The Disposal Of Debtors’ Assets Before The Voting Of Creditors

The U.S. Bankruptcy Act was enacted on1978, among which Chapter11contains the detailed regulation about the process of bankruptcy reorganization. In Chapter11, Section363clearly point out that the debtor can dispose, sold or lease part of or all of the debtor’s assets prior to the creditors’vote for the reorganization plan. The only request is the court’s approval and the notice and hearing process. The implementation of this non-plan liquidation brought about hot debate among scholars, lawyers and judges. Proponents believe that Section363can benefit the secured creditors efficiently without the complicated procedures. Furthermore, the non-plan liquidation can maximize the benefit for all parties. It is quick and efficient. Opponents hold the opinion that the contracts between debtor and others shall not change the discharge order. According to the law, the disposal of the debtor’s assets shall obey the priority rule. Therefore, the non-plan liquidation shall be forbidden. The debate becomes more and more serious after the reorganization of two car manufactures’---Chrysler and General Motor in2008.With the impact of the financial crisis in2008, industrial companies including car manufacturing were heavily influenced. The two automobile manufacturers, Chrysler and General Motor, applied for bankruptcy reorganization on April2009and June2009. One thing worth to be noted is that by using Section363(b), the two companies sold their assets before the voting of creditors and finished the procedure of reorganization within dozens of days. The quick procedures saved the companies quickly, while at the same time, brought about heat debates. Some bankruptcy expert believes that the use of363(b) broke the core principle of the U.S. Bankruptcy Act, which is the priority rule. Some unsecured creditors were paid off before the secured creditors, which constitute a breach of procedural law. Some experts also criticized the government’s role in these cases.There is no rule regulating the sale or disposal of debtor’s assets by the trustee (or the debtor himself) before the reorganization plan passed by the creditors, where the only request is to get the court’s approval. However, by analyzing our bankruptcy law system, we can find that it is possible for us to apply the Section363non-plan liquidation. The problem is that our legal system contains both substantial and procedure loopholes for applying Section363. Therefore, this essay aims to find a way for our legislation to learn from the U.S. Bankruptcy Act, while at the same time, combine the advantages of the rule to our own legal system. By refining the non-plan liquidation rule, we can provide better protection to creditors.Firstly, I will analyze the source of the rule and how will it be used by the court by referring to articles and case analysis. Secondly, I will elaborate the pros and cons of Section363by case analysis. The two famous cases, In re Chrysler and In re General Motor, will be used in this essay. At last, I will discuss the possibilities and the problems of applying the non-plan liquidation rule to our legal system and provide some advices for our legislators according to the previous analysis.The first part of the essay illustrate the value and advantages for bankruptcy reorganization by comparing it with liquidation, emphasize the important role that played by the reorganization system during the development of both the enterprises and the social economy. The bankruptcy reorganization system also helps to keep the social and economy stable. This part serves as a foundation for later discussion about the advantages of the Section363. The second part of the essay clearly states the advantages and disadvantages of Section363by making a detailed discussion about the development, the advantages and the problems during the practice of the rule. The U.S. practice provides us a model for application of the non-plan liquidation rule. The third part of the essay further elaborates the advantages and the problems of the non-plan liquidation by using cases analysis, In re Chrysler and In re General Motor. This part also states the role played by government during the process of enterprises’, especial large enterprises’bankruptcy reorganization under the circumstances of financial crisis, as well as the problems encountered during the process. The last part of the essay states the possibilities and the loopholes of applying the non-plan liquidation rule under our legal system and provides advices for our legislation regarding this issue by learning from the U.S. practice.