Major developments in China’s surging restructuring market

Introduction

Since its first promulgation in 2006, the Enterprise Bankruptcy Law of the People’s Republic of China (the Bankruptcy Law) has been playing an increasingly important role in the business environment in China and is undergoing a comprehensive revision at present. To facilitate the implementation of the Bankruptcy Law and to guide courts of all levels to deal with bankruptcy cases in a more efficient way, the Supreme People’s Court (SPC) issued three judicial interpretations and the minutes of one meeting. In addition, the minutes of a separate meeting on civil and commercial cases contain a chapter on bankruptcy. Companies in financial distress, creditors and potential investors now have a clearer understanding of the bankruptcy procedures.

Key judicial documents in relation to bankruptcy

The most important updates in the legal practices of bankruptcy law in recent years are reflected in:

• the Notice of the SPC on Issuing the Minutes of the National Court Work Conference on Bankruptcy Trials (the 2018 SPC Meeting Minutes), published on 4 March 2018;
• the Interpretation on Several Issues Concerning the Application of the Bankruptcy Law III (Interpretation III), published on 27 March 2019;
• the bankruptcy chapter in the Minutes of the National Working Conference on the Trial of Civil and Commercial Cases by Courts (the 2019 SPC Meeting Minutes), published on 8 November 2019;
• the Minutes on Mutual Recognition of and Assistance to Bankruptcy Proceedings between the Courts of the Mainland and of the Hong Kong Special Administrative Region (the Minutes);
• the SPC Opinion on Taking Forward a Pilot Measure in relation to the Recognition of and Assistance to Insolvency Proceedings in the Hong Kong Special Administrative Region (the Opinion); and
• the Meeting Minutes of the National Symposium on Foreign-Related Commercial and Maritime Trial Work (the 2021 SPC Meeting Minutes).

In general, the judicial documents released by the SPC were issued to facilitate the supply-side structural reforms to get rid of zombie companies, to optimise the business environment, to promote high-quality development and to disperse market risks. These documents have provided guidelines on various disputed issues regarding bankruptcy.

This article will address six major aspects: substantive consolidation; automatic stay and restrictions on creditors; reorganisation; cross-border issues, especially between mainland China and Hong Kong; recent rules on personal bankruptcy; and the rights and remedies available to bondholders.

Revision of the Bankruptcy Law

The Bankruptcy Law is currently being revised. This revision was first launched in April 2021, when the Standing Committee of the 13th National People’s Congress (NPC) promulgated its Annual Legislative Work Plan, which included a revision of the Bankruptcy Law.

Between May 2021 and June 2021, the Standing Committee of the 13th NPC’s inspection team for law enforcement of the Bankruptcy Law conducted a detailed and informative field inspection on the implementation of the Law. On this basis, the inspection team formulated a report on the implementation of the Bankruptcy Law and put forward suggestions to speed up the revision. In March 2022, during the Fifth Session of the 13th NPC, a delegation put forward the bill to amend the Bankruptcy Law. At the end of 2022, the draft amendment to the Bankruptcy Law was formulated for consideration.

Rules on the following topics, among others, may be added to the Bankruptcy Law:

• personal bankruptcy;
• cross-border bankruptcy;
• bankruptcy of small and medium enterprises, and financial institutions;
• consolidated bankruptcy; and
• pre-packaged reorganisation.

In addition, the rules regarding administrators, the bankruptcy protection fund, the removal of asset preservation, and coordination between enforcement and bankruptcy, etc, may be further improved.

Substantive consolidation

Substantive consolidation among affiliated debtor entities is a double-edged sword. On the one hand, it is helpful to prevent the debtor’s fraudulent conduct and asset manipulation that jeopardise the creditors’ interest. On the other hand, the abuse or overuse of substantive consolidation may unfairly reduce the recovery rate of some creditors.

In light of a number of controversial consolidation cases encountered by local courts, the 2018 SPC Meeting Minutes stress that substantive consolidation should only be used in exceptional circumstances and lay down strict criteria and remedial procedures.

