Research On Restriction Of Secured Creditor’s Right In Reorganization Procedure

When a company is in the reorganization procedure,if its secured creditors exercise their rights without restriction,the company will lose the basis for continuing operations or the reorganization plan can be vetoed because the meeting of creditors cannot reach an agreement.Therefore,the reorganization procedure will fail.Due to the failure of the procedure,other creditors can only get very little property.In order for the reorganization procedure to proceed successfully,the Enterprise Bankruptcy Law provides for a suspension of the exercise of security rights and the cramdown rule,limiting the security rights and autonomy of secured creditors.As reorganization procedure in China applies to all legal persons,when it is in the reorganization procedure,the security rights and autonomy of its secured creditors must be restricted.The "Enterprise Bankruptcy Law" currently has the problems of excessively wide limits of security rights and unclear standards for the cramdown rule,resulting in excessive restrictions on the rights of secured creditors in the reorganization procedure.This article studies the restrictions on the rights of secured creditors in the reorganization procedure,attempts to coordinate the relationship between the rights of secured creditors and the reorganization procedure,and reviews the existing laws and regulations in China on the basis of this.The first chapter analyzes the negative impact when secured creditors exercise their rights arbitrarily in the reorganization procedure.this chapter points out that if a secured creditor exercises rights without restriction,there will be serious consequences,for example,the company will not survive,other creditors can merely get very little property,employees will lose their job,which harms social interests and runs counter to the purpose pursued by the reorganization procedure.In order to ensure the progress of the reorganization procedure and protect the public interest,it is justified that the rights of secured creditors should be restricted in the reorganization procedure.On the other hand,while the reorganization procedure restricts the rights of secured creditors,the legitimate rights and interests of secured creditors should also be taken into account.Therefore,the boundary of restriction of the secured creditor’s right in the reorganization procedure should be found.The author points out that the principle of proportionality should be applied to clarify the rational boundary of restriction of the secured creditor’s security right and autonomy,and to coordinate the relationship between the rights of the secured creditor and the reorganization procedure.The second chapter analyzes the propose of the suspension of the security right.This chapter points out that only when the restrictions on the security right of the secured creditor by the reorganization procedure meet two conditions,including that the suspension of the security right is necessary for the reorganization procedure and the secured rights are adequately protected,the restriction is reasonable and justified.When those conditions are met,the security creditor’s security right can be coordinated with the reorganization procedure.When applying the theory mentioned above to Article 75 of the Enterprise Bankruptcy Law,this paper proposes that the suspension of the exercise of the security right should only apply to the right to sell guaranteed property in security right which does not need to transfer when its formation.Scope of application of Article 75 of the Enterprise Bankruptcy Law is too broad,so that it should be narrowed according to its purpose.The third chapter analyzes the propose of the cramdown rule,and points out that if the court wants to compulsorily approve the draft of the reorganization plan vetoed by group of secured creditors,it must ensure that the benefit that the secured creditor group can obtain according to the draft is not less than that from the liquidation procedure,The benefits obtained by preferential compensation for selling the secured property,or the cramdown ruling is not justified.In sense of the conditions stipulated in Article 87,paragraph 2(1)of the Corporate Bankruptcy Law,this article states that the draft of reorganization plan should pay the secured creditor the interest incurred from the start of the reorganiztion procedure to when the court apply the cramdown rule.Besides,the interest incurred from the cramdown rule applied to the date of the actual settlement should be paid.otherwise,the court shall not determine that the losses suffered by the deferred settlement of the secured claims has been compensated for.Regarding the determination that the security right has not been substantially damaged,this article points out that the draft of the reorganization plan must not provide the secured creditor with settlement other than money or secured property,otherwise it will significantly increase the risk of the secured creditor,resulting in the security right suffering substantial damage.Moreover,if the secured property depreciates during the reorganization period,and the value of the secured property after depreciation is below the amount of the secured creditor’s right,the draft of the reorganization plan must compensate the secured creditor for the loss of value.Otherwise,the court should not determine that the draft of reorganization plan meets the condition that the security right has not been substantially damaged.