Movable Property Mortgage Registration Protocol under PRC Civil Code
Registration on the PBOC Zhongdengwang platform within ten days of delivery grants super priority over earlier floating liens under PRC Civil Code Article 416.
Floating Inventory Encumbrance
Meaning
A type of commercial security interest attaches to a changing pool of raw materials and finished goods in a warehouse. The legal framework of floating inventory encumbrance allows a manufacturing company to borrow against its current assets while continuing to sell and replenish them. This mechanism provides working capital for day-to-day industrial operations.
Secured Asset
The collateral under this arrangement is defined by its class and location rather than by specific serial numbers. As the borrower processes raw materials into goods for shipment, the newly created products become subject to the floating inventory encumbrance, while the sold items are released from the lien. This dynamic structure accommodates the high turnover of a factory floor.
It gives the manufacturer the flexibility to fulfill purchase orders without seeking approval for every sale, which helps maintain a steady stream of production.
Lien Priority
Prior to default, the lender’s interest remains unsettled, meaning it does not attach to specific items in the warehouse. Once a default occurs, the security interest crystallizes, turning the floating claim into a fixed charge on whatever inventory is present at that moment. This transition requires the lender to register the security agreement on the unified platform of the people’s bank of china.
Registration protects the lender against the claims of unsecured creditors during bankruptcy proceedings.
Enforcement Hurdle
Physical verification during default presents significant challenges due to the rapid movement of goods. If the factory continues to operate after default, items can be shipped out before court officers arrive, leaving the creditor with a depleted asset pool. This practical difficulty makes monitoring the warehouse of the borrower essential for securing the loan.