Criteria

As an exception to the general rule of respecting a company’s independent legal personality, substantive consolidation can only be invoked when the legal personalities of each affiliate are highly similar, the differentiation of each affiliate’s assets is excessively costly and the separation of bankruptcy proceedings will result in unfair treatment of the creditors.

Special procedures

Hearings

When the court receives a petition for consolidation, it notifies the interested parties and convenes a hearing among them. It also makes the consolidation decision, taking into consideration various factors, including the extent and duration that the affiliates’ assets have been mingled, inter-party debts and claims among the affiliates, and the impact of consolidation on the overall interests of creditors and on the likelihood of successful reorganisation.

Remedies

Should any interested party oppose the consolidation decision, it may petition a higher-level court for a review of the consolidation decision.

Legal consequences

The assets of the consolidated affiliates are deemed a single estate, the debts and claims between the consolidated affiliates are extinguished, and creditors of the consolidated affiliates will participate and receive payments through one bankruptcy proceeding.

In the case of a reorganisation, only one reorganisation plan will be made to cover all consolidated affiliates, and one affiliate remains after the reorganisation.

Automatic stay and restrictions on creditors

The Bankruptcy Law imposes an automatic stay on any legal proceedings against the debtor upon the acceptance of bankruptcy by the court. In particular, after the court accepts the bankruptcy application, any asset preservation measures (eg, attachment, seizure and freezing) against the debtor’s assets must be removed.

In practice, there have been controversies regarding, among other things, whether the asset preservation measures referred only to those in civil legal proceedings and whether the asset preservation measures were automatically ineffective or needed to be separately removed by the relevant authority.

The 2018 SPC Meeting Minutes clarify that, after receiving the court order accepting the bankruptcy application, the enforcing court should remove the asset preservation measures against the debtor’s assets or issue letters handing over the disposal right of the assets preserved to the court accepting the bankruptcy application. If the enforcing court refuses to remove the asset preservation measures, the court accepting the bankruptcy application can apply to the upper-level court of the enforcing court for correction.

The 2019 SPC Meeting Minutes reiterate the above contents and further clarify that authorities other than the courts – such as the tax authorities, public security bureaus and Customs – should also refer to the above procedures and remove the asset preservation measures accordingly.

Enforcement of security

In accordance with the Bankruptcy Law, the enforcement of any security against the debtor’s assets is suspended during the reorganisation period, provided that the secured creditor may apply to the court to resume enforcement if the collateral is likely to suffer damage or substantial depreciation in value that will impair the interest of the secured creditors. There have been disputes on under what circumstances the secured creditors may apply to resume enforcement.

The 2019 Meeting Minutes clarify that the administrator or the debtor in possession should confirm in a timely manner whether the collateral is necessary for reorganisation. If the collateral is not necessary for reorganisation, the administrator or the debtor in possession should, in a timely manner, dispose of the collateral and use the proceeds to repay the secured creditors.

The 2019 Meeting Minutes further provide that where the secured creditor applies to the court to resume enforcement, if the condition mentioned above is not satisfied, or if it is satisfied but the administrator or the debtor in possession has evidence showing that the collateral is necessary for the reorganisation and provides security of compensation corresponding to the damage or depreciation, the court should refuse the creditor’s application.

Acknowledgement of arbitration

The Bankruptcy Law provides that after a court accepts an application for a debtor’s bankruptcy, any civil lawsuit regarding the debtor can only be brought before the court accepting the bankruptcy application. It is widely considered that this provision requires the court to exercise jurisdiction over litigation only, but does not challenge the validity of an arbitration clause between the creditor and the debtor.

Interpretation III confirms that if an arbitration clause is entered into before a bankruptcy application is accepted, the party should apply to the selected arbitration institution to confirm the claims and debts. It is generally considered that this provision further confirms the validity of an arbitration clause in bankruptcy cases.

