The Protection Of Creditors' Interests In The Bankruptcy Reorganization

In the course of business,there is a risk of bankruptcy due to the deterioration of business conditions.2019 is another year of bankruptcy and reorganization of China's listed companies.A total of 48 listed companies,their controlling shareholders or their subsidiaries disclosed their status of bankruptcy reorganization through public channels throughout the year.Such number more than doubled from 2018.In the first half of 2019,Jinan Shengquan Group Co.,Ltd.had provided 70% of its receivable from Shenyang Machine Tool Company,RMB 12,102,870,000,for bad debt provision,since Shenyang Machine Tool Company was ruled by the court for bankruptcy reorganization.It is not the only case that the creditor suffered a huge loss because of the debtor's entering the bankruptcy reorganization process.For China's current bankruptcy reorganization cases,the final debt settlement rate of 20%-30% has been considered an ideal result.The phenomenon of damage to creditors' interest exists in all stages of the bankruptcy reorganization process.The interest of creditors may be damaged at the application stage of bankruptcy reorganization because the creditor does not have the right to apply for transforming reorganization or the court does not accept its bankruptcy reorganization application in time.During the period of reorganization,the interest of creditors may also be harmed due to inadequate and inaccurate information disclosure on matters related to bankruptcy and reorganization,low participation in bankruptcy reorganization,and the court 's strong sanctions to approve the reorganization plan.In the Dandong Port bankruptcy reorganization case,the trustee had not organized any creditors' meeting to discuss the plan of debt settlement,and as of the day the court issued a compulsory sanction of the draft reorganization plan,the trustee had not yet released the audit report of Dandong Port.The ordinary creditor group did not pass the draft reorganization plan in both votes,but the trustee did not modify the content of the draft reorganization plan,nor did it consult with the creditors,but directly applied to the court for sanctions.Dandong Intermediate Court finally agreed to the trustee's application,and imposed a sanction on the draft reorganization plan that was detrimental to the interests of creditors.China introduced the bankruptcy reorganization system in the "Enterprise Bankruptcy Law" that came into effect in 2007,which provides chances for enterprises to reverse the decline and get rid of business difficulties.The goal of the bankruptcy reorganization system is to determine the settlement plan of the debt through negotiation and formulation of a reorganization plan approved by most parties of bankruptcy reorganization.The bankruptcy reorganization system requires fair and efficient treatment of the debtor 's property.Therefore,in the process of conflict,there will inevitably be contradictions and conflicts between the interested parties.This is reflected in the right to apply for bankruptcy reorganization,the adjustment of the rights of creditors and investors,and the voting method of the draft reorganization plan.But China's bankruptcy reorganization system still has problems.In the bankruptcy reorganization process,because creditors are in a disadvantaged position in information,it is often impossible to obtain the latest information in the process of the bankruptcy reorganization process,which leads to the relatively weak protection of creditors' interest in practice.This has weakened the fairness of the bankruptcy reorganization system to a certain extent.This also has a certain inhibitory effect on the function of the bankruptcy reorganization system to balance the interests of all parties and seek "winwin" of interests of all parties.Therefore,strengthening the protection of the interest of creditors should be one of the important concerns in the process of perfecting our bankruptcy reorganization system.This article uses empirical analysis,case analysis and comparative research methods,based on the Shanghai High People 's Court's big data analysis of the bankruptcy cases heard by the Shanghai court system,and studied the bankruptcy reorganization cases of listed companies from January 1,2010 to December 31,2019.The research found that most of the samples had been subjected to "Special Treatment"(ST)because of abnormal financial conditions before being applied for bankruptcy reorganization.Most of the applicants for bankruptcy reorganization were creditors,and few debtors applied.The reorganization plan of samples all adjusted the investors' interest,mainly through free transfer and using reserves to increase registered capital.Although the investors' interest were reduced,the retention of the investors' interest can still be maintained.Up to about 60.29%,while the protection of large ordinary creditors' interest is usually only about 30.50%.Whether the protection of creditors' interests in the bankruptcy reorganization process has achieved the goal of bankruptcy reorganization is worthy of reflection.Through the data analysis and comparison of the samples,this article sorts out and analyzes the crux of the insufficient protection of creditors' interests in the practice of bankruptcy reorganization in China,and then puts forward reasonable suggestions for perfecting.At the same time,this article selects five bankruptcy reorganization cases of Jincheng Co.,Ltd.,Sichuan Jinding,Yinguangxia,Shenyang Machine Tool Company and Jinzhou Chemical ChlorAlkali Company as typical cases for analysis,which helps to better understand and analyze the problems of bankrubptcy reorganization exist in China.This thesis believes that strengthening the protection of creditors' interest,building up their confidence in the debtor's