paragraph 1, of the Interpretation of the Supreme People's Court on the Application of Law to the Trial of Financial Leasing Contract Disputes: "If the lessor requests the lessee to pay all the unpaid rent agreed upon in the contract and also requests to terminate the financial leasing contract, the people's court should inform it to make a choice in accordance with the provisions of Article 752 of the Civil Code."? The provision of this paragraph seems to regulate that the lessor of a financial lease cannot claim all the rent claims and terminate the contract to retrieve the real right of the leased property simultaneously. For example, in the "Extended Reading" section, "The Second Trial of the Dispute over the Confirmation of Bankruptcy Claims of Wanxiang Leasing Co., Ltd. and Zhejiang Longxi Investment Group Co., Ltd." heard by the Zhejiang Hangzhou Intermediate Court, and "The Second Trial of the Dispute over the Withdrawal Rights of Shanzhong Finance Leasing Co., Ltd. and Enshi Shanzhai Leather Co., Ltd." heard by the Hubei High Court hold this view. According to this view, the lessor of a financial lease cannot demand both payment of the full rent and termination of the contract and recovery of the leased property, otherwise it will constitute a double compensation. In addition, the financial leasing lessor shall declare its creditor's rights to the administrator as having made a choice of its own rights and shall no longer claim to terminate the contract to retrieve the leased property, otherwise it will violate the principle of fair compensation under the bankruptcy law and harm the interests of other creditors. The author believes that the combination of Article 752 of the Civil Code and the "Interpretation of Financial Leases" is indeed intended to prevent financial lessors from obtaining dual compensation. However, starting from the overall interpretation and purpose interpretation of the above legal provisions, this dual compensation is based on the actual effect, rather than the initial choice of time and path. Therefore, after the financial leasing lessor has made a declaration of creditor's rights, if it has not been fully repaid, it still has the right to terminate the contract, apply for confirmation of ownership of the leased property, and retrieve the subject matter. Of course, after the lessor cancels the contract and retrieves the subject matter, "The parties agree that the leased property shall belong to the lessee upon the expiration of the lease term, and the lessee has paid most of the rent, but is unable to pay the remaining rent. As a result, the lessor terminates the contract and repossess the leased property. If the value of the repossessed leased property exceeds the rent and other expenses owed by the lessee, the lessee may request a corresponding return.", That is, the portion of the retrieved leased property that exceeds the rent and other expenses owed by the lessee shall be returned to the lessee.

Practical Summary and Suggestions

In summary, the author tends to believe that in a financial leasing transaction, if the lessee enters bankruptcy proceedings, and after the financial leasing lessor declares its creditor's rights to the bankruptcy administrator, if it has not actually obtained full repayment, it still has the right to terminate the contract, apply for confirmation of ownership of the leased property, and retrieve the leased property. Of course, in this case, if a request is made to confirm the ownership and retrieval rights of the leased property, it is necessary to meet the relevant conditions stipulated in the prior registration and financial leasing contract in advance. It should be noted that the important principle of bankruptcy proceedings is to enable all creditors to obtain fair repayment, especially in the bankruptcy and reorganization proceedings, which also bear the task of saving the enterprise. Therefore, even if the above tendentious determination is made in theory, in practical operation, due to the ambiguity of legal provisions, the lack of uniform judicial practice, and different perceptions of administrators, As well as the differences between the actual situation of each bankrupt enterprise and the specific circumstances such as the financial leasing contract agreement, there is still a risk that the financial leasing lessor's application may not be realized. Therefore, the author suggests that financial leasing lessors should pay close attention to whether there are significant changes in the lessee's operating conditions, and try to actively claim rental claims or retrieve the leased property from the lessee before it undergoes adverse changes or enters bankruptcy proceedings. After the lessee enters bankruptcy proceedings, it is recommended that the financial leasing lessor actively communicate with the bankruptcy administrator and consider actively declaring claims to the administrator first. If the ownership of the leased property has been registered, the administrator can be requested to confirm it as a priority claim and receive priority compensation from the proceeds from the disposal of the leased property. After that, it is recommended that financial leasing lessors still need to pay close attention to the progress of the bankruptcy proceedings, understand the auction and sale of the leased property, the situation of the bankruptcy property, the liquidation rate of bankruptcy claims, and other situations. If there is a risk that the declared claims cannot be fully repaid, they should promptly initiate a claim and petition to the administrator or court to confirm the ownership of the leased property and retrieve the leased property, and strive for the right to recover the leased property, The residual value of the leased property shall be used to compensate for the unpaid rent and related losses of the lessor.

