Point of View... SOE financing guarantee management compliance review points.

The provisions on security in the Civil Code are mainly reflected in the provisions on security interests in the Code of Rights and the provisions on guarantee contracts in the Code of Contracts. Along with the implementation of the Civil Code, the Supreme People's Court issued the Law on the Application of the Civil Code.<中华人民共和国民法典>The interpretation of the guarantee system, that is, the judicial interpretation of the guarantee system, further clarifies and perfects the judicial application of the guarantee system. Although there are special requirements for the guarantee behavior of state-owned enterprises, they should still meet the general requirements of the Civil Code and judicial interpretations. For example, Article 380 of the Civil Code stipulates that if the debtor, guarantor and creditor are at fault after the guarantee contract has been confirmed to be invalid, they shall bear the corresponding civil liability according to their fault. Therefore, if a state-owned enterprise provides a guarantee in violation of the law that results in the invalidity of the guarantee, it is still liable in accordance with the provisions of this article.

Article 16 of the Company Law requires the company to provide guarantees to others, in accordance with the provisions of the articles of association of the company, by the board of directors or the shareholders' meeting or the general meeting of shareholders. This article restricts the representation of the legal representative, that is, the act of guarantee is not a matter that the legal representative can decide alone, and the resolution of the board of directors or the shareholders' meeting, the general meeting of shareholders and other corporate organs must be used as the basis and source of authorization.

Articles 17 to 20 of the "Nine People's Minutes" clarify the following issues:

1. The company's external guarantee needs to be resolved in accordance with the procedures stipulated in Article 16 of the Company Law; the legal representative who provides guarantees for others without authorization constitutes an ultra vires representative; the validity of the guarantee contract in the case of ultra vires representative depends on the relative Whether the person is in good faith.

2. The judgment of whether the relative person is in good faith only requires him to do the necessary duty of care, and the examination of the contents of the resolution of the company's organ by creditors is generally limited to formal examination, but does not require a comprehensive substantive examination.

3. A guarantee company that provides a guarantee or a financial institution issues a guarantee letter to provide a guarantee to a company that is directly or indirectly controlled. There is a commercial cooperation relationship such as mutual guarantee between the company and the principal debtor. If the guarantee contract is signed and agreed by the company's 2/3 shareholders who have the right to vote on the guarantee, no organ resolution is required.

4. In the event that the guarantee contract is found to be invalid due to the legal representative's ultra vires, the company shall bear the liability for contracting negligence, except in the knowledge of the creditor.

The judicial interpretation of the guarantee system basically continues the above provisions of the nine people's minutes. For example, Article 7 of the judicial interpretation of the guarantee system stipulates that if the relative is in good faith, the guarantee contract shall have effect on the company; if the relative is not in good faith, the guarantee contract shall not have effect on the company; if the relative has evidence to prove that the company's resolution has been reasonably reviewed, the people's court shall determine that it constitutes good faith. It is worth noting that Article 8 of the "Judicial Interpretation of the Guarantee System" slightly changed the content of "no agency resolution required", limiting "directly or indirectly controlled companies" to "wholly-owned subsidiaries" and deleting "There is a business partnership" situation. Under the three circumstances of Article 8 of the judicial interpretation of the guarantee system, the company still needs to bear the guarantee liability even if it does not make a resolution in accordance with the provisions of the company law on the company's external guarantee.

According to Articles 30 and 32 of the State-owned Assets Law of Enterprises, state-funded enterprises providing large guarantees for others shall comply with laws, administrative regulations and the provisions of the company's articles of association, and shall be decided by the company's shareholders meeting, shareholders meeting or board of directors; unless otherwise specified or agreed in the articles of association, the provision of large guarantees for others by wholly state-owned enterprises and wholly state-owned companies shall be decided by the institution performing the investor's duties, A wholly state-owned enterprise shall be decided by the heads of the enterprise through collective discussion, and a wholly state-owned company shall be decided by the board of directors.

It is worth noting that the relevant requirements such as Articles 30 and 32 of the Enterprise State-owned Assets Law that need to be decided by the institution performing the responsibilities of the investor do not belong to the Civil Code that requires approval before it can take effect. At present, a consensus has been reached. In other words, the provisions of Articles 30 and 32 are not mandatory norms of validity, and the guarantee behavior of state-owned enterprises is not invalid because of the violation of the provisions.

In addition to the above general provisions, SOEs should focus on the relevant provisions issued by the State-owned Assets Supervision and Administration Commission of the State Council and local SASAC, which set out more comprehensive and specific requirements for the financing guarantee activities of SOEs and provide important guidelines for the guarantee management of SOEs.

