(a) Is the system of ownership rights in respect of both land and other property reasonably stable and certain in this economy?

 

Yes.

According to the Civil Code, the transfer of ownership title of, and the creation of security interest in, the real estate must be registered with the government authorities. Otherwise, the title transfer or the creation of security interest will be deemed void. The real estate registration system in Taipei,China has been in place for many years and functioned efficiently and smoothly.

For the mortgage created on chattels, to invoke the security interest against third parties, the chattel mortgage needs to be registered with the government authorities.

It is also common for financial institutions to accept pledges on securities, e.g., share certificates, bonds, and certificate of deposits to secure their lendings. No registration is required for the pledge on securities in bearer form; but if the securities are in registered form, the pledge will be needed to be registered with the issuer of the securities.

 

(b) In particular:

(i) is the system of land ownership and rights sufficiently developed to encourage lending on the security of land; and

 

Yes.

 

(ii) is the system of ownership and rights in relation to property other than land sufficiently developed to encourage lending on the security of such property?

 

Yes, it becomes more and more popular for financial institutions to take other properties, such as chattels or securities as collateral since the systems provide the creditors with the convenience to create legal, valid and binding security interest.

(a) What mechanisms for taking of security over assets of a corporate borrower are available to financiers in this economy (for example mortgages over land; fixed and/or floating charges over personal property; legal and/or equitable mortgages; debentures; pledges; liens, etc.)?

 

The mechanism for taking of security over assets of a corporate borrower to financier include:

• mortgage over the land owned by the corporate borrower;
• mortgage over buildings (such as its office buildings and factory sites) owned by the corporate borrower;
• mortgage over the machinery and equipment owned by the corporate borrower;
• pledge over share certificates, corporate bonds or government bonds owned by the corporate borrower;
• pledge over negotiable certificates of time deposit owned by the corporate borrower;
• trust receipt on the inventories of the corporate borrower; and
• conditional sale arrangement for machinery, equipment and transportation vehicles.

There is no such concept of "floating charge" under the laws of Taipei,China.

(b) In practice, which of these types of security are most commonly employed by financiers?

 

Item (vi) is seldom used.

(c) Is there a system of registration in this economy for any of these types of security taken by financiers?

 

As described above, except for the pledge on bearer form securities, the abovementioned security interest is needed to be registered with either government authorities or the issuers of securities.

 

(d) To what extent are priorities between competing securities regulated?

 

The priorities of real estate mortgage are decided by the sequence of the registrations. A conditional sale created on the mortgaged chattel is void. As to the other security arrangements, it is not possible to have competing securities.

(a) When a corporate borrower is in financial difficulties and a secured debt has become due, would it be usual or customary for a secured lender and/or the corporate borrower to attempt to negotiate a suitable arrangement for repayment and/or refinancing before the secured lender invokes legal enforcement methods?

 

To prevent from time-consuming legal process and the value decrease of the mortgaged property through court auction, it is usual for the secured lender to negotiate a suitable arrangement for repayment before foreclosing the secured property or invoking legal enforcement procedure.

 

(b) What mechanisms are available to security holders to enforce their securities under the legal system of this economy (For example, power to take possession of the property, power to appoint a receiver, power to foreclose on a mortgage, power to sell the secured property, power to wind up the corporate borrower)?

 

In case of the real estate mortgage, the mortgagee is entitled to (i) petition to the court for the foreclosure of the mortgage by way of selling the real estate in court auctions or (ii) acquire the real estate by way of participating the court auction or entering into a contract with the mortgagor after the borrower's default.

In case of the chattel mortgage, the mortgagee is entitled to (i) repossess the mortgaged chattel, (ii) petition to the court for the foreclosure of the mortgage by way of selling the chattel in court auctions, (iii) sell the chattel in a private sale witnessed by a notary public or representative of business association, or (iv) acquire the chattel by way of participating the court auction or the private sale or entering into a contract with the mortgagor after the borrower's default.

In case of the pledge, the pledgee is entitled to (i) petition to the court for the foreclosure of the pledge by way of selling the pledged property in court auctions, (ii) sell the pledged property in a private sale witnessed by a notary public or representative of business association, or (iii) acquire the pledged property by way of participating the court auction or the private sale or entering into a contract with the pledgor after the borrower's default.

The creditor may petition to the court for the reorganization or bankruptcy of a company in financial difficulties.

 

(c) Do these methods include that a secured creditor may 'self-enforce' the security (ie, without the need for an order of a court or the consent of a regulatory authority)?

 

Except for the real estate mortgage, it is possible that mortgagees or pledgees may "self-enforce" the security by way of repossession (in case of chattel mortgage) or private sale (in case of chattel mortgage and pledge). With respect to the foreclosure of the pledge over shares of a listed company which are deposited with Taiwan Securities Central Depository Co., Ltd., the pledgee can sell the pledged shares through the book-entry system without the court order.

 

(d) In practice, which method(s) of enforcement are most commonly employed by security holders?

 

The court auction in case of real estate mortgage and chattel mortgage. The private sale in case of share pledges.

 

(e) Briefly describe the process involved in these method(s).

 

Following a default, the lender shall first file a petition to the court for the foreclosure and sale of the security. After such order is granted and the foreclosure of such security is completed, to conduct an auction of security, the court will order an expert to fix the first floor price for such security, and make a public announcement, which includes relevant information relating to the auction, to invite bidder to join the court auction. The first auction will then be conducted and the lender will obtain the proceeds of the sale of such security, if successful.

Where no bidder bids for the security or the highest price offered by the bidders is lower than the first floor price, a second auction will be arranged with a second floor price which is less than the first floor price up to 20% thereof. The second auction will be carried out in the same way as the first auction. If the security still cannot be sold in the second auction, a third auction will be arranged with a third floor price which is less than the second floor price up to 20% thereof. The third auction will be carried out in the same way as the first auction. If the security cannot be sold in the third auction, the lender may choose to acquire such unsold security, or the court may order a compulsory administration for such security, or a re-evaluation for the security may be made upon the application of the lender and in such event, the series of actions as mentioned shall be proceeded with again.

After the default, the lender may enter an agreement with the security provider to acquire the ownership of such security or to dispose of the security by any means other than a court auction. However, any agreement which provides that the ownership of the security will automatically be transferred to the lender upon the default by the borrower will be void.

(a) How effective is the judicial or court system for the purpose of enforcing secured property rights?

 

A court auction will normally take 4-6 weeks, however, different types of security (such as the security which does not have a market price) may take a longer time.

(a) What effect, if any, does the commencement of insolvency proceedings in respect of the corporate borrower (ie where an application has been filed for some type of insolvency procedure but has not yet been adjudicated) have on the process of security enforcement?

 

The commencement of insolvency proceedings will not affect the process of security enforcement except that in case of the reorganization of a corporate borrower which is a public company, a moratorium is generally ordered by the court in which case the secured creditor cannot exercise the security rights and has to follow the reorganization plan approved by the court.

 

(b) What effect, if any, does the formal pronouncement of an insolvency administration in respect of the corporate debtor have on the process of security enforcement?

 

Please refer to (a) above.