bankruptcy reorganization process,and promoting the smooth progress of bankruptcy reorganization can produce better social and economic effects,and increase the value of the bankruptcy reorganization system.This thesis is divided into five chapters.The first chapter aims to sort out the legal basis for the protection of creditors' interest in bankruptcy reorganization.This chapter starts from the nature of the bankruptcy reorganization system as a special corporate governance model,then analyzes the ways in which the bankruptcy reorganization system pays attention to and adjusts the interest of creditors.This thesis believes that the company law and internal corporate governance rules adjust the conflicts of interests between the company's stakeholders and its manager,but with the deterioration of the company's operation and financial conditions,the general corporate governance model is unable to balance the interests of shareholders and creditors.The bankruptcy law responds affirmatively to the circulation of control rights in the state of business distress,and the bankruptcy reorganization system is a special civil procedure applicable in the state of business distress,with the goal of restoring the operating value of the debtor's production and operation.This chapter analyzes the bankruptcy reorganization legislation in China in different stages of the bankruptcy reorganization process with attention on creditors,analyzes the purpose of legislation and the interest balance mechanism in the bankruptcy reorganization process.Then the chapter analyzes the essence of creditors' interest from their perspective,analyzes the risk of loss of creditors' property to understand the concerns of the creditor 's interests,special risks in the context of bankruptcy reorganization,and combs the bankruptcy law theory and bankruptcy legislation in response to these risks.The second chapter aims to analyze the practice of bankruptcy reorganization of Chinese listed companies.This chapter first analyzes the special provisions of China's bankruptcy legislation of listed companies in order to accurately understand the impact of these regulations on the data analysis of bankruptcy reorganization cases of listed companies.Next,this chapter conducts data analysis and comparison of 38 listed company bankruptcy reorganization cases that occurred between 2010 and 2019,focusing on the bankruptcy reorganization application subjects,bankruptcy reasons and solvency of these cases,and the courts' reviewing of applications,the corporate governance model of the bankruptcy and reorganization debtor,the arrangement of the draft reorganization plan for the interests of stakeholders,the voting and approval of the draft reorganization plan,the length of the reorganization period.Such analysis helps the understanding of the actual situation of China's bankruptcy reorganization practice.The third chapter aims to explore the problems existing in the practice of bankruptcy reorganization in China.This chapter is based on the analysis in chapter 2 and combines the big data analysis of the Shanghai High People's Court.It explores bankruptcy reorganization in three stages: bankruptcy reorganization application,draft reorganization plan formulation,and the voting and approval of the draft reorganization plan.At the same time,this chapter selected five bankruptcy reorganization cases as the typical cases for analysis.This thesis believes that there are unnecessary restrictions on the right to apply for transformation,that the right to apply for bankruptcy and reorganization is not implemented,that the creditors' right to know is restricted,that there are private benefits of control rights,that general creditors of large amount are lacking of protection,and that the courts' authority of compulsory sanction is not perfect.The fourth chapter aims to draw on the legislation and practical experience of other countries.This chapter explores the specific provisions of the bankruptcy reorganization legislation in the United States,Japan,and the United Kingdom that deal with the issues identified in chapter 3.This chapter first analyzes the classification methods and different requirements of the "voluntary" and "involuntary" bankruptcy reorganization,the different applications of asset and liability standards and cash flow standards,and the court's requirements and review methods for bankruptcy reorganization applications.Subsequently,it analyzes the different corporate governance models in the bankruptcy reorganization process,the allocation of the power to formulate the draft reorganization plan and the priority period of the proposed rights,and the information disclosure mechanism of the bankruptcy reorganization related matters.Finally,it analyzes the grouping and voting of the draft reorganization plan and the number of votes,the requirements for the proportion of voting rights,the court's authority to approve the draft reorganization plan,and the prerequisites for compulsory sanctions.The fifth chapter aims to put forward feasible suggestions for China's bankruptcy reorganization legislation and practice.This chapter,based on the relevant theories,data collation,case analysis,problem finding and extraterritorial reference,puts forward corresponding suggestions for the improvement of China's bankruptcy reorganization system on the protection of creditors' interests.This thesis believes that creditors should be properly granted the right to apply for transformation,the procedures of bankruptcy reorganization shall be simplified,information disclosure mechanism and decisionmaking mechanism in the bankruptcy reorganization process still need improvement,the protection of the creditors of large amounts shall be strengthened of ordinary claims and the courts' authority of giving compulsory sanction shall be strictly restricted.