On May 7, 2012, the State-owned Assets Supervision and Administration Commission of the State Council issued the "Supplementary Notice on Strengthening the Fund Management of Central Enterprises" (State-owned Assets Department Fa Evaluation [2012] No. 45)., Strictly control the provision of guarantees to enterprises outside the group, and shall not provide any form of guarantee to enterprises other than central enterprises; if guarantees are provided to enterprises outside the group, they shall be submitted to the SASAC for approval. Since the "Notice" is mainly aimed at the fund management of central enterprises, the provisions on guarantee-related matters are less content and the provisions are more principled and general.

On March 26, 2021, the State-owned Assets Supervision and Administration Commission issued the ''Guiding Opinions on the Management and Control of Debt Risks of Local State-owned Enterprises'' (State-owned Assets Development and Financial Evaluation Regulations (2021) No. 18) clearly stated that external guarantee management should be strict, and enterprises with property rights should be guaranteed. In principle, it does not provide guarantees for enterprises without property rights, and strictly controls bundled financing behaviors such as mutual guarantees of enterprises to prevent cross-transmission of debt risks.

On October 9, 2021, the State-owned Assets Supervision and Administration Commission issued the Notice on Strengthening the Management of Financing Guarantees for Central Enterprises (SASAC [2021] No. 75, hereinafter referred to as "No. 75"), which puts forward comprehensive and detailed requirements for central enterprises to strengthen guarantee management and standardize guarantee behavior. On this basis, some local regulations have also been promulgated, such as the "Regulations on the Management of Lending Funds and Providing Guarantees by Provincial Enterprises in Jiangsu Province", etc. It can be seen that Document No. 75 is not only applicable to central enterprises, but also provides financing guarantees for state-owned enterprises in various regions. Provides guidance.

1. Applicable subject

The central enterprises in No. 75 include the headquarters of the central enterprise group and the sub-enterprises of the whole level. As far as the legislative practice of state-owned assets supervision is concerned, not all state-owned assets supervision provisions will make it clear that the scope of application includes not only state-funded enterprises, but also its subsidiaries at all levels, and only in specific major regulatory matters will the corresponding expression be taken, thus showing the importance of state-owned assets supervision on the guarantee management of state-owned enterprises.

2. Guarantee object

Subsidiaries of central enterprises included in the scope of consolidation and participating enterprises not included in the scope of consolidation (excluding those that provide guarantees for themselves). It should be noted that the guarantee carried out by the financial subsidiary of the central enterprise's main business with guarantee and the phased guarantee provided by the real estate enterprise for the mortgage loan of the buyer shall not apply to this provision. The financing guarantee business of listed companies controlled by central enterprises shall comply with the relevant provisions of the the People's Republic of China Securities Law and securities supervision. Among them, the types of enterprises specifically included in the financial sub-enterprises refer to the relevant provisions of the Guiding Opinions on Strengthening the Financial Business Management and Risk Prevention of Central Enterprises (State Capital Regulation [2019] No. 25). The enterprises in the final accounts of financial sub-enterprises submitted by the central enterprises to the SASAC on an annual basis are all financial sub-enterprises.

3. Type of guarantee

Includes regular guarantees and implicit guarantees. That is, it includes various forms of guarantees for borrowing and issuing bonds, fund products, trust products, asset management plans and other financing activities, such as general guarantees, joint and several liability guarantees, mortgages, pledges, etc., as well as implicit guarantees for supporting letters such as joint loan contracts with guarantee effect, commitment to make up the difference, and comfort commitments.

In response to the criterion of "implicit guarantee", SASAC issued a special "on January 4, 2022 《<关于加强中央企业融资担保管理工作的通知>The relevant instructions, the "instructions" clearly: the enterprise to provide a common loan contract, the difference to make up the commitment, comfort letter, support letter and other letters have the effect of guarantee, need to be determined by the legal department of the enterprise according to the specific terms, with the effect of the guarantee is an implicit guarantee. Whether it has the effect of security should be judged in the light of the criteria formed in judicial practice that "the guarantee has a subordinate nature, the establishment of the guarantee legal relationship must be premised on the existence of the principal debt, and the guarantor and the principal debtor are making a performance commitment to the same creditor for the same debt.

4. Specific requirements

Document No. 75 puts forward specific and clear requirements for the guarantee activities of central enterprises from eight aspects: improving the management system of financing guarantee, strengthening the budget management of financing guarantee, strictly limiting the object of financing guarantee, strictly controlling the scale of financing guarantee, strictly controlling the financing guarantee over the share ratio, strictly preventing the risk of compensation, timely reporting the management of financing guarantee, and strictly investigating the responsibility of illegal financing guarantee, the content covers risk prevention and system construction before, during and after the event. The following will focus on the strict restriction of the financing guarantee object, strict control of the scale of financing guarantee, strict control of the super-share ratio of financing guarantee and other content analysis.

(1) Strictly limit the object of financial security.

