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Case Study 3: Discover the borrower’s hidden assets for recovery

1. Background

Company A signed loan contracts with Bank B for a total loan of RMB 7,841,000. The loan contracts were pledged by Company A’s equity right in Company E. Among the loans, RMB 1.4 million was guaranteed by Company C, the supervised company of the borrower. Company A failed to repay the principal when the loan fell due. Up till December 20, 2004, the total legal balance was RMB 26.928 million.

In Jun.2000, Bank B transferred those creditor’s rights to Asset Management Company D, and in 2005, the creditor’s rights was transferred to the current owner.  FYT was officially engaged to manage the portfolio in Mar.2005.

2. Challenge

The borrower is a state-owned enterprise and the business had been stopped. The relocation of the employees was a heavy burden on the borrower.

The borrower mortgaged its equity right in Company E for the loan, but the equity right was not registered as pledge.
The borrower has threatened to go liquidation many times. If the borrower goes to liquidation, it should firstly pay RMB 30.61 million (including RMB 13.53 million of workers compensation; RMB 11.5 million of company closing down cost and RMB 5.56 million to repay the loan which use to solve the worker problems).
The guarantor, Company C, has applied for bankruptcy.

3. Strategy

The guarantor has applied for bankruptcy. Fan Ya Tai declared the creditor’s right to liquidation team immediately.
In 1994, Company A invested on company E by used its workshop, land and equipments as the capital and held 40% of the equity of Company E. Fan Ya Tai did not find any information of those property or land when reviewed the asset files. In January, 2006, Fan Ya Tai reviewed the borrower’s assets again, and found that Company A had been approved to transfer its equity in 2001, and Company A’s equity in Company E has been changed to cash investment from the original workshop, land and equipments. Company A’s share holding ratio was reduced to 10%. The land and property which had been invested to Company E were returned to Company A, but the titles of the said land and property have not been transferred to Company A. They were still under the name of Company E.
Fan Ya Tai suggested the owner to sue Company A immediately, and provide evidence to the court and apply for litigation preservation on the borrower’s land and property which were still under Company E. Afterwards, Fan Ya Tai found out that the borrower’s supervised company, Company C, had arranged Company A to transfer the land and property and try to escape the debt liability. The borrower could complete the land transfer and deregister the land usage certificate on the second day of FYT sealing the property. if this happened, the owner would recover nothing from any asset.

4.  Achievement

Fan Ya Tai arranged to transfer the loans after wining the case. The total recovery was RMB 3 million.
The recovery rate of this creditor’s right reached 38.26% of the principal (11.4% of the total legal balance).

Author:  admin Dtae:  8/13/2008 Chick Num: 7456
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  Case Study 1: How to realize the mortgage right with a broken evidence chain13/8/2008
  Case Study 2: Prevent the borrower from escaping the debt through liquidation13/8/2008
  Case Study 3: Discover the borrower’s hidden assets for recovery13/8/2008
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