Reorganisation

Pre-packaged reorganisation

The Bankruptcy Law does not contain the concept of pre-packaged reorganisation, which allows the debtor and its major creditors, investors and other key stakeholders to formulate and agree on a reorganisation plan, then have the court approve the agreed plan expeditiously.

Pilot experiments of pre-packaged reorganisation have occurred in some provinces. For instance, debtors in the Zhejiang province can pre-register with local courts before commencing formal bankruptcy proceedings; thus, relevant parties are able to start negotiations at a relatively early stage to prevent a further deterioration of the debtors’ financial conditions.

The SPC also recognises the value and importance of pre-packaged reorganisation. The 2018 SPC Meeting Minutes encourage the courts to explore different approaches to pre-packaged reorganisation and confirm that the reorganisation plans can be prepared by out-of-court agreements reached by debtors, creditors and other stakeholders.

The 2019 SPC Meeting Minutes further emphasise the transition from pre-packaged reorganisation to reorganisation proceedings. If the out-of-court agreement reached by the debtor and some of the creditors before the court accepts that the reorganisation application is consistent with the reorganisation plan formulated in the reorganisation proceedings, the consent of the creditors on the out-of-court agreements should be deemed as their consent to vote for the reorganisation plan. However, if the reorganisation plan revises the out-of-court agreement and has adverse impacts on the relevant creditors or is related to the relevant creditors’ major interests, the affected creditors may vote again on the reorganisation plan.

Debtor in possession

In accordance with the Bankruptcy Law, a debtor can, under the administrator’s supervision, manage its assets and business itself in reorganisation upon the court’s approval of its application. It is not clear under what circumstances the court will approve the debtor’s debtor in possession (DIP) application.

The 2019 SPC Meeting Minutes shed some light on this issue by clarifying that the court may approve the debtor’s DIP application if the following conditions are met:

• the debtor’s internal governance mechanism still works normally;
• the debtor’s DIP is favourable for its continuance of operation;
• the debtor has not hidden or transferred its assets; and
• the debtor has not acted seriously against the interests of the creditors.

In contrast with the DIP system in the United States, a DIP in China can exercise the administrator’s powers only in respect of asset management and business operation, rather than all the administrator’s powers. The other powers to investigate assets, to review the creditors’ claims, to claw back certain transactions and to represent the debtor in litigation, etc, should still be exercised by the administrator.

The 2019 SPC Meeting Minutes further confirm that the administrator should supervise the DIP process. If the DIP is found to have acted seriously against the creditors’ interests or to have other aspects that are not suitable for a DIP designation, the administrator can apply to the court to terminate that designation. If the administrator fails to apply to the court, the interested parties, such as the creditors, may also apply to the court.

Further guidance on cramdown measures

The 2018 SPC Meeting Minutes require the courts to exercise extra caution when cramming down a reorganisation plan that is not approved by any voting class. Specifically, the SPC imposes two additional conditions for the use of cramdown measures:

• if there are multiple classes of creditors, at least one class has approved the reorganisation plan; and
• the dissenting votes in each class are entitled to no less than what they could have received had the debtor been liquidated.

Amendment of reorganisation plans

The 2018 SPC Meeting Minutes allow the debtor or the administrator to amend the approved reorganisation plan once, if the original plan becomes unfeasible owing to changes to national policies, laws and regulations. Debtors or the bankruptcy administrators may petition to amend the reorganisation plan, and the amendment must go through the voting procedure again. If the proposed amendment is not approved, the court will convert the reorganisation proceedings into liquidation proceedings.

Recent developments on cross-border bankruptcy

Article 5 as a basis for recognition and enforcement

Article 5 of the Bankruptcy Law provides the basis and criteria for recognising foreign bankruptcy proceedings. First, recognition must be based on treaty or reciprocity. Second, recognition cannot be contrary to the basic principles of Chinese law; jeopardise China’s sovereignty, security or public interest; or impair the legitimate rights and interests of domestic creditors.

