On The Judgment Of Examination Criteria For Compulsory Approval Of Reorganization Plan

The essence of the court's compulsory approval of reorganization plans is a restriction on the party's autonomy of will and reveals the strong interference of public power in commercial autonomy.The starting point is to explore the operating value of the enterprise to the maximum extent,to safeguard the maximum enterprise value and social public interests,and the goal is to rescue the enterprise premised on balancing and reorganizing the interests of stakeholders.The compulsory approval of reorganization plans should follow the principles of autonomy of private law,fairness,equity of interests and economic efficiency.The mandatory approval,examination and approval stipulated by law such as the criterion of best interests,the criterion of fairness,and the absolute sequence rule are important guidelines for judges to examine the reorganization plan and also restrict the arbitrary judgment of judicial power.Since the implementation of the Bankruptcy Law in 2006,there have been some prominent problems in practice,for instance,draft reorganization plan fails to protect the "best interests" of creditors and investors or abide by the absolute sequence rule,its adjustment of the rights and interests of creditors and investors is out of balance,and its examination of the feasibility of reorganization is a mere formality.Under the circumstances that the reorganization plan has not been unanimously approved by all voting groups,to protect the "shell resources" of listed companies,the compulsory approval of reorganization plans on the grounds of the priority of social public interests has ignored the will and interest demands of the opposing voting groups and the rights holders,thus making some draft reorganization plans lacking the possibility of reorganization or subject to unfair allocation to be approved and take effect.Resulting from the incompleteness of the reorganization rules and mandatory approval rules and the complexity of the actual situation,the court's compulsory approval of reorganization plans in practice has exposed a variety of problems.The existing laws lack in-depth understanding of the value goal of reorganization system,the general principles and concrete rules that compulsory approval should follow,regarding the design of reorganization system and compulsory approval rules and the court's judicial discretion,and the examination rules for compulsory approval of reorganization plan have defects in legislation and judicial application.Premised on the examination rules of countries outside the region on compulsory approval of reorganization plans and proceeding from the value goal pursued by bankruptcy reorganization,this paper puts forward the general principles to be followed in compulsory approval of reorganization plans in China,reviews the examination rules of compulsory approval,and comes up with relevant suggestions to perfect the examination rules.Chapter I is an overview of the system of compulsory approval of reorganization plans,which elaborates the legitimacy of compulsory approval of reorganization plans and the general principles that the court should follow when making compulsory approval.Section I sets forth the legitimacy of compulsory approval of reorganization plans.Section II is about the general principles to be followed when the court makes mandatory approval.To procure the realization of the reorganization goal,the compulsory approval of reorganization plans should also follow the principles of autonomy of private law,equity of interests,fairness and economic efficiency.With the compulsory approval of reorganization plans of 13 listed companies as the research object,Chapter II analyzes the problems existing in the practice of compulsory approval.Among these 13 cases of "compulsory approval",the court,without exception,passed the application for compulsory approval submitted by the debtor or the bankruptcy administrator.The reorganization plan approved by the court under compulsory approval failed to protect the "best interests" of creditors and investors or abide by the absolute sequence rule,its adjustment of the rights and interests of creditors and investors was out of balance and its examination of the feasibility of reorganization was a mere formality,and it failed to protect the relief rights of the disputing parties in procedures.Chapter III discusses the concrete examination criteria that the court should follow when making compulsory approval,including the examination premised on distributive justice and the examination premised on economic efficiency and so on.Section I is about the examination criteria of distributive justice,specifically including the criteria of best interests and fair treatment.First,the criterion of best interests.The law stipulates the bottom line criterion for paying off the obligee.Second,the criterion of fair treatment,which means that the reorganization plan provides the same treatment to all members with the same priority,and there is no differential treatment unless they voluntarily accept worse treatment or differential treatment is provided with justifiable reasons.However,as an exception to the criterion of fair treatment,differential treatment can be provided to the obligees in the same sequence for legitimate reasons,but the judge must examine whether it is fair to provide such differential treatment.Currently,there are fair and differentiated arrangements in practice,including the principle of equitable subordination and the rule of insiders' taking liability for faults.The third is the rule of absolute sequence,which means that the allocation of reorganization benefits should follow the allocation order under bankruptcy liquidation.It requires that creditors have priority over investors in getting compensation and that creditors or investors abide by the rule of absolute sequence.Judging from the regulations,the liquidation sequence in bankruptcy liquidation stipulated in the Enterprise Bankruptcy Law does not specify the allocation order between creditors and investors,so it is essential to apply the provisions of the Company Law on the allocation order between creditors and investors.The rule of new value exception is an exception to the rule of absolute sequence,which means that new investors can keep the new value of their investment without following the original order of interest allocation.If the allocation is still carried out in light of the existing rule of absolute sequence and new investors are required to follow the original order of rights and interests allocation,it is equivalent to that the new investors bear the adverse consequences of the company's financial difficulties,which will hinder the reorganized enterprises to attract investors.Hence,to enable companies with reorganization value to smoothly attract new capital investment,the rule of new value exception is proposed.The fourth is the criterion of minimum acceptance,which aims to procure the rationality of the court's exercise of power of compulsory approval.Chapter IV specifically expounds the improvement suggestions of the examination rules for compulsory approval of reorganization plans.Section I is about the return of the concept of autonomy of private law and the perfection of concrete rules.First,it is essential to perfect the procedures of information disclosure and negotiation;second,the principle of minimum acceptance should be clarified to prevent the court from abusing the power of compulsory approval regardless of the will of the obligee;the third is the right to give relief to opponents.Section II is to procure the perfection of the principle of fairness and concrete rules.One is to procure the best interests that all obligees should be allocated.In Section III,to attach importance to the economic efficiency of reorganization and the perfection of rules,the court should pay attention to the fact that the examination of the feasibility of the business plan and the debt settlement plan will be different to some extent.