On Legal Issue Of Financing In Reorganization

Along with transition and development of insolvent law and company law, reorganization system came into being after market economy reached certain stage. It represents the international legislative theory lay particular stress on creditor interest to society interest change. In order to achieve the objectives of preventing enterprise go bankrupt, prompting enterprise rehabilitation, and preserving the social resource, the debtor in reorganization should not only equitably discharge of claims, but also restore the operating ability of itself. However, condition of lack of fund makes it hard for debtor to make these works accomplished, so financing in reorganization would be indispensable. On account of the defect of reorganization system on financing, which couldn't adapt to the demand of reality, this thesis presents some proposals about how to improve the system of financing in reorganization.This thesis includes three parts: Introduction, Body and Conclusion. Among which the Body is divided into five Chapters.In Chapter One, the author briefly discusses the reorganization system on its concept, characteristics, theoretical basis, and application scope, which attempt to raise the theoretical premise of study on financing in reorganization. Combined with historical background and theoretical basis of the reorganization system and referred to the conceptions defined by others, the author brings forward the conception of reorganization system which highlights the effect of public power in reorganization procedure. By means of comparing with liquidation system and compromise system, the characteristics of reorganization system are summarized as: specialization of reorganization objects, wide-ranging reasons of starting reorganization, multi-subject of application and participation, no-priority of real rights under security, diversified measures of reorganization, preference of reorganization procedure, judicial power strengthened. Then, the author further introduces the theoretical basis of reorganization, which comprise of On Going Concern Value, On Common Benefits and On Social Policy by Scholars. In addition, the stipulation on suitable scope of reorganization in China, directly related to financing subject, arose much controversy, so the author clearly put forward his own views in this chapter.In Chapter Two, the necessity of financing in reorganization is presented. The author discusses this issue based on difficulties of debtor, settlement of reorganization claims and community claims. Debtors usually have fallen into financial difficulties, so financing is the must for them to pay debts so as to achieve the aim of rehabilitation.In Chapter Three, the characteristics of multi-subjects, time limit and financing mode are discussed. In the procedure of reorganization, Debtor in Possession or Trustee is responsible for carrying out financing in reorganization, in which supervised by creditors and shareholders, and also the court play a role who has the right to make the final decision under some particular conditions. One the other hand, enterprise reorganization should meet the deadline of the procedure period . This means that financing also should be completed in limit time in order to clear the debts. However, refer to Law of the people's republic of China on Enterprise Bankruptcy, court would terminate the reorganization procedure when approved reorganization plan. So, it is not necessary for financing side to complete funding within the procedure period. Financing mode is influenced by the enterprise's difficult situation and reorganization system. The unfavorable situation of debtor makes it harder to finance by the way of Internal Finance or Directly Finance. Besides, the operation mode of financing in reorganization could be divided into plan mode and out-plan mode.In Chapter Four, three common financing ways in practice, which include loan, transfer of property or business, recapitalization, are discussed. Loan is usual way for debtor to finance. This chapter deeply analyses the issues about loan source, security and priority on loan, and explore the feasibility of loan in reorganization process. In order to get funds in reorganization, debtor could transfer property and business, cover the property mortgaged or pledged and the factors of production, legal relations etc.on the premise that the interest of creditors is protected. And recapitalization means to issue of shares or bonds of company and make Debt Equity Swap. According to company law and securities act of counties or regions, companies should meet strict conditions when they want to issue of shares or bonds. And reorganization system should modify those conditions because it is too strict for debtor in reorganization to satisfy. In addition, the concept, feasibility and specificity of Debt Equity Swap are also presented.In Chapter Five, through analyzing the flaws on the aspect of financing rules in China reorganization system, the author put forward some suggestions on how to promote China reorganization system.