Several Questions On Liquidated Damages Regarded As Bankruptcy Debts

The PRC Company Bankruptcy Law has been adopted at the 23rd meeting of the Standing Committee of the Tenth National People's Congress of the People's Republic of China on August 27, 2006, which is a landmark of perfecting enterprise bankruptcy system under PRC market economy framework. The socialist market economy was built from scratch and has grown mature, in which period the bankruptcy law has a significant positive impact. In development of market economy, there appear new objects and new events.New issues inevitably challenge the application of bankruptcy law. In practicing bankruptcy law, the scope and amount of bankruptcy debt are most problematic. It is because the voting power in the bankruptcy procedure and allocation of liquidated assets rely on the confirmation of bankruptcy debt. Bankruptcy law does not provide for detailed provisions for determining bankruptcy debt, in particular liquidated damages. Given that liquidated damages are compensatory and punitive, the position of such payment is disputable in judging bankruptcy cases. Some courts exclude such liquidated damages from bankruptcy debt in attempt to protect the principal of debt declared by creditors. Some courts perceive such liquidated damages as bankruptcy debt in pursuance of the private agreements between relevant parties. Such different approaches in practice of bankruptcy laws cause considerable inconsistency in the judgment of cases.On basis of analysis of nature, characteristics and effect of liquidated damages and bankruptcy debt, this article proposes to perceive liquidated damages as bankruptcy debt and to enact laws for statutory adjustment of such liquidated damages in proceedings, i.e. the administrator shall apply to presiding court for liquidated damages adjustment so that the punitive liquidated damages are limited to the actual damages suffered by creditors.