Friday, January 22, 2021
The PRC Civil Code and the Supreme Court Interpretation on Application of the Relevant Security Provisions in the Civil Code (the Interpretation) that came into effect on 1 January 2021 have both altered the position of whether a security agreement can remain valid when the underlying primary agreement is invalid.
The outdated PRC Security Law (1995) had allowed the relevant parties to agree to having a security agreement to remain valid, even if the underlying agreement is found to be invalid. The introduction of the PRC Property Law in 2007 substantially changed this general rule and provided that a security over personal property, real estate, or other property such as shares cannot remain valid if the underlying agreement is found to be invalid. The two laws were repealed by the PRC Civil Code now.
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The PRC Civil Code and the Supreme Court Interpretation on Application of the Relevant Security Provisions in the Civil Code (the Interpretation) that came into effect on 1 January 2021 have both altered the position of whether a security agreement can remain valid when the underlying primary agreement is invalid.
The outdated PRC Security Law (1995) had allowed the relevant parties to agree to having a security agreement to remain valid, even if the underlying agreement is found to be invalid. The introduction of the PRC Property Law in 2007 substantially changed this general rule and provided that a security over personal property, real estate, or other property such as shares cannot remain valid if the underlying agreement is found to be invalid. The two laws were repealed by the PRC Civil Code now.