To our knowledge, despite it being effective for over a decade, article 5 has rarely been invoked. This is mainly because there are few, if any, treaties or conventions to which China is a signatory that provide for a basis for recognition of foreign bankruptcy proceedings, and the Chinese courts have long adopted a narrow theory of factual reciprocity, which means that reciprocity cannot be established unless Chinese bankruptcy proceedings have first been recognised in the relevant foreign jurisdiction.

Improvements in the 2018 SPC Meeting Minutes

The 2018 SPC Meeting Minutes have two general provisions on cross-border bankruptcy. They stress the importance of balancing different interests in cross- border cases and encourage lower courts to explore ‘new methods’ of applying reciprocity (which may be read to echo the Several Opinions of the SPC on Providing Judicial Services and Safeguards for the Construction of the Belt and Road by the People’s Courts (the 2015 SPC Opinion)). They further state that, if recognition is granted pursuant to article 5, the foreign debtor’s assets in China should first be used to pay off domestic priority creditors (ie, secured creditors, and employment-related and tax creditors), and the remaining assets can be distributed according to the rules of the foreign court.

Recognising the urgent need for detailed rules on handling cross-border bankruptcy, the SPC is said to be working on further guidelines in respect of the recognition of foreign bankruptcy proceedings.

Recent reciprocity cases

United States

Over the past few years, there has been a slight but discernible change in the courts’ attitudes regarding reciprocity. In the 2015 SPC Opinion, the SPC opened the door for lower courts to adopt a more flexible theory of reciprocity, allowing Chinese courts to take the first step in recognising judgments of other jurisdictions after considering factors such as past communications with the other jurisdiction on the intention to build international judicial cooperation and its commitment to providing reciprocal treatment.

Despite the more liberal reciprocity theory, questions remain on whether the 2015 SPC Opinion extends to foreign bankruptcy proceedings or merely applies to civil and commercial judgments outside the bankruptcy scenario, as well as whether it should be limited to cases or jurisdictions in relation to the Belt and Road Initiative or reflects a broader change of position.

Aside from the development of the reciprocity theory, in 2015, the US Bankruptcy Court for the District of New Jersey recognised a Chinese bankruptcy proceeding in relation to Zhejiang Topoint Photovoltaic Co Ltd. In this case, an order was issued approving the debtor’s petitions of the bankruptcy proceedings commenced in China to be recognised as foreign main proceedings under Chapter 15 of Title 11 of the US Code, and of relevant judicial assistance to be taken in the United States, including automatic stays, etc.^[1]

Four years later, the US Bankruptcy Court for the Southern District of New York recognised Chinese reorganisation proceedings in relation to Reward Science and Technology Industry Group. The judge, upon considering the creditors’ objections, issued an order to recognise the Chinese proceedings as foreign main proceedings, give the Chinese administrator full authority to administer the debtor’s assets and affairs in the United States, and stay any action concerning the debtor’s assets in the United States, including two sets of litigation launched by the dissented creditors, etc.^[2]

In 2022, the US Bankruptcy Court for the Southern District of New York recognised Chinese reorganisation proceeding in relation to Huachen Energy Co Ltd. An order was issued to recognise the Chinese proceedings as foreign main proceedings and the Chinese administrator as a foreign representative, and to grant all relief and protection afforded under section 1520 of the US Bankruptcy Code to the Chinese proceedings, the debtor and the debtor’s assets located in the United States.^[3]

Hong Kong

The High Court of Hong Kong successively recognised the appointment of bankruptcy administrators at two Chinese companies, CEFC Shanghai International Group Limited^[4] and Shenzhen Everich Supply Chain Co Ltd,^[5] in January 2020 and May 2020, respectively. In the first case, Mr Justice Harris commented that:

[t]he extent to which greater assistance should be provided to mainland administrators in future will have to be decided on a case-by-case basis and the development of recognition is likely to be influenced by the extent to which the court is satisfied that the mainland, like Hong Kong, promotes a unitary approach to transnational insolvencies.

