Vol 7 (2010) - Issue 3

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The Chinese Modified Reorganisation Procedure in the New Bankruptcy Law: Perspectives and Problems – Part Two

The first part of this series comprehensively examined the substantive rights and procedures, and identified some potential problems of the Chinese modified reorganisation regime. A whole picture of China’s corporate rescue law from the beginning of the proceedings to the reorganisation proposal coming into force was described in that part. The second part will concentrate on the enforcement of the rescue proposal, notable features of the rescue regime, balance of power and control, and the situations of reorganising the finanicially ailing but economically viable Chinese listed companies.

Implementation of the approved proposal
Once the reorganisation proposal is approved by the meetings of creditors and sanctioned by the court, it becomes effective and is implemented according to the terms. The administrator plays the role of monitoring the implementation of the proposal within the supervisory period that is stipulated in the proposal. In the supervisory period, the debtor is liable to report the situations of enforcement and financial state to the administrator. When the supervisory period expires, the administrator shall submit a supervisory report to the court, after which the administrator discharges his duty of supervision. In other words, the submission of the supervisory report marks the completion of an administrator’s job in the entire proceedings. The reorganisation procedure provides an entitlement to all interested parties to check the supervisory report produced by the administrator. It is also stipulated that the supervisory period can be extended by the court on the basis of the administrator’s application. The law fails to stipulate the circumstances in which the administrator shall make such application and the court shall make the order of extension. Fundamentally, if the implementation of the reorganisation proposal has the potential risk of damaging the interests of the interested parties, or the financial situation of the debtor is likely to be further deteriorated, the administrator shall apply to the court for extension of the supervisory period with relevant evidence. The court cannot simply sanction the extension without the application of the administrator. Once the debtor fails to perform according to the terms of the reorganisation proposal or refuses to carry out the reorganisation proposal, the court under the application of the administrator or any interested party shall make the order to terminate the implementation of the proposal and declare bankruptcy. The debtor will be automatically placed into liquidation proceedings.