Research On The Legal Issues Of "Debt To Equity Swap" In The Bankruptcy Reorganization Procedure

Under the trend of shrinking globalisation and"being islands",the report of the 20^thNational Congress put forward that the endogenous dynamics and reliability of the domestic circulation must be enhanced,and the quality and level of the international circulation must be upgraded,which raises higher requirements for the development of the market economy.Zombie enterprises,enterprises with backward production capacity and enterprises with chaotic management should be gradually withdrawn from the market,but they should not be simply and brutally"broken".As a debt restructuring method,debt-to-equity conversion can effectively reduce the debt ratio of enterprises in difficulty,improve the success rate of bankruptcy restructuring,reduce the negative externalities in economic development,and provide strong legal support for the soft landing of distressed enterprises.The State Council issued the Opinions on Actively and Steadily Diminished the Leverage Ratio of Enterprises in October 2016.A new round of market-based debt-to-equity conversion was officially launched.Debt-to-equity conversions have been more widely used in bankruptcy restructuring procedures.However,in the various stages of bankruptcy restructuring,creditors who passively accept the debt-to-equity conversion programme are faced with new rights dilemmas.Therefore,it is necessary to explore the legal issues related to debt-to-equity conversion in bankruptcy restructuring procedures,to enhance the initiative of creditors and to strike a balance of interests between the rebirth of the enterprise and the protection of creditors’inviolable rights.The Safeway bankruptcy reorganization case and the Changhang Phoenix bankruptcy reorganization case warned the academia and judicial practice to pay attention to the protection of the interests of creditors of debt-to-equity conversions.Creditors of debt-to-equity conversion are a special group in this special procedure of bankruptcy reorganization,and they face the dilemma of their rights in all stages of bankruptcy reorganization.At the stage of bankruptcy reorganization application,China’s legislation is still uncertain about the scope of enterprises and claims to which debt-to-equity conversions apply,and creditors are not empowered to propose reorganization plans.At the reorganization draft stage,creditors’right to know is severely restricted due to the information scissors,and there is no effective supervision of the administrator and public authorities.In the voting stage,the voting mechanism and the mandatory approval mechanism put creditors in an awkward position of having to passively accept the reorganization plan.In the implementation phase of the reorganization plan,if the reorganization fails,the creditors will receive nothing.Based on China’s actual situation and the correlative experience in the United States,Germany and Japan,in an effort to protect the legitimate rights and interests of creditors of debt-to-equity conversions in the reorganization process,we should make long-term efforts to improve the relevant legislation and regulatory system:at the stage of bankruptcy reorganization application and draft designation,creditors should be given the right to propose,and the information disclosure and administrator intendance system should be optimized;at the stage of draft voting,a special voting mechanism applicable to debt-to-equity conversions should be established to improve the voting.Finally,we should broaden the channels for equity exit and increase the number of remedies.