Extended Reading

Four positive cases:

[Case 1] The second instance of the dispute between Beijing Jingcheng International Finance Leasing Co., Ltd. and Shandong Fangming Chemical Co., Ltd. over the general recall right: Shandong Provincial High People's Court (2020) LMZ No. 1347 Judgment Date: August 4th, 2020

The Shandong High Court of the Court of Second Instance held that:

Our court believes that in the previous case, i.e. the court of first instance (2019) Lu 17 Min Chu No. 171 case, the lessor, Jingcheng Company, requested Fangming Company to return all the leased items under the "Financial Lease Contract" based on the financial leasing relationship; In the later case, i.e. the court of first instance (2019) No. 703 case, in the case of Fangming Company's bankruptcy, Jingcheng Company exercised the right of bankruptcy recovery in accordance with Article 38 of the Enterprise Bankruptcy Law. In the two cases mentioned above, although there are differences in the way and factual reasons for the exercise of the right of action by Jingcheng Company, in essence, Jingcheng Company exercises the right of claim based on the fact that it has ownership of the leased property. "While the appeal case from the previous case, i.e. our court's (2020) LMZ No. 685, has not yet been concluded, Jingcheng Company filed a subsequent case, which constitutes a duplicate prosecution. The court of first instance ruled that it was not improper to dismiss Jingcheng Company's lawsuit on this ground.". However, it should be noted that a new fact emerged in the second instance of this case, that is, the court's (2020) LMZ 685 case has been concluded, and the situation that constitutes a duplicate prosecution has disappeared. Moreover, the declaration of rental claims by Jingcheng Company in the bankruptcy proceedings of Fangming Company does not constitute a determination that Jingcheng Company has made a choice between rental claims and ownership of the leased property, nor can it be considered that Jingcheng Company has waived ownership of the leased property. Therefore, when the trial of the (2020) LMZ No. 685 case has been concluded, the court of first instance should accept the case. In summary, the appeal request of Jingcheng Company is established.

[Case 2] The second instance of the lease contract dispute between Maanshan Shengmao Property Management Co., Ltd. and Great Wall Guoxing Financial Leasing Co., Ltd. Anhui Provincial High People's Court (2020) No. 375 Wanminzhong Judgment Date: July 3rd, 2020
The Anhui High Court of the Court of Second Instance held that:

The "Leaseback Lease Contract" and "Leaseback Sales Contract" signed by Shengmao Property Company and Guoxing Leasing Company are the true expressions of intent of both parties, which do not violate the mandatory provisions of laws and administrative regulations, and should be legal and effective. According to the above contract, Shengmao Property Company and Guoxing Leasing Company conducted financial leasing through sale and leaseback, and Guoxing Leasing Company paid a consideration of 45 million yuan to Shengmao Property Company. Therefore, Guoxing Leasing Company has obtained the ownership of the leased property in accordance with the contract. The "Leaseback Lease Contract" stipulates that during the lease term, the ownership of the leased property belongs to Guoxing Leasing Company, which will continue to be occupied and used by Shengmao Property Company. Upon the expiration of the lease term, on the premise of paying off all the rent and related expenses, Shengmao Property Company shall acquire the ownership of the leased property from the date of paying the retention and purchase price of the leased property to Guoxing Leasing Company. Since the effective judgment has determined that Shengmao Property Company has not paid the due rent and related expenses, its behavior constitutes a breach of contract. Therefore, in the absence of evidence from Shengmao Property Company to prove that it has fully paid the rent and related expenses, the conditions for exercising the right of retention agreed in the contract have not been fulfilled, and the leased property in the case still belongs to Guoxing Leasing Company. Currently, due to the bankruptcy proceedings of Shengmao Property Company, Guoxing Leasing Company has filed a claim with the manager of Shengmao Property Company, but the act of filing a claim does not necessarily lead to the transfer of ownership of the leased property.

