Southern Perspective Shenzhen

Two months ago I talked a little about a new online database that can help you investigate companies within China that have a record in the court system. You can find that here. What this record details is the company’s delinquency on a judgment from a court. For example, company A was ordered by the court to pay company B but has not paid company B.

A good friend, Seth Buckley, wrote a piece about the Judgment debtor system and is featured in China Law and Practice . It is titled Nowhere to hide and explains how the online Judgment debtor system can be used for your due diligence in China.

Seth writes:

The primary purpose of the new database system is to increase compliance with executable judgments issued by Chinese courts, a task that has been notoriously difficult in China. As well as providing critical information for due diligence evaluations, the database uses potential reputational loss to pressure the debtor into satisfying its obligations and the courts into facilitating debt collection…

…Companies can now incorporate this information into their due diligence analysis and perform a more meticulous evaluation of an entity’s financial stability. This can be critical for determining a potential business partner’s dependability in commercial contracts, as well as for evaluating target companies for mergers and acquisitions.

The database could thus potentially affect a debtor’s reputation as a desirable future business partner. This will give debtors greater incentive to settle their debts in order to protect future interests.

Seth really brings the point home, make this step apart of your due diligence. If you’re going to do a project here in China and using a considerable amount of your funds, confirm the reputation of the company. The last place you want to be is at the other end of the proverbial stick with a company that does not make good on its responsibilities.

If you would like to read Seth’s complete article, you may sign up to China Law and Practice for a free trial. To have a look at the database (all in Chinese) look here . If you guys have any questions on the database, send me a comment.