Can Stored Wines Be Used as Collateral?

When a wine trading company faces financial disputes, can its wines be used as collaterals? Additionally, how are the rights of clients who have ordered those wines protected?

A case in Guangzhou, Guangdong province, sheds light on these critical questions. Due to contract disputes, a wine company incurred a debt of RMB 320 million (US$ 43.65 million), resulting in the seizure of 620,000 bottles of wine stored in its cellar, valued at over RMB 600 million (US$ 81.84 million).

What Happened

According to Legal Daily (法治日报), a state-owned legal newspaper, a Hong Kong-based wine company invested in building a wine cellar in the Guangzhou Free Trade Zone, with a mainland Chinese construction company as the project contractor. The names of both companies were not disclosed.

In March 2022, due to disputes over project payments, the construction company filed a lawsuit to enforce a debt of RMB 320 million (US$ 43.65 million). The court upheld the construction company’s claim and seized a wine cellar, a commercial complex, and the imported wines stored in the cellar belonging to the wine company.

The photo published by Legal Daily reveals that the seized wines included prestigious Bordeaux first growths, such as Château Mouton Rothschild and Château Haut-Brion.

In November 2022, the wine company contested the decision, asserting that more than 620,000 bottles of wine were owned by its clients, along with eight third parties who also claimed ownership of the wines. Additionally, a third-party evaluation estimated the value of the seized wines to be over RMB 600 million (US$ 81.84 million), significantly higher than the debt amount.

“All of our company’s wines were stored in the cellar. After the seizure, our business came to a halt,” expressed a representative with surname Yan from the wine company, who wished to remain anonymous to local media.

To mitigate the impacts, the wine company subsequently leveraged its other assets to settle RMB 170 million (US$ 23.19 million) of its debt, leaving a remaining balance of RMB 150 million (US$ 20.46 million). In 2024, the High People’s Court of Guangdong Province, the highest court in the province, conducted several hearings to mediate the case.

In its final ruling, the court authorized the seizure of wines valued at RMB 220 million (US$ 30.01 million) to cover the debt, calculated at 70% of their estimated value to cover the outstanding debt. Wines exceeding this amount would be excluded from the seizure.

The Pros and Cons

According to Liu Anqi, the China Regional Manager for Spain’s DAVIDWINE, using wines as collateral has become a common practice among Chinese wine merchants in recent years. However, this approach carries risks for both the wine companies and creditors, as the value of wines can fluctuate significantly.

“Some low-quality wines cannot be sold in the market. When left in the cellar, they become as cheap as soy sauce,” Liu noted, emphasizing that in such cases, creditors receive neither payment nor valuable assets.

These challenges are compounded by the legal issues faced by storage service providers, which can also pose risks to wine importers. For instance, in August 2024, Kagaro, a prominent wine storage company in Guangdong Province, found itself in turmoil due to legal disputes over millions in debt. Concurrently, several importers reported that they were unable to retrieve their wine stocks.

However, Deng Jianguo, the general manager of Jiahe Yuncang (嘉禾云仓), a wine storage company in Shenzhen, stated that he had never encountered this practice.

“I find the court’s decision quite arbitrary,” Deng remarked, expressing his concerns. “The wine company does not own the wines; it is merely responsible for safeguarding them.”

For wine trading and storage companies, the question arises: can stored wines be regarded as assets and used as collateral? This remains a contentious issue, and we invite your perspective on the matter.