In summary, the appeal request of Shengmao Property Company not to confirm that the leased property involved in the case belongs to Guoxing Leasing Company cannot be established and should be rejected. The original judgment clearly identified the facts and correctly applied the law, which should be upheld.

[Case 3] The second instance of the dispute over the confirmation of creditor's rights in the ordinary bankruptcy of China Eastern Asset Management Co., Ltd. and Sichuan Changzheng Machine Tool Group Co., Ltd. Sichuan Provincial High People's Court (2020) CMZ No. 1413 Judgment Date: November 18, 2020

The Sichuan High Court of Second Instance held that:

On the issue of disputed equipment ownership. Dongfang Asset Management Company claims that the disputed equipment does not belong to the Financial Holding Leasing Company on the grounds that there is a significant difference between the financial leasing object and the subject matter of its mortgage, the disputed equipment has been included in the bankruptcy property, and the Financial Holding Leasing Company has waived the ownership of the leased object by claiming rent claims. In response, the Court believes that the equipment in dispute was also the subject matter of the financial leasing relationship when the mortgage was established. According to the Financial Leasing Contract signed between Financial Holding Leasing Company (the lessor) and Changzheng Machine Tool Company (the lessee), the ownership of the leased property belongs to the lessor before all debts under the contract are paid off and the residual value transfer price is paid off. Accordingly, the ownership of the equipment in dispute is clear and belongs to the Financial Holding Leasing Company. Article 21 (2) of the Interpretation of the Supreme People's Court on the Application of Legal Issues in the Trial of Financial Leasing Contract Disputes stipulates that, after the court makes a judgment to pay the remaining rent based on the lessor's request, if the lessee fails to perform, the lessor can still sue to recover the leased property. Therefore, the claim by the Financial Leasing Company or the court's judgment to pay the remaining rent does not mean that the Financial Leasing Company has waived its ownership of the leased property. As for the question of whether the listing of contentious equipment in the bankruptcy reorganization property should be considered as the property of Changzheng Machine Tool Company, it should be noted that the goal of bankruptcy reorganization is to achieve corporate rescue while liquidating debts. In this process, there may be restrictions on the exercise of security interests and recovery rights, so the fact that it has been listed in the bankruptcy reorganization property does not of course become the only basis for determining the ownership of contentious equipment.

[Case 4] First instance case of financial leasing contract dispute between Bank of Communications Financial Leasing Co., Ltd. and Giant Auto Trade Group Co., Ltd., Sino American Tiandao (Beijing) Biotechnology Co., Ltd. Shanghai Financial Court (2018) Hu 74 Min Chu No. 171 Judgment Date: February 12, 2020

The Shanghai Financial Court of First Instance held that:

The Court believes that the "Financial Leasing Contract" signed by the plaintiff and the defendant Pang Da Auto Trading Co., Ltd., the "Mortgage Contract" signed by the plaintiff and the defendant Sino American Tiandao Co., Ltd., and the "Guarantee Contract" signed by the plaintiff and the defendant Pang Qinghua are all true expressions of intent of the parties, which are legally valid and should be strictly observed by all parties. "The plaintiff performed its contractual obligations in accordance with the contract, while the defendant Pangda Automobile Trading Company failed to perform its obligation to pay the rent on schedule, which has constituted a breach of contract. In accordance with the provisions of the Contract Law of the People's Republic of China, the Interpretation of the Supreme People's Court on Legal Issues Applicable to the Trial of Financial Leasing Contract Disputes, and the provisions of the Financial Leasing Contract, the plaintiff has the right to terminate the Financial Leasing Contract involved in the case and take back the leased property.", And requested the defendant Pangda Automobile Trading Company to compensate for the corresponding losses.
The court also held that the leased property in the Financial Leasing Contract in this case is the steel structure and ancillary facilities of a 4S store. The leased property has a clear structure, is easy to identify, and is relatively independent. The plaintiff can choose multiple methods such as discounts, sales, and so on to recover it. Even if the demolition does not necessarily affect property rights, the court supports the plaintiff's request to recover the leased property from Bank of Communications Leasing Company.

