Research On The Legal Issues Of Debt-for-equity Swap In Bankruptcy Reorganization Procedures

Since the end of last century,in order to reduce the leverage ratio and develop the economy,China has carried out two debt-to-equity swaps,namely policy-based debt-to-equity swaps and market-oriented debt-to-equity swaps.After the promulgation of China’s Enterprise Bankruptcy Law in 2007,debt-to-equity swaps began to enter the bankruptcy reorganization system and became an important reorganization tool.Debt-to-equity swaps have played an important role in bankruptcy reorganization,firstly,converting enterprise debts into equity,reducing the debt ratio of enterprises,and improving the operating capacity of enterprises;secondly,enriching the bankruptcy reorganization system and broadening the means of implementing reorganization;thirdly,it may enable enterprises to "turn crisis into safety",and creditors who convert shares to obtain higher equity returns and improve the liquidation rate obtained by creditors.However,due to the lack of relevant laws and regulations on debt-to-equity swaps in the restructuring procedure and the imperfect legal system,the advantages of debt-to-equity swaps in restructuring practice may not yet be fully brought into play.Based on this,this paper conducts an empirical analysis of the cases of debt-to-equity swap implementation in the restructuring in the three years from 2019 to 2021 from a practical point of view,in order to provide solutions to the problems in the formulation,approval and implementation of the restructuring plan,and help guide the bankruptcy reorganization practice of enterprises.This article is divided into three parts: introduction,main text,and conclusion,of which the main text is divided into four parts:The first part of the main text is the general legal theory of debt-to-equity swap in restructuring procedures,which understands the normative evolution of debt-to-equity swaps in restructuring procedures,and discusses the legal nature of debt-to-equity swaps in restructuring procedures,the relationship between market-oriented debt-to-equity swaps and bankruptcy restructuring debt-to-equity swaps,and the legal relationship between debt-to-equity swaps of listed companies and debt-to-equity swaps of non-listed companies.Regarding the legal nature of debt-to-equity swaps in restructuring procedures,the theoretical circles are divided into three theories: the theory of dual legal nature,the theory of liquidation in lieu of substance and the theory of procedural law attributes.The three universities said that they explored the legal nature of the restructuring debt-to-equity swap from different angles,which led to disputes over the resolution of issues related to debt-for-equity swap voting,compulsory approval,and whether the converted claims could be restored.Market-oriented debt-to-equity swaps are related to bankruptcy restructuring debt-to-equity swaps,and studying the relationship between the two types of debt-to-equity swaps is helpful to understand the guiding and reference significance of market-oriented debt-to-equity swaps on the theoretical and practical aspects of debt-to-equity swaps in judicial practice.There are differences between debt-to-equity swaps for listed companies and debt-to-equity swaps for non-listed companies,but there are no differences in the basic characteristics of the selection of target enterprises,the selection of debts for equity conversion,the source of equity,the implementation principles,the pricing methods,and the voting and approval methods.The second part of the main text reviews the cases of debt-to-equity swaps in the three-year bankruptcy reorganization procedure from 2019 to 2021.Taking the reorganization plans of 38 listed companies in the past three years as a sample,the types of debt-to-equity swaps,the selection of share-to-equity conversion modes,the pricing of debt-servicing stocks,voting and approval were counted,and the issues related to debt-to-equity swaps in the bankruptcy reorganization of listed companies in judicial practice were explored.The third part of the main text analyzes the theoretical and practical issues of debt-to-equity swaps in the restructuring procedure.First,in judicial practice,the implementation of debt-to-equity swaps lacks the guidance of current and effective legal norms.Second,the scope of the target of the debt-to-equity swap in the restructuring procedure is not clear enough.Third,there is a conflict between the legal constraints on the direct application of debt-to-equity swaps by commercial banks and the importance of commercial banks’ implementation of debt-to-equity swaps in reorganization procedures.Fourth,on the application of the approval rules for debt-to-equity swap plans in bankruptcy reorganization.Fifth,the exit mechanism for converting debt and equity is not smooth.The fourth part of the main text is the key part of this article,which puts forward suggestions for improving the problems analyzed in the third part,including a total of five aspects: first,it is proposed to amend the current Enterprise Bankruptcy Law and formulate the Administrative Measures for Debt-to-Equity Swap in Bankruptcy Reorganization,build the legislative basis for debt-to-equity swap in bankruptcy reorganization,and resolve obstacles to the implementation of reorganization procedures from the institutional level;The second is to set the screening threshold for the enterprises converted into equity in the reorganization process,and clarify the scope of targets of the debt-to-equity swap in the restructuring procedure,including the target enterprises and the selection criteria for the debt-to-equity swap;The third is to improve the debt-to-equity swap behavior of commercial banks and resolve the applicable debt-to-equity swap conflicts of commercial banks;Fourth,optimize the voting mechanism and compulsory approval system for bankruptcy reorganization debt-to-equity swaps,and promote the implementation of debt-to-equity swaps in judicial practice in accordance with laws and regulations;Fifth,improve the protection of the rights of shareholders in the restructuring process,and build a diversified equity exit mechanism.