Can the property of non-profit private schools be preserved?

The private non-profit school has the public welfare characteristic, the sponsors do not get the income from running the school, the surplus of running the school is used for running the school. When the private non-profit school is involved in the lawsuit, the property of the private non-profit school can be taken as the property preservation because of its public welfare, which is worth studying.

I. Can the Court Protect the Property of Private Non-profit Schools?

Article 15 of the Supreme People's Court's "Opinions on Standardizing and Strengthening Pre-litigation Preservation Case Handling" (Fa [2024] No.42), effective March 1, 2024, specifies the categories of assets for which courts are prohibited from applying pre-litigation property preservation measures. Regarding private non-profit schools, the provision explicitly states: Courts shall not initiate pre-litigation property preservation for educational facilities, medical institutions, elderly care facilities, and other public welfare facilities established by non-profit legal entities for public welfare purposes, including schools, kindergartens, medical institutions, and elderly care facilities. While the Opinions clearly prohibit pre-litigation property preservation for public welfare educational facilities, they do not comprehensively ban preservation of private non-profit school assets.

By searching the China Judgments Online, it is not difficult to find numerous cases where courts have preserved the property of private non-profit schools. For example, in Case No.80 of 2014 (Nanmin Chu), the People's Court of Nanshi District, Baoding City issued a civil ruling to seize the school's leased premises and rental fees; in Case No.1802 of 2020 (Lu 1002 Zhi Bao), the People's Court of Huancui District, Weihai City issued a ruling to freeze the school's bank deposits or seal property of equivalent value; in Case No.33 of 2017 (Chuan 0704 Zhi Yi), it is known that the People's Court of Youxian District, Mianyang City once sealed the school's bank accounts and state-owned land; in Case No.48 of 2017 (Yue 0115 Zhi Yi), the People's Court of Nansha District, Guangzhou City issued a ruling to preserve the school's property, requiring the school to transfer its income and expenses to a designated account.

Furthermore, neither the Supreme People's Court's Provisions on Sealing, Seizure, and Freezing of Property in Civil Enforcement by People's Courts, nor its Provisions on Several Issues Concerning the Handling of Property Preservation Cases by People's Courts, contain comprehensive prohibitions on preserving or executing property of private non-profit schools. In conclusion, not all property of private non-profit schools falls under the prohibition of sealing, seizing, or freezing. Except for properties legally prohibited from preservation, certain types of property of private non-profit schools may be preserved by the court.

2. Types of property that private non-profit schools are prohibited from preserving

Property preservation refers to compulsory measures imposed by the People's Court to restrict parties' disposal of their property or disputed assets, either before litigation or after a lawsuit is filed, to ensure the enforcement of future effective judgments or prevent property loss. Property preservation is categorized into pre-litigation and litigation preservation. Based on the comprehensive provisions of both types, the following analysis identifies property categories that private non-profit schools are not eligible for preservation:

(1) The social insurance fund account opened by the social insurance institution shall not be subject to pre-litigation preservation.

Article 15 of the Supreme People's Court's Opinions on Standardizing and Strengthening Pre-litigation Preservation Case Handling (Fa [2024] No.42) stipulates: "The people's court shall not adopt pre-litigation property preservation measures for the following properties:... (5) social insurance fund accounts opened by social insurance institutions."

The practice of social insurance institutions maintaining segregated accounts for social insurance funds has disrupted normal fund distribution, with its detrimental effects on social stability becoming increasingly evident. In 2018, China's Supreme People's Court issued a notice prohibiting such fund segregation. The "Notice of the Supreme People's Court on Prohibiting Sealing, Freezing, or Withholding Social Insurance Funds in Civil and Economic Dispute Cases" (Fa [2000] No.19) explicitly states: "Social insurance funds, managed by social insurance institutions on behalf of insured individuals and ultimately utilized by them, are public funds not owned by these institutions. These funds are designated for specific purposes—safeguarding the basic living needs of retired enterprise employees and unemployed individuals—making them special-purpose funds that must not be diverted for other uses. Therefore, when adjudicating civil and economic disputes, courts nationwide must not seal, freeze, or withhold social insurance funds, nor use them to repay debts of social insurance institutions or their former subsidiaries."

Social insurance funds possess unique characteristics distinct from ordinary assets. In my practice, I consulted with some court preservation departments, who clarified that accounts used by private non-profit schools for social insurance payments cannot be preserved. The courts further explained that properties related to safeguarding people's livelihoods are likewise ineligible for preservation, as this reflects the commitment to social welfare and stability, which aligns with the legislative intent behind this provision.

(2) The property of the debtor whose bankruptcy application has been accepted by the people's court shall not be subject to pre-litigation preservation

Article 15 of the Supreme People's Court's "Opinions on Standardizing and Strengthening Pre-litigation Preservation Case Handling" (Fa [2024] No.42) stipulates: "The following properties shall not be subject to pre-litigation preservation measures by the People's Court:... (8) Debtor's assets for which the court has already ruled to accept bankruptcy applications." Article 19 of the Bankruptcy Law of the People's Republic of China further states: "Upon accepting a bankruptcy application, the People's Court shall lift preservation measures concerning the debtor's assets and suspend enforcement proceedings."

Regarding the bankruptcy capacity of private non-profit schools, Article 58 of the *Promotion Law of Private Education of the People's Republic of China* stipulates: "When a private school terminates, it shall conduct financial liquidation in accordance with the law. If the school voluntarily requests termination, the liquidation shall be organized by the school itself; if revoked by the approval authority, the liquidation shall be organized by the authority; if terminated due to insolvency, the liquidation shall be organized by the People's Court." Article 135 of the *Enterprise Bankruptcy Law of the People's Republic of China* further states: "Where other laws stipulate that the liquidation of organizations other than corporate legal persons falls under bankruptcy liquidation, the procedures prescribed in this Law shall apply by reference." Therefore, provided that private non-profit schools possess bankruptcy capacity, their assets cannot be subject to pre-litigation preservation if the People's Court has already ruled to accept a bankruptcy application.

