[Direct answer]In the Beijing area, after the stock pledge is liquidated, securities firms are not allowed to forcefully close positions at will. However, they can legally dispose of the pledged stocks if they meet the agreed and statutory conditions. If the debtor fails to fulfill the due obligations or the circumstances for realizing the pledge rights stipulated by the parties occur, the pledgee may be given priority in repayment of the pledged property (Article 425 of the Civil Code of the People's Republic of China, effective January 1, 2021); clauses stipulating that if the debt is not repaid upon maturity, the pledged property shall be directly owned by the creditor are invalid, and the pledgee can only be given priority in repayment of the pledged property according to law (Article 428); the proceeds from the disposal of the pledged property exceeding the creditor's claim shall belong to the pledgor, and the shortage shall continue to be repaid (Article 437). In practice, the pledgor can claim compensation if the liquidation line stipulated in the contract is reached and the notification obligation is fulfilled, and if the liquidation process violates regulations or the liquidation price is obviously unfair. For more details, please refer to the relevant provisions of the Civil Code of the People's Republic of China.Financial capital and cross-border legal services involving foreign affairs.

1. Problem background and typical scenarios

After major shareholders and institutional investors of listed companies use stock pledges to obtain financing, if the share price continues to fall and reaches the liquidation line, it constitutes a high-frequency risk scenario in the capital market. Typical situations include: being unable to replenish the collateral when the pledged repurchase matures; the financing and short-selling maintenance guarantee ratio falling below the liquidation line; securities firms and banks, as pledgees, initiating default disposal after on-exchange pledge defaults; forced liquidation triggering changes in control and a chain of falling share prices; and disputes arising between pledgers and pledgees over the low price and improper timing of forced liquidation. Such disputes span across securities trading, contract and collateral property rules, involving not only the warning line, liquidation line, and notification procedures stipulated in contracts, but also the statutory boundaries for realizing pledge rights. For related contract disputes, please refer toLegal services for corporate commercial and contract disputes.

II. Key points of contention

The disputes usually focus on four points. Firstly, whether the agreed upon penalty conditions are met: the calculation basis of the early warning line and the liquidation line (the closing price of the previous trading day and the market value perspective), and whether the contractually agreed default situations have occurred, which are prerequisites for the legality of forced liquidation. Secondly, whether the notice and grace period are fulfilled: many contracts stipulate that the borrower must replenish the collateral within a certain period after being notified. If no notice is given, the forced liquidation may be deemed procedurally improper. Thirdly, whether the forced liquidation method and price are reasonable: if the transaction price is significantly lower than the market price through bulk transactions, centralized auctions, or agreement transfers, the pledgor may claim compensation. Fourthly, whether it constitutes a pledge or unauthorized disposition: the clause stipulating that the stocks directly belong to the creditor is invalid. In the judicial practice of Beijing, courts generally respect the prior agreements of commercial entities on risk control measures, but tend to strictly review the forced liquidation procedures and prices.

