Research On Executory Contract In Insolvency Law

Though the term executory contract in the insolvency law is originally from American Insolvency Law, it’s not unique to it. The trustee is entitled to deal with the unfulfilled contract by both parties in many other countries and regions including China. As for this kind of contract specifically defined in the insolvency law, theory circles in various countries including China term it "executory contract" instead. However, the problem which needs urgent solution is not the term. The right of choice of executory contract in the insolvency law is quite simple in the legislation of different countries. There is also no systematic study on it in China. Moreover, there is no clear distinction between continued performance, transfer and termination of executory contract, which leads to many theoretical gaps, macroscopically or microscopically. In addition, executory contract is the product of bankrupt policy which is tilted towards the bankrupt’s interests. If the policy support does not result in unbalance, correctional rules are indispensable to balance the interests of different parties. The correctional rules can be reflected in the research on the coordination of the relationship between executory contract, contract defence system, contract termination system and declaration system of bankruptcy credit. They can also be substantiated in the typology of executory contract which partly limits the right of choice. This thesis begins with the scope of the executory contract in the insolvency law, researching on the executory contract which needs supplement and refinement. This thesis also discusses the relationship between executory contract and other relevant regimes, and the typology of executory contract, calling for the focus on the protection of interests of relevant parties except the bankrupt.With the framework of "collection-division", the thesis studies the general rules and other particular rules of executory contract in the insolvency law from various perspectives. Apart from the introduction part, the thesis falls into six chapters. The introduction first introduces that the purpose of the research lies in the urgent need for the principled rules in the legislation of executory contract in the insolvency law, while many theoretical gaps need to be filled up. Only by seeking a best point among normal bankruptcy procedures, protection of the bankruptcy property and reduction of the damage to the interests of the contract counterpart can the legislation realize its genuine value. After revealing the weaknesses of the study on executory contract home and abroad and its main focus, the thesis explains that the methods adopted in this thesis are systematic method, typology method, method of comparative analysis and method of judicial sociology analysis and it thoroughly interprets the executory contract from its general point to specific point.Chapter One“The Scope of Executory Contract”This chapter is the theoretical basis for the research of executory contract in the insolvency law. It explains the scope of executory contract and makes clear the study object. This chapter starts with the etymology of the phrase executory contract, proving that the term unfulfilled contract in Article 18 of China’s insolvency law is an equivalent to the term executory contract, thus affirming that Article 18 of China’s insolvency law is the regulations of executory contract. As there is no clear definition to executory contract, the chapter introduces and analyses the standard of "substantial breach", "result-based" standard and the standard of "not-fully fulfilled", thus choosing the standard of "not-fully fulfilled", which based on the fulfilling status of the contract. It emphasizes that the period of the executory contract should be established prior to the examination of the bankruptcy application and the contract not terminate in the course of the examination of the bankruptcy application. The type of the executory contract should be bilateral contract and the status of the contract should be at the stage that both parties do not fulfil the agreement. Therefore, the executory contract in the insolvency law is defined as the bilateral contract on which the both parties do not fulfil all the duties stipulated prior to the examination of the bankruptcy application.Based on the clear definition of executory contract, this chapter further explains the scope of it from the perspective of its types. It finds out that the legislation either uses the general terms or lists the never-ending particular parts, the types of executory contract are never involved in it. On the basis of the typology of executory contract and the integrity of the right of choice of the trustees, the executory contract falls into two categories:complete executory contract and incomplete executory contract. Also based on the distinction of the restricted right of choice, the incomplete executory contract is divided into three types:executory contract with restricted termination right, executory contract with restricted fulfilling right and the executory contract with restricted transfer right.Chapter Two"On Handling the Relationship Between Executory Contract and Its Relevant Systems."The chapter explains the relationship between bankruptcy law and labour law, illustrates the problem of the various rules in insolvency law itself and solves the relationship between different parties involved. This chapter focuses on the following three relationships:1. Executory contract and Counterargument Right in the Performance of Bilateral Contracts.With the traditional civil law theory, it argues that concurrent defence right includes the counterargument right of plea against the advance performance, thus discussing the handling of the relationship of executory contract with the counterargument right for simultaneous performance and the counterargument right for security. The counterargument right for simultaneous performance only aims to link the contract. It has no right to terminate the contract. The right of termination hold by the trustee in the executory contract makes up the right of termination in the concurrent right to defence. No matter which party exercising the counterargument right for simultaneous performance leads to the deadlock of the contract, the trustee can exercise the right to terminate the contract. The right of choice hold by the trustee in the executory contract contradicts with the counterargument right for security of the other party, so the non-bankruptcy parties’counterargument right for security should be restricted before the trustee choose to continue to fulfil or terminate the contract, which ensures the full right of choice