Trust Law of the Peoples Republic of China
Trust law is a subset of the law of obligations. This includes both the law governing the creation and dissolution of the trust and the law governing the relationship between trustees and beneficiaries. In the Peoples Republic of China, trust law is regulated primarily by the Trust Law of the Peoples Republic of China (《中华人民共和国信托法》). This law was promulgated by the Standing Committee of the National Peoples Congress on August 28, 2007 and came into effect on October 1, 2007.
The Trust Law defines trust as “an agreement whereby a trustee manages and administers property on behalf of and for the benefits of beneficiaries”. The trustee is responsible for the administration and management of the trust property— which is held in trust— and has a fiduciary duty to use the trust property for the benefit of the beneficiaries. The trustee has a duty to act honestly, in good faith and for the benefit of the beneficiaries.
The Trust Law regulates the formation, content and performance of trust agreements as well as the duties, rights and responsibilities of trustees and beneficiaries. It also includes provisions for the registration and supervision of trusts. According to the law, an interested party may submit an application to the local administrative authorities for registration of a trust agreement. Such application must include a trust agreement and its related documents, as well as information on the trustees and beneficiaries. The administrative authorities may reject the application if they find that the registration does not conform with the Trust Law, however, they have no right of review of the terms of the trust agreement. The local administrative authorities are also responsible for the annual review and supervision of the trust affairs.
The Trust Law also provides for the procedure of dissolution of trust in instances such as the expiration of the term of the trust or the completion of the purposes of the trust as stipulated in the agreement. In addition, the Trust Law specifies the procedure for the transfer and termination of authority of a trustee. The laws also clarifies the grounds for the liability of a trustee. For example, a trustee may be liable for breach of contract, negligence, or a breach of fiduciary duty. The Trust Law provides for various remedies for breach of trust, including revocation of the trustee’s authority, claims for damages and indemnification, and removal of the trustee.
The Trust Law of the Peoples Republic of China is an important tool for protecting the rights of both the trustees and the beneficiaries. It also creates a better legal environment for the development of business trusts in China. The Trust Law sets forth the basic framework and principles of trust law in China and provides a foundation for trust business operations.