No. 75 stipulates that central enterprises are strictly prohibited from providing any form of guarantee to enterprises without equity relations outside the group. In principle, financing guarantees can only be provided to subsidiaries or participating enterprises that have the ability to continue operations and solvency. It is not allowed to provide guarantees to subsidiaries or shareholding enterprises that have entered reorganization or bankruptcy liquidation procedures, are insolvent, have suffered losses for three consecutive years or more and have negative operating net cash flow, and are not allowed to provide guarantees to financial subsidiaries. Subsidiaries with no direct equity relationship within the group are not allowed to guarantee each other. If the above three situations require guarantees due to objective circumstances and the risks are controllable, they must be approved by the group's board of directors. It is simply summarized as strictly prohibiting the guarantee of enterprises without equity relationship outside the group, and strictly controlling the guarantee of high-risk sub-enterprises.

First, on the question of how no direct equity relationship within the group is defined, SASAC's official reply of 26 November 2021 reads: "Direct equity relationships are not limited to direct parent-subsidiary relationships; an enterprise has direct equity relationships with all levels of subsidiaries it actually controls". Therefore, the "direct equity relationship" is not limited to the direct parent-subsidiary company, but is determined according to the penetration relationship, that is, for all levels of subsidiaries of the group enterprise, as long as the group enterprise has control over it, it can be considered to have a direct equity relationship. Secondly, it is based on the principle of "no guarantee shall be provided to sub-enterprises or shareholding enterprises that do not have the ability to continue operation, no guarantee shall be provided to financial sub-enterprises, and no mutual guarantee shall be provided between sub-enterprises that do not have direct equity relations within the group". However, if guarantees are required due to objective circumstances and risks are controllable, they can also be carried out after approval by the group's board of directors. Finally, in its response to the question of August 9, 2022, SASAC also clarified that the provision of guarantees by subsidiaries to parent companies also applies to this exception.

(2) Strictly control the scale of financing guarantees

Document No. 75 stipulates that the scale of financing guarantee shall be reasonably determined according to its own financial affordability. In principle, the total scale of financing guarantee shall not exceed 40% of the group's consolidated net assets, the amount of financing guarantee for single-family sub-enterprises (including the group headquarters) shall not exceed 50% of the enterprise's net assets, and the total scale of financing guarantee for enterprises included in the SASAC's annual debt risk control scope shall not increase over the previous year. According to the official response of SASAC on December 14, 2021, the financing guarantee amount here refers to the financing balance actually provided with the guarantee, not the amount incurred.

(3) Strict control of over-equity financing guarantees

Document No. 75 stipulates that central enterprises shall provide guarantees to subsidiaries and participating enterprises in strict accordance with their shareholding ratio. It is strictly forbidden to guarantee the over-share ratio of the participating enterprises. If the sub-enterprise really needs to guarantee the over-share ratio, it shall be reported to the board of directors of the group for approval, and at the same time, the amount of the over-share ratio guarantee shall be provided by the minority shareholders or a third party through mortgage, pledge and other means to provide a full amount of counter-guarantee with realized value. If a listed company or an enterprise with a minority shareholder containing an employee stock ownership plan or an equity fund is provided with an over-shareholding guarantee and cannot obtain a counter-guarantee, after the approval of the group's board of directors, under the premise of complying with relevant regulations such as financial guarantee supervision, adopt The guaranteed person collects reasonable guarantee fees based on the degree of compensation risk to prevent compensation risks.

It is worth noting that the measures for the Administration of guarantee for Enterprises supervised by the State-owned assets Supervision and Administration Commission of Guizhou Province states: "when supervising enterprises and their affiliated enterprises cooperate with other investors to establish new enterprises, they shall, in the cooperation agreement or the articles of association of the company, agree on the ways and principles for each shareholder to provide financing guarantee support for newly established enterprises in accordance with the requirements of the same share and the same share and responsibility." This provision is a reminder of the prior arrangement of financial guarantees, taking into account the dilemma that small and medium-sized shareholders do not have the incentive and obligation to provide guarantees in proportion to their shareholdings in the absence of prior written agreement. In the context of No. 75 strict control of the over-share ratio guarantee, state-owned enterprises can learn from the local regulations, the same share of the same responsibility to provide financing guarantee support agreement written into the investment agreement or the articles of association of the company, in order to avoid the non-state-owned shareholders to provide guarantees according to the proportion of shares simultaneously do not cooperate with the dilemma.

No. 75 does not make clear requirements on the way of counter-guarantee, but there are local provisions specifically, state-owned enterprises to provide non-guarantee (such as mortgage, pledge) external guarantee, shall not accept the guarantee way counter-guarantee, the provision has a certain reference significance. State-owned enterprises should focus on the actual credit enhancement effect of counter-guarantees, and should carefully accept counter-guarantees that are only in the form of guarantees, and carefully investigate the qualifications, financial strength, value and liquidity of counter-guarantees (pledges), so as to ensure that counter-guarantees can really play the role of risk compensation. With regard to the issue of guarantee fees, Document No. 75 requires central enterprises to formulate and improve a unified financial guarantee management system for the Group, and to clarify the financial guarantee authority and limits of the Group's headquarters and subsidiaries at all levels, as well as the level of financial guarantee rates.