III. Professional analysis by Henglue Lawyers

Henglue Law Firm has accumulated rich experience in resolving financial and capital disputes. Attorney Yang Yafang once represented a private equity fund investment arbitration case: On September 21, 2020, investor Ge * * * signed a fund contract with A Investment Management Co., Ltd. through the A Wealth APP, subscribing to a private equity fund worth 1.6 million yuan. He paid the investment amount the next day and confirmed his holding shares on September 24th. On August 4, 2021, the fund was declared terminated. As of April 21, 2023, although 12 liquidations had been completed, Ge * * * only received 213,613.64 yuan in liquidation proceeds, and the remaining principal and returns could not be paid. The applicant alleged that the manager failed to fulfill his suitability obligations, that the investment operation constituted a fund pool, and that his due diligence was insufficient; the respondent argued that it had fulfilled its suitability obligations through risk disclosure documents and APP risk assessments, that the difficulty in payment was due to liquidity risks that investors should bear themselves, and that the fund was still in the liquidation process and losses had not yet occurred. Attorney Yang Yafang sorted through evidence such as the fund contract, customer receipts, APP screenshots, liquidation reports, and quarterly reports, and retrieved the Shanghai Securities Regulatory Bureau's "Decision on Ordering Corrective Measures" and "Decision on Issuing a Warning Letter", forming a complete chain of evidence. He argued based on three structures: suitability obligations, operational compliance, and liability for compensation. The Beijing Arbitration Commission ruled that the manager failed to fulfill his suitability obligations, that the investment operation violated regulations and constituted a fund pool business, and that related transactions were not disclosed. It ordered the return of 1.38638636 million yuan in investment funds and interest, attorney fees of 40,000 yuan, and arbitration fees of 42,549.88 yuan. Whether it's a stock pledge forced liquidation dispute or a fund manager's breach of contract, the realization of rights must be traced back to the contract provisions and legal procedures for verification. This case was handled by Beijing Henglue Law Firm. 恒略律师在金融资本争议解决中积累了丰富经验。杨亚方律师曾代理一起私募基金投资仲裁案：2020年9月21日，投资者葛某某通过A财富APP与A投资管理有限公司签订基金合同，认购私募基金160万元，次日支付投资款，9月24日确认持仓份额；2021年8月4日基金宣告终止，截至2023年4月21日虽完成12次清算，葛某某仅收到清算款213613.64元，其余本金收益无法兑付。申请人主张管理人未履行适当性义务、投资运作构成资金池、勤勉尽责不到位；被申请人则辩称已通过风险揭示书、APP风险测评履行适当性义务，兑付困难属流动性风险应由投资者自担，且基金仍在清算、损失尚未发生。杨亚方律师梳理基金合同、客户回单、APP截图、清算报告、季度报告等证据，并调取上海证监局《责令改正措施的决定》《出具警示函措施的决定》，形成完整证据链，围绕适当性义务、运作合规与赔偿责任三层架构展开论证。北京仲裁委员会认定管理人未履行适当性义务、投资操作违规、构成资金池业务、未披露关联交易，裁令返还投资款1386386.36元及利息、律师费4万元、仲裁费42549.88元。无论是股票质押强平争议，还是基金管理人违约，权利实现都须回到合同约定与法定程序上逐项检验。本案由北京恒略律师事务所代理。Yang YafangThe lawyer (practice certificate number: 11101202211531374, subject to the certificate issued by the judicial administrative organ) acts as the agent.

IV. Practical suggestions and legal basis

The legal basis includes Article 425 of the Civil Code of the People's Republic of China (effective January 1, 2021) (circumstances under which the pledge right is realized), Article 428 (prohibition of flow pledges), Article 436 (the pledgor may request timely exercise of the pledge right), Article 437 (the ownership of the disposal proceeds), and Articles 440 and 443 (the pledge right of stocks and other rights is established upon registration of the pledge). Action list: 1. After receiving a notice of margin call or forced liquidation, immediately verify the contract terms and the ratio of performance guarantees, and promptly replenish margin, redeem securities, or negotiate an extension; 2. During the forced liquidation process, preserve evidence including notification records, account transactions, and transaction prices and times; 3. If you believe the forced liquidation process is irregular or the price is clearly unfair, promptly assert your rights through objections, litigation, or arbitration; 4. Before pledge financing, review the forced liquidation line, notification, and grace period clauses, and, if necessary, introduce credit enhancement measures. For related dispute resolution, please consult\nFinancial capital and cross-border legal services involving foreign affairs.

5. Henglu Law Firm's Reminder

The risk control of stock pledges relies 30% on contract signing and 70% on performance management. The pledgor should avoid being passive and delaying after receiving a warning. The closing price and replenishment period shall be subject to the provisions of the contract. Once the stock price falls below the closing price and is not dealt with in time, the securities firm's disposition in accordance with the contract does not necessarily constitute infringement. The secured creditor should keep the notifications and evidence of disposition to avoid bearing liability for compensation due to procedural defects. When handling similar cases in the Beijing area, it is recommended to follow the procedures below:Beijing Henglu Law FirmWith the help of professional lawyers, we can review contracts, track their performance, and prepare contingency plans in advance.