(3) Educational facilities, medical and health facilities, elderly care facilities and other public welfare facilities established by schools, kindergartens, medical institutions, elderly care institutions and other non-profit legal persons for public welfare purposes shall not be subject to pre-litigation preservation.

Article 15 of the Supreme People's Court's "Opinions on Standardizing and Strengthening Pre-litigation Preservation Case Handling" (Fa [2024] No.42) stipulates: "The people's court shall not implement pre-litigation property preservation measures for the following properties:... (9) Educational facilities, medical and health facilities, elderly care facilities, and other public welfare facilities established by non-profit legal entities for public welfare purposes, such as schools, kindergartens, medical institutions, and elderly care facilities."

This regulation specifies the exemption from preservation and enforcement measures for public welfare facilities in private non-profit schools. Considering public interest, educational facilities serve dual purposes: enabling schools to sustainably fulfill their social mission of teaching and nurturing, while safeguarding the public's right to education. These facilities possess unique characteristics distinct from ordinary property. The provision aligns with Article 399 of the Civil Code of the People's Republic of China, which prohibits mortgaging educational, medical, and other public welfare facilities established by non-profit legal entities for public welfare purposes, such as schools, kindergartens, and medical institutions.

(4) The financial allocations for kindergartens shall not be subject to preservation measures.

This property category reflects the court's autonomous decision, based on local regulations, to exclude private non-profit schools from fiscal subsidies. In its enforcement ruling (2022) Yue 1973 Zhi Yi No.762, the Third People's Court of Dongguan, Guangdong Province, after comprehensive review of relevant laws, Guangdong's administrative measures, and the city's Education Management Center's response, confirmed that government-allocated educational funds are designated for staff salaries and campus environment improvements. These funds are exclusively used to cover kindergarten operational costs and are prohibited from debt repayment.

The Third People's Court of Dongguan City, Guangdong Province, in accordance with Article 61 of the Education Law of the People's Republic of China, stipulates that "state-funded educational resources and donations from social organizations or individuals must be exclusively used for education and shall not be diverted or withheld." Furthermore, Article 3 of the Notice No. Yue Cai Ke Jiao [2018] 336 issued by the Guangdong Provincial Department of Finance specifies: "Public funds allocated through fiscal subsidies shall not be used for salaries, allowances, welfare benefits, social insurance, or housing provident fund payments for government employees; nor shall they be used for capital construction investments, debt repayment, or external donations." In accordance with the "Guangdong Province Inclusive Private Kindergarten Recognition, Support, and Management Measures" (Article 1: Recognition of Inclusive Private Kindergartens... 3. Financial Management Standards... 'Establish dedicated accounts as required, implement independent accounting for fiscal subsidies, and ensure dedicated use of funds'), "Article 3: Management of Inclusive Private Kindergartens... (4) Strengthen Financial Management... Education and finance departments at county (city, district) levels shall improve asset and financial supervision mechanisms, enhance oversight of subsidy fund management, improve fund utilization efficiency, and strictly address violations such as false reporting, fraudulent claims, misappropriation, or diversion of special funds in accordance with relevant regulations," as well as the provisions in the "Notice on Establishing a Per-Student Funding Allocation System for Preschool Education in Guangdong Province" (Yue Cai Jiao [2018] No.336) ("Article 3: Usage Regulations... Financial subsidies for inclusive private kindergartens, calculated based on provincial public kindergarten per-student operational funding standards, shall be centrally managed by private kindergartens to cover operational expenses"). Considering the Qiaotou Town Education Management Center's official response stating that "fiscal allocations are exclusively used to cover kindergarten operational expenses and shall not be applied to repay other debts," it is determined that the disputed funds, being supervised by finance and education authorities, independently accounted for, and specifically designated for kindergarten operations, should not be frozen as ordinary assets.

(5) The funds of the trade union and the funds of the "trade union fund centralized account" of the private non-profit school shall not be preserved.

The Supreme People's Court's Reply on Whether Trade Unions and Grassroots Trade Unions Possess Social Organization Legal Person Status and Whether Funds in Centralized Trade Union Accounts Can Be Frozen or Transferred (Judicial Interpretation [2020] No.21) stipulates: "III. According to the Trade Union Law, trade union funds include membership dues paid by union members, funds allocated by enterprises, institutions, and government agencies establishing trade unions at 2% of their total monthly payroll, as well as income remitted by affiliated enterprises and public institutions and subsidies from the people's government. Trade union funds must be proportionally allocated monthly to local trade unions and the All-China Federation of Trade Unions. Once transferred, the ownership of trade union funds is transferred accordingly. The' Centralized Trade Union Fund Account 'independently listed in banks is unrelated to corporate operating funds and is exclusively used for the concentration and distribution of trade union funds. No expenses or fund transfers are permitted in this account. Therefore, courts should not treat trade union funds as corporate assets during case proceedings. When an enterprise is in debt, funds in trade union accounts and the' Centralized Trade Union Fund Account' should not be frozen or transferred."

In conclusion, the applicability of property preservation measures to private non-profit schools requires a comprehensive assessment of the nature and purpose of the assets. While certain types of property are explicitly prohibited from preservation under the law, it is essential to carefully evaluate whether the targeted assets may affect public interests. The author maintains that current legislation does not comprehensively prohibit such preservation measures. For properties of private non-profit schools that do not involve public interests, property preservation measures may be appropriately implemented.