The above precedents appear sufficient to fulfil even the strictest factual reciprocity requirement. Chinese courts are more likely to recognise the bankruptcy proceedings of jurisdictions that have already recognised Chinese bankruptcy proceedings. In an order rendered by the Xiamen Maritime Court in August 2021,^[6] article 5 of the Bankruptcy Law was invoked and the Maritime Court recognised the capacity of a judicial manager appointed by the Singapore High Court in previous cases.^[7] The Xiamen Maritime Court acknowledged the existence of reciprocity between China and Singapore since the Singapore High Court and the Chinese courts have recognised each other’s civil and commercial judgments many times, and the Singapore High Court has also recognised Chinese bankruptcy proceedings.

Germany

Although there is no precedent for German courts recognising Chinese bankruptcy proceedings or bankruptcy-related legal instruments, in January 2023, the Beijing First Intermediate People’s Court applied article 5 of the Bankruptcy Law to recognise the bankruptcy administrator appointed by the Aachen District Court in a previous case.^[8] The Beijing First Intermediate People’s Court believed that, according to Germany’s bankruptcy law, China’s bankruptcy proceedings can be recognised in Germany, and there is no evidence to prove that Germany would refuse to recognise China’s bankruptcy proceedings or related legal instruments; therefore, it presumed there to be a reciprocal relationship between China and Germany.^[9] This case is reportedly the first where a people’s court has applied the presumed reciprocity rule in recognition of bankruptcy cases.

Developments on cross-border insolvency between mainland China and Hong Kong

Owing to the lack of relevant arrangements, cross-border insolvency cooperation between mainland China and Hong Kong has long been a puzzle to practitioners. Starting from the 1990s, mainland courts, especially courts in Guangdong, have adopted various approaches in dealing with Hong Kong proceedings involving mainland elements; however, since there was no clear guidance, the approaches were not consistent and most courts tended to be conservative when handling cross-border issues.

On 14 May 2021, the SPC published the Minutes and the Opinion. According to the Minutes, the intermediate courts of mainland China and the High Court of Hong Kong are able to mutually recognise and assist in insolvency proceedings. The Opinion sets out 24 articles addressing several basic questions regarding cross-border cooperation. As a starting point, the Opinion will undertake pilot projects in Shanghai, Xiamen and Shenzhen.

Types of proceedings

According to the Opinion, only collective insolvency proceedings opened in Hong Kong have the possibility to be recognised: specifically, a compulsory winding up, a creditors’ voluntary winding up and schemes of arrangement for the purpose of restructuring debt, initiated by a liquidator or provisional liquidator and sanctioned by Hong Kong court. Other proceedings (eg, receivership) are excluded as they are not considered to be collective proceedings.

Main and non-main proceedings and jurisdiction

The Opinion does not introduce the concept of main proceedings and non- main proceedings proposed by the UNCITRAL Model Law. Under the current arrangement, recognition only applies to proceedings taking place in Hong Kong where the debtor has its centre of main interests (COMI).

A debtor’s COMI is presumed to be in Hong Kong if it is registered therein. At the same time, the courts will consider the main place of representation or business and the place where the main assets are located, which are open-ended elements. In addition, the COMI is determined at least six months prior to the commencement of the recognition application.

Rights of the Hong Kong administrator

After recognition, a Hong Kong administrator (ie, liquidator or provisional liquidator) may exercise rights, including:

• taking possession of property, seals, account books, documents and other data of the debtor;
• investigating the financial position of the debtor;
• managing and disposing of the debtor’s property;
• participating in legal actions on behalf of the debtor; and
• accepting and examining declarations of claims by creditors in mainland China.

Material disposal of the debtor’s assets (eg, waiving property rights, attaching security to the debtor’s assets, lending loans to others and transferring assets out of mainland China) requires additional approval by the mainland Chinese courts.

Relief

On application, preservation measures are available in accordance with mainland Chinese law from the time of receipt of an application for recognition and assistance until the application is determined.

