Research On Reasonable Limitation Of Priority In Bankruptcy Liquidation

If the property of the estate in the bankruptcy liquidation process is compared to a cake,then the distribution of debtor's assets is like the process of dividing the cake by creditors.Creditor's abilities are not the same with respect to the priority of asset recovery and the ability to acquire enterprise operation risk information,especially their capacity of bearing losses is different.In order to protect the vulnerable creditors,the priority system which based on the realization of social justice value came into being.The limited resources of bankruptcy property determines that bankruptcy creditor's claims cannot be fully satisfied,excessive priority claims will certainly make adverse effect on ordinary creditor's claims,and there will be fierce conflicts between the creditors who enjoy priority claims.In order to liquidate creditor's claims and debts fairly,it is necessary to reasonably restrict the priority in bankruptcy liquidation.In addition to the introduction and conclusion,this paper contains four parts.From the perspectives of legal provisions and practice of priority in bankruptcy liquidation,this paper analyzes the reasons why priority should be reasonably limited and puts out methods that can be employed to achieve this goal.The first part introduces the status quo of priority operation in China's bankruptcy law.This part focus on the definition of priority which designed in Enterprise Bankruptcy Law of the People's Republic of China(hereinafter referred to as "bankruptcy law"),as well as the priority categories illustrated by other laws and regulations and judicial interpretations.The second part points out the necessity of reasonably restricting the priority in the bankruptcy liquidation procedure.There are four reasons.Firstly,the lack of publicity of priority information will negatively affect the safety of transaction.Secondly,the priority system may have an adverse influence on the protection of creditors.Excessive priority claims will reduce creditors' incentive to supervise the debtor and other creditors,and may also cause moral hazard.Thirdly,the priority system faces challenges in bankruptcy practice.On the one hand,the position of former employees' claims in China's bankruptcy legislation is increasingly marginalized.On the other hand,tax creditors' claims are questioned in the practice of bankruptcy liquidation.Fourthly,the priority system is losing popularity in the bankruptcy legislation around the world,and limiting the priority system is consistent with the trend in bankruptcy law reform.The third part puts forward the principle and standards of reasonable limitation on priority in bankruptcy liquidation.The limitation on the priority of bankruptcy should follow the interest balancing principle and equitable distribution principle.Also,the limitation should meet the standard of protecting the priority of the survivable claims and the predictability to commercial transactions and keep a balance between public interests and private interests.The fourth part puts forward some suggestions on how to reasonably limit the priority in the bankruptcy liquidation procedure.There are three ways to restrict priority reasonably.The first is to restrict the types of priority and stop creating new priority category.The second is to restrict former employee's claims from the aspects of subject,categories and amount.The third is that the tax department and the judicial department should have a unified understanding that the tax creditor's claims are limited to the tax principal owed by the debtor before the commencement of bankruptcy case.Compensation mechanism should be established while limiting the priority.One of the compensation mechanisms is to perfect the recovery mechanism for employees' wages.Another one is to make the business management personnel bear responsibilities.The implementation of the priority restriction mechanism also needs a certain guarantee mechanism,which requires the bankruptcy judge and the bankruptcy administrator to examine the priority and priority creditors strictly when dealing with bankruptcy cases,and provide feedback in time about the limitation and compensation mechanism.