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Shanghai No. 3 Intermediate People’s Court Introduced Measures
[2022-06-14]

Shanghai No. 3 Intermediate People’s Court Introduced Measures for Taking over Bankruptcy Cases and Disposing of Foreign Equity

 

To better promote administrators’ law-based performance of duties, improve their expertise, protect the legitimate rights and interests of market players, improve the quality and efficiency of bankruptcy case handling, service and guarantee high-quality economic development and create a world-class business environment, the Shanghai No. 3 Intermediate People’s Court recently introduced the Measures for Regulating Takeover of Bankruptcy Cases (hereinafter referred to as the Takeover Measures) and the Measures for Regulating Disposal of Debtors’ Foreign Equity Investments (Trial) (hereinafter referred to as the Equity Disposal Measures) in relation to the management of the debtor’s assets and the protection of the creditor’s interests in bankruptcy procedures.

1. Background

Taking over and disposing of the debtor’s property is an important duty assigned to the administrator by the Enterprise Bankruptcy Law and also basic work for the administrator to fully perform his duties according to law. The disposal of the debtor’s equity investment is also basic work for the administrator to liquidate and dispose of the debtor’s property and maximize the value of bankruptcy property. In practice, due to unclear takeover and disposal rules, difference in administrators’ practice ability and experience and other factors, administrators understand and operate differently or below the standard in equity asset takeover and disposal, resulting in delayed work, omission, inadequate protection of creditors’ interests, low efficiency and unsatisfactory effect of the administrators.

In April 2020, the Supreme People’s Court issued the Opinions on Promoting Efficient Hearing of Bankruptcy Cases According to Law, which put forward new requirements for timely and complete investigation and timely takeover of debtors’ property to protect creditors’ rights and interests. In February 2022, the World Bank released the Business Enabling Environment (BEE) Pre-Concept Note, setting forth ten first-level indicators for Business Enabling Environment (BEE) assessment, including commercial bankruptcy. Among them, “debtor’s asset management” and “the convenience of obtaining bankruptcy relief” are directly related to the maximization of bankruptcy property value and the protection of creditors’ interests and are important sub-items for evaluation in commercial bankruptcy.

By regulating the two basic work, takeover and equity, disposal in bankruptcy procedure, the introduction of the Takeover Measures and the Equity Disposal Measures will help improve administrators’ expertise, effectively improve the quality and efficiency of bankruptcy case handling, safeguard the interests of all creditors, and create a favorable business environment for market players.

II. Main Contents

(I) Main Contents of Takeover Measures

Takeover Measures consists of 17 articles, including general principles, basic requirements, takeover under special circumstances, compulsory takeover, etc., regulating takeover work in a systematic way. The main contents are as follows:

First, to regulate the takeover of administrators. The Takeover Measures has raised operable norms in property investigation, legality review, plan formulation, cooperation requirements clarification, on-site takeover, list preparation and summarized six ways for administrators to investigate debtor’s property and personnel information, providing reference for the investigation of enterprises with no assets, no personnel to cooperate in liquidation, and no financial books. The Takeover Measures sets forth requirements on the effective control of property, administrator reporting system, and the responsibility of production safety and environmental protection when the debtor continues the business and provide for special circumstances such as the takeover of branches, bailment, and seizure of the debtor’s property according to law.

Second, to support and guarantee administrators’ performance of takeover duties according to law. The Takeover Measures offers guidance for administrators in terms of admonition and clarification, evidence fixing, plan preparation and creditor participation, etc. and have summarized enforceable measures provided by Enterprise Bankruptcy Law, Civil Procedure Law of the People’s Republic of China, Opinions of the Supreme People’s Court on Promoting Efficient Hearing of Bankruptcy Cases According to Law and other laws and judicial interpretations, offering guidance and guarantee for administrators to enforce takeover.

Third, to protect the procedural rights of creditors. For example, clear requirements are put forward on creditors’ participation and witnessing of takeover, the administrator’s report to the creditors’ meeting, and acceptance of creditors’ supervision, etc.

(II) Main Contents of the Equity Disposal Measures

There are 19 articles in the Equity Disposal Measures, including the scope of application, basic principles, basic requirements and classified disposal approaches. The main contents are as follows:

First, to emphasize that the disposal should be open and transparent. Specific requirements are put forward for the administrators to enhance the realized value and prevent the depreciation of equity value to protect creditors’ right to know, participate and supervise.

Second, to summarize the ways of equity disposal. Based on the Enterprise Bankruptcy Law, Corporate Law, Administrative Permission Law and other laws and judicial interpretations and in combination with practical and operational experience, the Equity Disposal Measures sets forth six disposal means, namely, conversion, voluntary liquidation, administrative withdrawal, compulsory liquidation, bankruptcy and write-off, target problems, and put forward specific solutions to difficulties in practice, providing basis for equity disposal.

Third, to regulate equity disposal of administrators. The Equity Disposal Measures stipulates the overall process including equity due diligence, management and disposal carried out by administrators. Specific requirements and work standards are defined for each way of disposal.

 

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The English version of this article, which is translated from the Chinese version by CTPC, is for reference only and shall be subject to the corresponding contents on the Chinese webpage.
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