The Research Of Supervision Scheme For Debtor In Possession In Bankruptcy Reorganization

For the bankruptcy reorganization process, the first matter is how to appoint a proper authority to be in charge of debtor's business operation as necessary during reorganization, which shall be the foundation of a successful reorganization. Based on the bankruptcy-related laws and regulations of PRC, the introduction section of this article provides the analysis that debtor in possession will probably be the primary approach in relation thereto. Under the approach of debtor in possesstion, the directors of the debtor will be responsible for direct communication and coordination with related entities and for drafting and enforcing reorganization plan. Accordingly, the supervision over debtor in possession is essentially the supervision over such directors and other management officers. In light of the complexities of reorganization and inclination of directors and officers, supervision scheme for such directors and officers shall be established to prevent rights abuse. Section one of this article addresses such issue. As the applicable provisions in PRC bankruptcy laws and regulations are general, it is desirable to refer to laws and regulations abroad. Accordingly, section two to five of this articles provide such supervision scheme as filing a suit against director's breach of fiduciary obligations, replacement by administrative trustee, clarification of administrative trustee's responsibilities, adjustment or cancellation of approved reorganization plan, among which this article particularly discusses supervision for debtor in possession's decision to adopt preferential arrangement such as debt prepayment, cross-collateralization and whitewash clause. In conclusion section, all supervision schemes provided hereunder are summarized.