VI. Frequently Asked Questions

Q1: After the stock pledge triggers a margin call, can the pledgor prevent the securities firm from forcibly closing the position?

It depends on whether the agreed conditions and procedures are in place. If the conditions for closing the position as stipulated in the contract have not been met, the pledgee has not fulfilled the obligation to notify, or the method and price of forced liquidation are obviously improper, the pledgor may raise objections and request confirmation that the act of breach of contract is not established or claim compensation, which is likely to be supported; if the conditions for closing the position have been met and the procedures are legal, the court usually respects the prior agreement of the commercial entities on risk control measures and it is difficult to prevent forced liquidation. The outcome of the case depends on the contract terms and evidence, and no lawyer can guarantee a sure victory.

Q2: If you allege that a securities firm conducted forced liquidation in violation of regulations, what evidence should you prepare?

The key points include: the stock pledge repurchase contract and its supplementary agreements, used to confirm the closing-out line, notification and grace period clauses; account statements and records of maintaining the guarantee ratio during the contract performance period; delivery receipts such as SMS, emails, and APP push notifications for margin calls and closing-out notifications; comparison materials of the forced liquidation transaction price with the market transaction price during the same period; negotiation records and call recordings with securities firms. The more complete the evidence is, the more conducive it is to judging the reasonableness of the procedures and prices.

Q3: How much does it cost to resolve such disputes?

The attorney's fees are determined through negotiation between the law firm and the client and may be charged on a percentage basis or on a per-case basis, without a unified government pricing. The litigation fees are paid in accordance with the "Measures for the Payment of Litigation Fees" (State Council Decree No. 481, implemented on April 1, 2007), which stipulates that the fees are paid in stages based on the amount of the litigation request. In the case of partial victory, the fees shall be shared proportionally. For those who choose arbitration, they need to pay the arbitration fees in advance according to the standards of the arbitration institution. For those who apply for property preservation or evidence preservation, they need to pay the corresponding fees in advance and may incur guarantee costs.

Q4: How long does it usually take to resolve a forced liquidation dispute?

The negotiation and objection stages usually take a few days; for applications for preservation of litigation rights, the court generally makes a ruling within 48 hours in emergency situations; first-instance litigation is generally concluded within six months under ordinary procedures and three months under summary procedures; second-instance litigation usually takes an additional three to six months; arbitration proceedings proceed in accordance with arbitration rules, and most cases are concluded within several months. If price appraisal or multiple penalties are involved, the cycle will be extended accordingly. It is recommended to start fixing evidence at the early stage of the dispute to avoid prolonging the process.

Q5: After receiving the close-out notice, what should I do first?

Four steps to move forward: First, check the early warning line, liquidation line, and replenishment period in the contract item by item, and calculate the proportion of performance guarantee; Second, those who have the ability to replenish or redeem should take immediate action, and those who are temporarily in difficulty should promptly negotiate with the securities firm for an extension of the time limit and supplementary guarantees; Third, keep all records throughout the process, such as notifications, transfers, and communication records; Fourth, if you believe that the other party's procedures are in violation of regulations or the handling is improper, consult a lawyer as soon as possible and, depending on the situation, apply for objections, preservation of evidence, or initiate litigation.

The above Q&A is mainly based on judicial practices in Beijing. There may be differences in the adjudicative opinions in different regions. It is recommended to consult a professional lawyer based on the specific circumstances of the case.

If you are currently facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the relevant evidence materials, to avoid missing the statutory time limits.Financial capital legal services·Attorney Yang Yafang·Beijing Henglue Law Firm

Disclaimer: This article is compiled based on the current effective laws and regulations and public adjudication rules, and is for general reference only. It does not constitute a formal legal opinion on specific cases. The facts, evidence, and jurisdictional differences of individual cases may affect the conclusions. If a dispute arises, please consult a practicing lawyer in time.