Research On New Value Exception Rule In Reorganizations

The core of the bankruptcy reorganization system is the redistribution of the reorganization value.In a reorganized firm,all stakeholders compete for the distributing the value of the bankruptcy estate.The distribution of reorganization value is mainly reflected in the reorganization plan how to arrange debt repayments and interests of equity holders.The reorganization plan needs to coordinate the distribution of interests between creditors at all levels and between creditors and equity holders fairly.The purpose of bankruptcy reorganization is to preserve a firm's going concern value and maximize the interests of creditors.The absolute priority rule serves as the basis to protect the interests of creditors,but while protecting creditors,this rule may also harm the interests of creditors.To realize the purpose of bankruptcy reorganization,the new value exception rule was developed in the bankruptcy judicial practice as a breakthrough to the absolute priority rule,which was determined by case law.The new value exception rule gives the former equity holders chance to participate in the reorganization.If the former equity holders contribute new value,they can retain their equity position in a reorganized firm over the objection of creditors who did not get paid in full under the plan.According to the new value exception rule,former shareholders must give value that is:(i)new and necessary for a successful reorganization;(ii)in money or money's worth;(iii)reasonably equivalent to the value or interest received.The new value exception rule is used as a means to solve the problem of the minority creditors who do not cooperate with the reorganization plan.It has the value of preserving a firm's going concern value,resolving the lack of new funds,revitalizing the enthusiasm of shareholders,protecting the interests of creditors,and reducing the cost of restructuring.In China's company reorganization,especially the reorganization of listed companies,in the case of creditors did not receive full repayment,stakeholders may consider various interests,including social interests,to retain part of the shareholders' equity.Therefore,there is a common phenomenon in practice: the senior creditors receive less,the reduction rate is large,and the shareholders' equity adjustment ratio is usually lower than senior creditors reduction ratio.This adjustment to former equity holders' interests lacks quantitative standards,which leads to breakthroughs in absolute priority rules and harms the interests of senior creditors.How to solve this problem and realize the interests of balancing in reorganization is a difficult point in current judicial practice.The new value exception rule has its specific functions.Building new value exception rule can balance the conflicting interests of creditors and shareholders,avoid the infringement of the creditors' interests and quantify the scope of the shareholders' equity adjustment,which to eliminate the ‘stigma' of bankruptcy reorganization.The new value exception rule,which is a more market-oriented rule,is the basis for shareholders to retain their interests,and has referencing significance in Chinese bankruptcy reorganization.This paper reviews and summarizes the adjustment of shareholder rights and the adjustment of senior creditor rights in the reorganization of listed companies cases,and explores the causes of the problems.Through the analysis of China's current legal provisions and the summary of judicial practice,this paper puts forwards specific legislative ideas and proposals for China to learn from the new value exception rule.