(4) Special provisions for the pledge of shares held by listed companies

According to the "Notice on Issues Concerning the Pledge of State-owned Shares of Listed Companies" (Caiqi [2001] No. 651) issued by the Ministry of Finance on October 25, 2001, the number of state-owned shares used by the authorized representative units of state-owned shareholders for pledge shall not exceed 50% of the total state-owned shares of the listed company held by them. On July 11, 2014, the State-owned Assets Supervision and Administration Commission issued the "Notice on Promoting the Circulation of State-owned Property Rights of Enterprises" (Guo Zi Fa Property Rights [2014] No. 95), which requires state-owned enterprises to file when pledging their listed shares. According to the reply of SASAC, state-owned enterprises need to follow the above two documents at the same time when pledging listed shares, that is, not only need to file, but also need to be limited to 50% of the pledge ratio.

The measures for the Administration of guarantee for Provincial Enterprises in Shandong Province (Lu Guozi income [2019] No. 1) is a regulation made by the State-owned assets Supervision and Administration Commission of Shandong Province on the financing guarantee of provincial enterprises. In addition to following the basic requirements of Circular 75, Shandong state-owned enterprises should pay attention to the special provisions of the measures for the Administration of guarantee for Provincial Enterprises in Shandong Province, and effectively standardize the guarantee behavior in accordance with the specific requirements of the provisions.

1, strict approval of the guarantee object.

(1) Enterprises with poor operating conditions

Article 6 of the Measures for the Administration of Guarantees for Provincial Enterprises in Shandong Province provides specific provisions for enterprises with poor operating conditions: no guarantee shall be provided for enterprises with abnormal operating conditions in one of the following circumstances: (1) continuous losses in the last three fiscal years and no hope of turning around losses; (II) there is a bad record of defaulting on the principal and interest of bank loans; (III) involving major economic disputes or economic cases that have not yet been settled; the (IV) has been ruled bankrupt or entered into bankruptcy proceedings; the net assets of the (V) enterprise after the audit are less than 50% of the registered capital; (VI) other circumstances determined by the provincial SASAC. It is worth noting that there are exceptions to this prohibition of guarantees, that is, "for the above-mentioned enterprises that are in line with the development direction of the main business of the enterprise and the provincial-managed enterprises have formulated plans to improve their operating conditions, they can be guaranteed with the approval of the Provincial SASAC". It can be seen that, based on the significant risk attributes of the guarantee act, the circumstances under which the guarantee is prohibited are more strictly restricted, but when the risk is significantly controllable or there are other reasonable considerations, the provision may be allowed under special circumstances, subject to the appropriate approval procedures.

(2) Overseas ownership enterprises

Article 8 of the measures for the Administration of guarantee for Provincial Enterprises in Shandong Province stipulates that without the approval of the Provincial State-owned assets Supervision and Administration Commission and the provincial government, provincial enterprises shall not provide guarantee to overseas ownership enterprises and enterprises beyond the approval authority. Where a guarantee is provided to an enterprise with overseas ownership and an enterprise outside the approved authority, the amount of the guarantee shall not exceed the approved guarantee limit. It can be seen that the ability of overseas ownership enterprises to provide guarantees, the specific amount of guarantee should be subject to strict approval procedures.

2. Special provisions on the scale of financing guarantees

According to Article 9 of the Measures for the Administration of Guarantees for Provincial Enterprises in Shandong Province, the total amount of guarantees for provincial enterprises shall not exceed their net assets. The cumulative total amount of guarantees provided to the same guarantee applicant shall not exceed 30 per cent of its net assets; the total amount of individual guarantees provided to a single guarantee applicant shall not exceed 10 per cent of its net assets. With respect to the scale of financing guarantees, provincial enterprises in Shandong Province should pay attention to meeting both No. 75 and the provisions of this article.

3. Counter-guarantee

The "Shandong Provincial Enterprise Guarantee Management Measures" uses a chapter to stipulate the relevant content of counter-guarantees. It is worth noting the following points: First, the counter-guarantee method. Specific requirements for guarantees, mortgages, and pledge counter-guarantees, such as no major claims and debt disputes, clear ownership, and no litigation or disputes. Second, the provincial enterprise should determine the counter-guarantee method according to the degree of risk and the financial situation and performance ability of the counter-guarantor. Third, counter-guarantees for the use of loans from international financial organizations and loans from foreign governments shall be handled in accordance with the relevant provisions of the State.