A court in Shenzhen’s Nanshan district has set a precedent for disputes involving factoring contracts, the first apparently to be heard in a local court since China’s new Civil Law came into effect this year. The court judged that parties to a factoring contract cannot assign third-party insurance to the financing party, as this would violate the country’s laws governing the insurance industry by disadvantaging potential third-party claimants.
The dispute involved the owner of a trucking business who was sued by a financing company that had provided him with financing based on accounts receivables. Under such a (factoring) agreement, financing parties usually provide needed cashflow to businesses and then collect once their accounts receivables are settled, for an additional fee.
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