Two negative cases:

[Case 1] The second instance of the bankruptcy and creditor's rights confirmation dispute between Wanxiang Leasing Co., Ltd. and Zhejiang Longxi Investment Group Co., Ltd. Hangzhou Intermediate People's Court of Zhejiang Province (2020) Z01 Minzhong No. 7574 Judgment Date: 2020.12.04

The Hangzhou Intermediate Court of the Court of Second Instance held that:

The Court believes that according to the contract between the appellant Wanxiang Company and Longxi Group and relevant legal provisions, the relationship between the two parties constitutes a financial leasing relationship, and the rights and obligations between the two parties are regulated by relevant provisions of the Contract Law. According to Article 248 of the Contract Law of the People's Republic of China, if the lessee Longxi Group still fails to pay the rent within a reasonable period of time after being urged to do so, Wanxiang Company, as the lessor, may require it to pay the full rent or terminate the contract and take back the leased property. "However, it is not possible to require both the payment of the full rent and the termination of the contract and the recovery of the leased property.". When Wanxiang Company filed a lawsuit in Xiaoshan District People's Court of Hangzhou City, it voluntarily withdrew its application for confirmation of ownership of the leased property. Therefore, in this case, Wanxiang Company has essentially made a choice to require the lessee to pay the full rent. And its claim to pay the full rent was also supported by the civil judgment (2014) Hangxiao Shangchu Zi No. 3190. Wanxiang Company has also made a claim declaration to the administrator regarding the content of the civil judgment, and Wanxiang Company has made a choice on its own rights. Now, Wanxiang Company has again filed a lawsuit to retrieve the leased property, which our court does not support.
[Case 2] Reexamination of the Dispute over Withdrawal Rights between Shanzhong Financial Leasing Co., Ltd. and Enshi Shanzhai Leather Co., Ltd. Hubei Provincial High People's Court (2019) EMS No. 4494 Decision Date: December 18, 2019

The Hubei High Court of the retrial court held that:

After review, our court believes that based on the facts identified in the second instance, after the bankruptcy reorganization application of Shanzhong Company was accepted by the court of second instance, Shanzhong Company has declared its creditor's rights to the manager of Shanzhong Company in accordance with the civil judgment (2017) Jing 0105 Min Chu 47022 issued by the People's Court of Chaoyang District, Beijing. The rent declared by the manager of Shanzhong Company and the liquidated damages are recognized as ordinary creditor's rights. According to Article 248 of the Contract Law of the People's Republic of China, "The lessee shall pay the rent in accordance with the agreement. If the lessee fails to pay the rent within a reasonable period of time after being urged to do so, the lessor may demand payment of the full rent; it may also terminate the contract and take back the leased property", and Article 21 of the Interpretation of the Supreme People's Court on the Applicable Legal Issues in the Trial of Disputes over Financial Leasing Contracts "If the lessor requests both the lessee to pay all the unpaid rent agreed upon in the contract and to terminate the financial leasing contract, the people's court shall inform it to make a choice in accordance with Article 248 of the Contract Law. If the lessor requests the lessee to pay all the unpaid rent agreed upon in the contract, and the lessee fails to perform after the judgment of the people's court, and the lessor brings a further lawsuit to terminate the lease contract or take back the leased property, the people's court shall accept the decision.", In a dispute over a financial leasing contract, when the lessee defaults in paying the rent, the lessor claims the right to make a choice, or claims that the lessee pays all the unpaid rent agreed upon in the contract, or claims to terminate the financial leasing contract and retrieve the leased property, but cannot claim both claims at the same time. In this case, Shanzhong Company has claimed to pay all unpaid rents and liquidated damages agreed upon in the contract to Shanzhai Company. After the effective judgment, Shanzhong Company has declared its creditor's rights to the manager of Shanzhai Company, that is, Shanzhong Company has made a choice on its own rights, and the original judgment was not improper.