After recognition of Hong Kong proceedings, three types of relief are automatically granted: all payments of debts made by the debtor are invalid, there is a moratorium on civil claims (litigation and arbitration) and all preservation measures are lifted.

Distribution

The Opinion adopts the concept of modified universalism, giving priority to fair distribution but also taking into consideration the interests of domestic creditors. Only after distribution to priority claims in accordance with mainland Chinse bankruptcy law (ie, employees’ salary, tax and secured claims) can the remaining assets of the debtor be further distributed to creditors on a pari passu basis pursuant to the Hong Kong proceedings.

The Opinion is a milestone for the long-awaited cooperation between mainland China and Hong Kong; however, as a non-statutory arrangement document, it only draws an outline for deeper cooperation and awaits the provision of a detailed mechanism. For example, the Opinion allows a Hong Kong administrator or creditors to apply to have a mainland Chinese administrator appointed by a mainland Chinese court, but it is silent on ancillary proceedings. The Opinion also mentions parallel proceedings between the two places without identifying the main or non-main proceedings.

In general, although many issues remain unresolved compared with the UNCITRAL Model Law, the Minutes and the Opinion demonstrate China’s active response to the rapid development of global economic activities and its efforts to further encourage international cooperation.

Chinese courts’ first recognition order under the Opinion and outlook

On 15 December 2021, the Shenzhen Intermediate People’s Court rendered an order recognising the creditors’ voluntary winding up proceedings of Samson Paper Co Ltd (Samson Paper),^[10] a Hong Kong-incorporated company, and the appointment of liquidators and permitting the liquidators to carry out certain duties in mainland China; in other words:

• taking over the assets, seals, financial books, papers, etc, of Samson Paper;
• deciding its internal management matters;
• deciding its daily expenditure and other necessary expenditures; and
• managing and disposing of its assets (but the liquidators should seek the court’s approval for matters relating to the waiver of asset interests, the provision of security, the extension of a loan, the transfer of assets out of mainland China or other disposing acts that have substantial impact on creditors’ interests).

This order marks the first step that Chinese courts have made towards cross-border insolvency under the Opinion. It remains to be seen whether there will be more recognition orders in pilot cities and elsewhere, and even orders recognising insolvency proceedings in jurisdictions other than Hong Kong.

On the Hong Kong side, between 2021 and 2022, the High Court of Hong Kong recognised mainland insolvency proceedings in relation to HNA Group Co Ltd,^[11] Peking University Founder Group Co Ltd^[12] and Tsinghua Unigroup Co Ltd.^[13] On 17 May 2023, the High Court of Hong Kong recognised an insolvency proceeding commenced in Guangzhou,^[14] marking is the first insolvency proceeding recognised by the High Court of Hong Kong in the Guangdong province since the signing of the Minutes and further consolidating the judicial assistance relationship between mainland China and Hong Kong in the field of insolvency. This is of great significance to the optimisation of the business environment between the two regions.

Recognition of the status of foreign insolvency office holders

The Minutes of the Second Meeting on Foreign-Related Commercial and Maritime Trial work with Foreign Elements, released early in 2005, provided that if the foreign party to the legal proceedings in China becomes bankrupt or enters liquidation during the proceedings, the court must notify its insolvency office holder to participate in the proceedings.

In judicial practice, Chinese courts have also recognised the capacity of foreign insolvency office holders to represent the debtor in the legal proceedings without recognition of the foreign insolvency proceedings. An important case is Sino-Environmental Technology Group v Thumb Environmental Technology Group,^[15] heard by the SPC in 2014.

The 2021 SPC Meeting Minutes further confirmed that for a company incorporated outside the territory of China, if the court of the country of incorporation has designated a judicial manager, liquidator or bankruptcy administrator owing to the corporate deadlock, dissolution, reorganisation, bankruptcy or other reasons, such an insolvency office holder may participate in the litigation in China on behalf of the company. The 2021 SPC Meeting Minutes make it clear that the foreign insolvency office holder should submit the notarised and legalised judgment or ruling made by the court in the country of incorporation, and the other party cannot challenge it merely because this judgment or ruling has not been recognised by a Chinese court.