hold by the trustee. However, when the trustee continues to fulfil the contract. However executory contract strengthens the non-bankruptcy parties instead of contradicting with it.2. Executory contract and the termination systemAs for the right of termination hold by the non-bankruptcy parties, they should have no right to exercise the right of termination even if there is ipso facto clause. When it comes to the statutory right of termination, the non-bankruptcy parties have no right to exercise such right as the executory contract itself jostles the statutory right of termination, the non-bankruptcy parties have no right to exercise too.3. Executory contract and the declaration system of bankruptcy creditWhether the non-bankruptcy party needs to declare bankruptcy credit and its nature of credit depends on the trustee’s choice of contract, which results in the futile efforts made by the non-bankruptcy party prior to the right of choice exercised by the trustee. In order to simplify the declaration procedure of bankruptcy credit, this chapter proposes that the right of choice exercised by the trustee be placed before the declaration of bankruptcy credit. This proposition may improve the bankruptcy efficiency and save the bankruptcy cost. It does not sacrifice the interests of the non-bankruptcy party.Chapter Three“The Right of Choice of Executory Contract”This chapter summarizes the right of choice of executory contract as the right enjoyed by the bankrupt to choose the status of the contract. It continues to explain in detail the bankruptcy party who hold the right of choice in executory contract, illustrating that the main bodies of the right of choice in the executory contract:trustee and creditor. In most cases, trustee exercises the right of choice. In the reorganization procedure, the creditor manages the bankrupt property on its own and it enjoys the right of choice in executory contract with the consent of the court. The creditor is still considered as the party signed the contract. The only difference is that it is now the trustee who exercises the right of choice at the benefit of the whole creditors. This chapter continues to analyse the contents of the right of choice, which includes the right of transfer except the right for continual performance and the termination approved by the current law. As the result of the right of choice is in the interest of the party and the whole creditors, also in order to avoid the abuse of the right of choice, this chapter ends with the three principles of the right of choice, that is, maximum principle of the bankruptcy property, indivisible principle and the on-time principle.Chapter Four"The Continual Performance of the Executory Contract"This chapter starts to observe the executory contract microscopically. This chapter divides the requirements of continual performance of executory contract into agreement part, previous breach remedy part and future performance guarantee part. If the bankruptcy party is determined to carry out the contract, it should be at the consent of the court before the first creditors’meeting. The establishment of the creditors’committee should be at the consent of the creditors’committee. During crecitors’meeting, it should be at the consent of creditors’meeting. In addition, bankruptcy party should make immediate remedy to the breach rapidly and provide adequate guarantee for the future performance. In order to improve the efficiency of the bankruptcy procedure and avoid the delay of performance by the non-bankruptcy party, trustee has the right to continue the performance of the contract with adequate guarantee for the debt of the non-bankruptcy party. Non-bankruptcy party may sue to court if it has questions towards the guarantee.After the bankruptcy party continue to carry out the contract, the original contract is still in effect and the trustee cannot amend the contents of the contract.This chapter also thoroughly discusses the types of the non-complete exeucutory contract, including the right of termination held by non-bankruptcy parties, the future contract and the high risk contract.Chapter Five"The Transfer of Executory Contract"The requirements of transfer seem to the ones of the continual performance of executory contract. The only difference is that the non-bankruptcy party has the right to ask the other party to provide guarantee unless the bankruptcy party has provided guarantee. With the bankruptcy property guaranteeing the future performance, the other party should provide counter-guarantee to the bankruptcy party so as to ensure the value of the bankruptcy property. Once the bankruptcy party transfer the contract, it has completely no responsibility over the contract. This chapter has detailed discussion over the non-complete executory contract, including the non-complete contract with continual performance, the non-transferable contract according to the nature of the contract and the non-transferable contract under the law.Chapter Six"The Termination of Executory Contract"There is no particular requirement over the termination of executory contract. As the trustee is not the agent of the whole bankruptcy creditors, it enjoys a certain range of autonomy right. Moreover, the influence of the termination of the executory contract in the bankruptcy procedure is weaker than that of the continual performance of the contract. In addition, when the termination of the contract made by the trustee has greatly damaged the interest of the other party, non-bankruptcy party has the right to sue to court. The creditors’meeting may also apply to change the trustee and demand for compensation so as to protect the interests of all creditors. Therefore, the termination of contract does not need the consent of the other party and all creditors.As for the effect of the termination, it is detrimental to the bankruptcy enterprises if taking the particularity of bankruptcy procedure out of consideration. Meanwhile, the retrospective power of the termination of contract in the insolvency law is likely to become a tool to avoid bankruptcy system by the bankruptcy enterprises and some creditors to evasion of the right of resecission system and invalid juristic act system. This chapter is against the retrospective power of the termination of contract. The chapter also discusses the types of non-complete executory contract, including the contract with the purpose of use and profits, the contract involving public interests and labour contract.ConclusionThis article concludes the main idea of the whole article from the static and dynamic perspectives of the executory contract in bankruptcy law and points out the research significance in relation to the executory contract in bankruptcy law.