Vol 21 (2024) - Issue 6

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Debt for Equity Swap in China’s Bankruptcy Reorganisation Judicial Practice: Issues and Solutions

Synopsis
China's market-based Debt for Equity Swap, which has been implemented since 2016, emphasises the principles of marketisation and the rule of law. Reorganisation procedures in Enterprise Bankruptcy Law 2006 are of great value in rescuing distressed companies. The key essence of reorganisation is to save the companies by way of debt restructuring under judicial procedures.
Debt for Equity Swap is one of the most important ways of debt restructuring in the corporate rescue mechanism. Debt for Equity Swap in reorganisation has dual legal characteristics of the performance of debt and creditor's right investment. There are some theoretical and practical legal issues about the application of Debt for Equity Swap in the reorganisation, which mainly focus on vague voting principle, uncertain applicability of the 'Cramdown Rule', unclear legal effects of Debt for Equity Swap and exit difficulty of Debt for Equity Swap shareholder. In this regard, this paper recommends that the Enterprise Bankruptcy Law 2006 and the Company Law should add corresponding provisions to protect the rights of creditors.