Yanting Pei and Teresa Huang
In April 2022, the Supreme People’s Court issued the Circular on the Correct Handling of Issues Related to the Effectiveness of Dormant Seizure (Fa  No. 107) (hereinafter, the “Circular”), which provides some explanation on the order of repayment of claims corresponding to each seizure in the case of multiple seizures of certain property. To facilitate the understanding of the Circular and help address some questions about enforcement for enterprises, this article also sorts out some issues concerning court seizure, as specifically provided below:
1. Scope of property available for enforcement
Pursuant to Article 2 of the Measures of the Supreme People’s Court on the Seizure, Attachment, and Freezing of Property in Civil Execution by the People’s Courts (2020 Amendment) (hereinafter, the “SPC Enforcement Provisions”), movable property in the possession of the party subject to enforcement and real estate, specific movable property, and other property rights registered in the name of the party subject to enforcement are all property available for enforcement. This also includes the following property of the party subject to enforcement:
(1) Property that has not been registered, if it can be determined from evidence such as approval documents that the property belongs to the party subject to enforcement;
(2) Movable property in the possession of a third party or real estate, specific movable property, and other property rights registered in the name of a third party, where the third party confirms in writing that such property belongs to the party subject to enforcement;
(3) Property jointly owned by the party subject to enforcement and others (but the co-owners may apply for a division of the property, and the portion of the co-owner after the division will not be executed);
(4) Property sold to a third party who has paid part of the price and taken actual possession, but has not yet acquired the ownership of the property;
(5) Property purchased from a third party with a part of the price paid and actual possession taken, even though the ownership has not yet been acquired due to the retention of title by the third party in accordance with a contract, provided that the person applying for the enforcement has paid the remaining price or obtained the consent of the third party to the prioritized payment of the remaining price from the proceeds of the realization of the property.
In this regard, the daily necessities and necessary living expenses of the parties subject to enforcement and their dependents are not included in the scope of property available for enforcement. In addition, the people’s court may seize the residential property necessary for the living of the parties subject to enforcement and their dependents, but may not auction, sell or offset it against the debts.
2. Measures of enforcement
Pursuant to Chapter 21 of the Civil Procedure Law, if the party subject to enforcement fails to fulfill the obligations determined by the legal documents in accordance with the enforcement notice, the court may take the following enforcement measures:
(1) Requiring the party subject to enforcements to report on their current property status as well as the status of their property one year prior to the date of receipt of the enforcement notice
(2) Inquiring of relevant units about the property of the party subject to enforcement such as deposits, bonds, stocks, fund shares, etc., and seizing, freezing, allocating, or realizing the property of the party subject to enforcement under different circumstances
(3) Attaching and withdrawing the income of the parties subject to enforcement that should be used to fulfill their obligations
(4) Seizing, attaching, freezing, auctioning, or selling the property of the party subject to enforcement that should be used to fulfill the part of obligations
(5) Restricting exit from the country, recording in the credit system, publishing information on non-fulfillment of obligations through the media, and other measures stipulated by law
3. Existence of first seizure, priority claim seizure, and dormant seizure
In practice, there are often cases where multiple creditors apply for enforcement against the same property of the debtor. Such cases may include first seizure creditors, creditors with priority claims, and dormant seizure creditors. Therefore, the Supreme Court has issued a series of judicial interpretations to clarify the order of these applications. The Circular issued this time is for the same purpose.
Firstly, under Article 26 of the SPC Enforcement Provisions, the first seizure can be followed by a dormant seizure, which will take effect after the first seizure is lifted by the order of registration.
Secondly, if the first seizure court has already disposed of the property, the Reply of the Supreme People’s Court Concerning the Effect of Dormant Seizure after All the Objects Are Disposed of by the Seizure Court (Fa Han  No. 100) provides that the dormant seizure of the property has not created the effect of seizure, attachment, and freezing from the very beginning, but it also means that the people’s court does not need to lift the first seizure, attachment, and freezing of the property first before disposal can be directly made for the dormant seizure. The Circular released this time further clarifies the following two details on this basis:
(1) After the first seizure court disposes of the seized property and realizes it, the remainder, if any, of the realized price after the first seizure creditor is repaid becomes the substitute for the object of the dormant seizure to which the effect of the dormant seizure should certain apply. This means that the dormant seizure creditor has the right to claim the corresponding right over the remaining price.
(2) In the case of a dormant seizure, the remaining part of the seized property after the realized price of the seized property has been used to pay off the first seizure creditor cannot be returned to the party subject to enforcement, and the first seizure creditor and the party subject to enforcement also have no right to handle it by themselves or through consultation. The first seizure court is obligated to inform the dormant seizure court known before the disposal of the realized price and hand over the remaining realized price to the dormant seizure court for handling pursuant to law. If the case pending in the dormant seizure court is still being litigated, the first seizure court should retain the remaining realized price until a final decision is rendered when it will be handled pursuant to law.
And in the case of a creditor with a priority claim (such as the existence of a secured creditor), if the secured claim has entered into the enforcement procedure of another court, and over 60 days has elapsed since the date of the first seizure, and the first seizure court has not yet issued an auction notice or entered into the sale procedure for the seized property, the court that enforces the priority claim may request that the seized property be transferred for enforcement.
Therefore, if there is a priority claim that meets the above conditions, the enforcement court can dispose the relevant target property before the first seizure court or the dormant seizure court.
In addition, it should be noted that the same court may take the measures of dormant seizure, attachment, and freezing of the same property in different cases; and if the property seized pursuant to law is resold, the bona fide acquisition system is not applicable to the buyer in principle.
4. Practical reminders
Although the Circular clarifies the rights of a dormant seizure creditor over the remaining property, still in practice if the parties have clues about the enforceable party’ property, they should take preservation measures as early as possible to seize the initiative to apply for enforcement. Especially in the presence of preferred creditors, if they can enter into the enforcement procedure before such creditors, they can secure a dominant enforcement position to protect their own claims as much as possible. However, if a first seizure has indeed existed where the property to be executed is sufficient to satisfy all the claims, it is inappropriate to give up hope, and preservation measures should still be taken actively to minimize losses.
 See Article 12 of the SPC Execution Provisions.
 See Articles 14 and 15 of the SPC Execution Provisions.
 See Articles 16 and 17 of the SPC Execution Provisions.
 See Articles 3, 4, and 5 of the SPC Execution Provisions.
 See the Reply of the Supreme People’s Court Concerning Issues Related to the Disposal of Seized Property by the First Seizure Court and the Priority Claim Enforcement Court (Fa She  No. 6).
 See the Reply of the Supreme People’s Court Concerning If the Same Court Can Conduct Dormant Seizure, Attachment, Freezing and Other Preservation Measures of the Same Property in Different Cases (  Zhi Ta Zi No. 24).
 See the Reply of the Supreme People’s Court Concerning the Issue of Whether the Resale of the Property Seized by the People’s Court Protects the Interests of the Bona Fide Acquirer ( Zhi Ta Zi No. 21)