The creditor may seek to rescind the transfer of the debtor’s real estate.

I. Case Summary

This case is a typical dispute over the creditor’s right of avoidance. The plaintiffs, Zhang and Li 1, as heirs of Li, contend that, in the face of Li’s substantial outstanding labor compensation, the defendant, Wang, gratuitously gifted a residential property located in Miyun District, Beijing, to his son, Wang 1, thereby seriously impairing the realization of Li’s creditor’s rights; accordingly, they petition the court to rescind such gift.

Key Facts Summary ：

1. Creation of a creditor's right : Since 2003, Li has provided labor services to Wang’s construction team, undertaking project management and other related duties until the end of 2017. In July 2019, the two parties entered into a Repayment Agreement, which confirmed that Wang still owed RMB 1.4 million in unpaid labor fees.
2. Credit Confirmation In March 2021, the Miyun District People’s Court issued a civil mediation agreement confirming that Wang was required to pay a total of RMB 1.4 million to Zhang and Li. Following enforcement proceedings, no assets belonging to Wang were found that could be subject to execution, resulting in the case being closed.
3. Property transfer : In June 2016, Wang entered into a Gift Contract with Wang No. 1, under which Wang gratuitously gifted a house owned in his name to Wang No. 1 and completed the transfer registration.
4. Time confirmed: In April 2021, after the mediation agreement was rendered and a request for property preservation was filed, it was only then that the transfer of assets came to light.
5. Claims in the lawsuit The plaintiff contends that Wang, by making an gratuitous transfer of property, has evaded debt and thereby impaired the plaintiff’s creditor’s rights; accordingly, the plaintiff instituted an action for avoidance of a creditor’s right in May 2021.

II. Analysis of the Points of Contention

The central issues in this case revolve around the following two aspects:

(1) Do Zhang and Li have the standing to exercise the creditor’s right of avoidance?

1. Time of Creation of the Creditor’s Right : Mr. Wang’s claim for debt arose upon the entry into force of the mediation agreement in March 2021. The plaintiff contends that the labor relationship commenced in 2003 and that the Repayment Agreement expressly stipulates the existence of a long-term labor relationship between the parties; therefore, the date on which the debt arose should be retroactively determined to 2003. The gift transaction occurred in 2016, which predates the date on which the mediation agreement confirmed the debt.
2. Continuous creditor's rights : The labor relationship is continuous; Li provided services on an ongoing basis until the end of 2017, and his claim gradually became fixed over time. Even if the mediation agreement ultimately specifies a particular amount, this does not affect the validity of the prior claim.
3. Period for Exercising the Right of Revocation : The plaintiff only became aware of the gift after the mediation agreement was rendered, in April 2021, and filed the lawsuit on May 26 of the same year—just one month before the five-year limitation period for challenging the gift would have expired, thereby remaining within the one-year statutory period for exercising the right of revocation.

Conclusion : The plaintiff has standing as a creditor and is entitled to exercise the right of avoidance.

(2) Does Wang’s act of gift constitute an infringement upon the creditors’ rights and interests?

1. Objective Elements : Mr. Wang gratuitously transferred a property of substantial value, thereby reducing his assets available for satisfying his liabilities and directly impairing his ability to repay debts. Moreover, Mr. Wang has failed to perform the debt obligations stipulated in the mediation agreement, and no other assets are available for enforcement even after compulsory execution.
2. Subjective Elements : A debtor’s gratuitous transfer of property does not require proof of the transferee’s malice; in this case, Wang knowingly gifted the house despite being heavily indebted, thereby demonstrating a subjective intent to evade debt.
3. Causation : The gift directly undermines Wang’s ability to repay his debts, thereby rendering the creditors’ claims unenforceable.

Conclusion : The act of gift constitutes an infringement upon the creditor’s rights and shall be rescinded.

III. Judgment

1. Revocation of Gift : Annul the Gift Contract entered into by Wang and Wang No. 1.
2. Restore Registration : Wang Mou1 shall restore the registration of the property in dispute to Wang Mou’s name.
3. Cost Bearing : Wang must pay the plaintiff’s attorney’s fees and the litigation preservation insurance premium.
4. Litigation costs : Both the preservation fee and the case filing fee shall be borne by Wang.

IV. Legal Advice

1. Timely preservation of assets Creditors should closely monitor any changes in the debtor’s assets, particularly before and during litigation, and may employ asset preservation measures to prevent the debtor from transferring or dissipating its assets. In this case, the plaintiff initially refused to seek pre-litigation or in-litigation asset preservation; however, following strong advice from counsel, the plaintiff ultimately agreed to promptly initiate asset preservation proceedings immediately after the mediation agreement is rendered, in order to obtain timely information on the debtor’s assets and any prior transfers of such assets, thereby laying the groundwork for a subsequent action to rescind the transaction on the ground of undue advantage.
2. Strengthen the chain of evidence When asserting a creditor’s right, it is essential to secure solid evidence, such as repayment agreements and bank transfer records. Although the plaintiff hoped to conclude the case through a court judgment, the attorney strongly recommended resolving the matter through mediation in order to obtain an enforceable legal document at the earliest opportunity, thereby gaining valuable time to subsequently investigate and ascertain the transfer of real estate. Once the five-year limitation period for enforcing the claim has lapsed, the realization of the creditor’s right will be entirely thwarted.
3. Monitor the debtor’s conduct : If the debtor engages in acts such as transferring property without consideration or entering into transactions at below-market prices, the creditor shall promptly investigate the motives and rationale behind such actions and actively ascertain the status of the debtor’s assets.

V. Conclusion

This case underscores the crucial role of the creditor’s right of avoidance in safeguarding creditors’ rights. By exercising this right in a timely manner, creditors can effectively deter debtors from maliciously transferring their assets, thereby protecting their legitimate rights and interests. At the same time, the case serves as a warning to debtors: gratuitous transfers of property may constitute a serious infringement upon creditors’ rights and must be undertaken with due caution in fulfilling their obligations.