Recent pilot projects on the personal bankruptcy regime

In China, bankruptcy proceedings apply to legal persons only, and there is no personal bankruptcy system under the Bankruptcy Law; however, China is exploring personal bankruptcy in certain areas and intends to promote personal bankruptcy legislation.

In late 2019, a court in Wenzhou concluded the first case of a personal debt clean-up procedure. According to the bulletin published by the Intermediate People’s Court of Wenzhou, the creditors agreed on the repayment plan proposed by the debtor (repayment of 1.5 per cent of the total claims within 18 months). The debtor promised that, within six years of him completing the repayment plan, if his family’s annual income exceeds 120,000 yuan, he will use 50 per cent of the surplus to repay the unpaid claims of the creditors. The Court then issued an order on the debtor to restrict certain behaviours, such as high levels of consumption. Those restrictions would be removed upon his application, provided that the repayment plan had been fully performed, and that certain conditions on the repayment rate and the performance period were satisfied.

On 1 March 2021, the Personal Bankruptcy Regulation of the Shenzhen Special Economic Zone came into effect. On 17 May 2022, the Shenzhen Bankruptcy Court released its Implementation Opinions on Promoting the Application for Personal Bankruptcy and Examination Thereof, providing guidance on application and examination. As at 7 November 2022, the Shenzhen Intermediate People’s Court had received 1,293 applications for personal bankruptcy. The practice of this regulation may help to promote national legislation regarding personal bankruptcy.

In addition, courts in certain areas –including in the Zhejiang, Jiangsu, Shandong and Sichuan provinces – have successively published rules on trials in respect of a personal debt clean-up procedure that is similar to the bankruptcy procedure.

Recent rules and developments on the rights and remedies available to bondholders

In July 2020, the SPC issued its first guidelines on trials of bond disputes, titled the Minutes of Symposium on the Trial of Bond Dispute Cases by Courts Nationwide (the Bond Minutes). The Bond Minutes cover contractual, tortious and bankruptcy issues related to bonds.

Bankruptcy petition against the issuer

The persons who could file bankruptcy petitions against a bond issuer as the debtor used to be unclear and disputed. In accordance with the Bond Minutes, the following parties may file a bankruptcy petition against a bond issuer:

• the bond trustee can file a bankruptcy petition in its own name, representing the bondholders based on the documents regarding bond raising, the agreement on bond trusteeship or the authorisation by resolution of a bondholders’ meeting;
• the other bondholders can file a bankruptcy petition individually or in concert where the bondholders’ meeting resolves to authorise the bond trustee or a representative to claim rights; and
• the bondholders can file a bankruptcy petition individually or in concert based on this resolution, where the bondholders’ meeting resolves that the bondholders may claim rights themselves as the bond trustee is negligent in claiming rights.

Responsibilities and liabilities of the bankruptcy administrator

Apart from those provided in the Bankruptcy Law, the Bond Minutes specify some of the particular responsibilities and liabilities of a bankruptcy administrator of a bond issuer:

• After a bond issuer enters into bankruptcy proceedings, the bankruptcy administrator is responsible for information disclosure in respect of the relevant bonds issued, unless the bond issuer is approved to act as a DIP. In this regard, the administrator ensures the authenticity, accuracy and completeness of the disclosed information. The bankruptcy administrator is liable for any misrepresentation, misleading statement or major omission in the information disclosed by it after taking over the bond issuer, which may affect the investors’ assessment of the issuer’s solvency.
• The bankruptcy administrator must confirm in a timely manner the claims registered by the trustee on behalf of the bondholders according to the position registration documents issued by the bond registration authority. If the bankruptcy administrator fails to confirm the claims without justifiable reason, it is liable for compensation of reasonable expenditure of the trustee, such as the litigation costs, attorneys’ fees and business trip expenses, as well as the interest losses arising from the delay.

Notes