Study On The Cram-Down System Of The Reorganization Plan In China

The Cram-Down system of the reorganization plan means that when a reorganization plan cannot be unanimously approved by all voting groups,the court complies with the relevant laws and procedures to compulsively approve the reorganization plan to make it effective.Actually,it is a system in which the court exercises judicial power to intervene in the parties’ autonomy of the will,and compulsorily grants the common legal acts of the reorganized parties with legal effect.The Law of the People’s Republic of China on Enterprise Bankruptcy grants the court the right of compulsory approval in order to break the deadlock in the negotiations and promote the smooth progress of the reorganization process on the premise of protecting the legitimate rights and interests of the parties.However,during the operation of the Cram-Down system of the reorganization plan in China,the problems such as excessive intervention by the local government in the reorganization process,unfair adjustment of the rights of some creditors by the reorganization plan,insufficient feasibility demonstration of the business plan and so on.It has been widely questioned with the the theoretical community and practice community,and violates the original intention of setting up the Cram-Down system of the reorganization plan.This paper starts from the analysis the legitimacy of the Cram-Down system of the reorganization plan,explain the question from three perspectives: First,the system helps the qualified enterprises to reorganize successfully and restore continuity,avoids the negative impact on society caused by the bankruptcy,and achieves the pursuit of maximizing social public interests;Secondly,the system exercises the right of compulsory approval from the applicable conditions and rules of procedure to ensure that public power maintains its modest nature,and to make the system operate on the basis of fully respecting the autonomy of the parties concerned.Finally,the system breaks the deadlock in negotiations between the various stakeholders,reduces the negotiation cost of the process and achieves a balance between fairness and efficiency.Through empirical research on 14 cases of the Cram-Down of the reorganization plan,it is found that there are four problems in the operation of the system in China.First,administrative power continuously breaks its boundaries and controls the freedom of the court.The right of discretion has broken the balance between the stakeholders in the reorganization process.Second,the formalization of the principle of best interests prevents secured creditors,ordinary creditors and investors from obtaining a fair result from the reorganization plan that has been compulsorily approved by the court.Third,the related supporting mechanism of the system is incomplete and cannot provide a platform for the parties to fully negotiate.Fourth,before the court exercises the right of compulsory approval,the actual review procedure of the reorganization plan is simplified and the feasibility review is ignored.The root cause of the practical problems is that our understanding of the function of the system is always biased,and the exercise of the right of compulsorily approval is regarded as a substitute for the autonomy of the parties,ignoring the system to guide the parties to negotiate effectively.This paper repositions the function of the system from three aspects: guaranteeing the motivation and willingness of the stakeholders to participate in the negotiation,balancing the stakeholders’ abilities in negotiation and promoting full interaction of fragmented information.Based on the reorientation of the function and the problems existing in the operation of the system in China,the system can be improved from two levels: Firstly,the minimum acceptance principle,the maximum benefit principle,the absolute priority principle and the feasibility principle should be clarified from the level of entity regulation,detailing the applicable conditions for the reorganization plan and preventing abuse of the power.Secondly,strengthening the relevant process design,including improving the second voting process,establishing an opposition hearing system,and improving information disclosure rules,to provide a free and fair space for parties to negotiate,and safeguards the justice of the entity’s results with procedural justice.