Construction Of Debt-to-equity Rules In The Process Of Bankruptcy Reorganization

Debt-to-equity swaps,as an important means of corporate bankruptcy and reorganization,are conducive to reducing the debtor’s debt ratio and increasing the success rate of reorganization.Therefore,it is widely used in practice.However,debt-to-equity swap is related to the major interests of creditors,and its implementation should be subject to certain legal rules.China’s Enterprise Bankruptcy Law does not specify the rules for debt-to-equity swaps in bankruptcy process,and judicial interpretations lack corresponding provisions.There is also considerable controversy in the theoretical circles about the implementation of debt-to-equity swaps in bankruptcy reorganization process.This paper uses the methods of literature analysis,empirical analysis and comparative analysis to analyze the current situation and problems of China’s debt-to-equity swaps in the reorganization process,and to draw on international legislative experience,with a view to constructing China’s debt-to-equity rules in the reorganization process.Based on the basic principles of debt-to-equity swaps in the reorganization process,the in-depth analysis of the behavior of multi-stakeholders in debt-to-equity swaps and the relationship between the interest parties is used to guide the construction of debt-to-equity rules with basic principles.From the perspective of the principle of autonomy,creditors have the right to participate in the formulation of debt to equity swap plan,negotiate with debtors or managers about the content of debt to equity swap plan,and have the right to choose whether to carry out debt to equity swap or not,while the court has the right to restrict the will autonomy of creditors by approving or mandatorily approving the restructuring plan including debt to equity swap plan.Therefore,when constructing the debt-to-equity swap rules,it is necessary to consider what kind of debt-to-equity voting rules should be enacted to protect the creditors ’autonomy,what kind of rules should be applied when the court compulsorily approves the reorganization plan including debt-to-equity swap plans,and what kind of relief rules should be made to protect the creditors against debt-to-equity swap.From the perspective of interest balance,the most important thing in implementing the debt-to-equity swap in the reorganization process is to balance the relationship between creditors,debtors,and the public interest.At the same time,it is necessary to realize that creditors are in a weak position in reorganization process and protect the interests of creditors when making rules.In view of the current situation in China,the way to construct the debt-to-equity rules in the bankruptcy reorganization process is mainly carried out in the following aspects: Firstly,for the problem of the inconsistency of the debt-to-equity voting rules in practice,we should set up different voting rules,a general voting rule with a double majority vote for ordinary creditor groups,special agreed voting rules for secured creditor groups and employee creditor groups,and for the purpose of protecting the interests of creditors,when voting on the debt-to-equity swap scheme informed voting rules should be applied.Secondly,for the issue that the court’s mandatory approval of the debt-to-equity swap scheme is not beneficial to creditors,the power of the court’s mandatory approval should be reasonably limited based on the special nature of the debt-to-equity swap in the reorganization process.Respect the autonomy of the secured creditors,and do not force the guarantee to convert equity into equity.Thirdly,for the issue of unfair equity pricing method of debt-to-equity swap,a special appraisal agency should evaluate the value of the equity and disclose the pricing basis,and a financial consultant can also be hired to provide independent opinions on the pricing of equity.Fourthly,regarding the equity after conversion faced with the issue of exit risk,the debt-for-equity swap plan must not restrict the way of equity withdrawal after the conversion.If the restriction actually leads to the withdrawal of equity,the restriction is invalidated,and a diversified equity exit method should also be applied.In the debt-to-equity swap plan,the creditor’s rights are converted into preferred shares,and the redemption of the preferred shares is used to realize the withdrawal of equity.Finally,for the lack of remedies for creditors who oppose debt-to-equity swaps,the solution at the source is to give creditors the option to convert into equity.Creditors can choose other settlement methods when they do not agree to debt-to-equity swaps.In addition,creditors who oppose debt-to-equity swaps can be given the right to apply to the court for reconsideration.When the debtor or the manager violates the information disclosure requirements,the creditor can apply to the court to revoke the resolution on the debt-to-equity swap program at the creditors’ meeting.