CHINA: An Introduction to Restructuring/Insolvency (PRC Firms)

Debt Restructuring Practices under China's Bankruptcy System

Since the release of the World Bank's "Doing Business 2019" on 31 October 2018, China's business environment has shown consistent improvement, placing it among the top ten global economies. The "handling of bankruptcy", one of the ten primary indicators used by the World Bank, plays a significant role in assessing the business operations across 190 economies. In the present day, China's bankruptcy indicators, particularly the sub-indicator "recovery rate," show potential for substantial enhancement in alignment with global best practices. Hence, it's vital to focus on marketisation and legalisation, augment the bankruptcy system with supportive policies, streamline corporate exits, expedite efficient legal processes in bankruptcy cases, and reduce the costs associated with bankruptcy procedures. Such measures are essential to protect the legitimate rights and interests of creditors and debtors. Moreover, these efforts are pivotal in refining the mechanisms for rescuing and exiting market entities, driving high-quality economic development, and creating a world-class business environment.

The "Enterprise Bankruptcy Law of the People's Republic of China," which came into effect on 1 June 2007, includes three primary systems: reorganisation, liquidation, and reconciliation. The system of bankruptcy reorganisation serves not only to lawfully settle debts but also enables financially distressed enterprises to preserve valuable resources, overcome fiscal challenges, and ultimately recover and thrive. This system underscores the salvaging and restoration functions inherent in modern bankruptcy legislation.

Rooted in the fundamental frameworks of reorganisation under the "Enterprise Bankruptcy Law", the practical requirements of "handling of bankruptcy" have led to continuous innovations and enrichments in the fields of financing and debt restructuring in recent years.

Financing plays a pivotal role in empowering distressed enterprises to successfully navigate challenges and secure a fresh start via bankruptcy reorganisation. In this realm, evolving financing approaches in bankruptcy reorganisation encompass debt-centric models (like modifying debt frameworks to secure new capital through loans, debt reduction, bond issuance, and bill issuance) and equity-centric models (which involve broadening ownership to draw new investors by allocating specific rights such as management and ownership stakes). Additionally, hybrid models tailored to the unique attributes of each enterprise can include strategies like converting debt to equity, issuing convertible corporate bonds, selling assets, arranging financing leases, and conducting asset swaps.

Since the first introduction of trust tools in Bohai Steel's restructuring in 2013, the use of trusts as a means of debt repayment has been widely practised in large-scale corporate bankruptcy reorganisations in China. The incorporation of risk disposal service trusts in the processes of bankruptcy reorganisation and liquidation offers a fresh viewpoint and instrument for managing risks. This approach is instrumental in enhancing the efficiency of bankruptcy proceedings, safeguarding creditor interests, and fostering market stability.

In recent years, debt-to-equity conversion has emerged as a prevalent legal strategy for addressing corporate debt crises. Among the 49 listed companies that obtained court-sanctioned restructuring plans from 2019-22, more than 85% opted for equity conversion or a blend of equity conversion and extended debt payment for debt settlement. Given the persistent economic challenges in the post-pandemic era, creditors should delve into the prospects offered by debt-to-equity policies. Concurrently, restructuring administrators ought to proactively investigate the execution pathways of debt-to-equity conversion, as well as foresee and examine any legal issues that might arise during the process.

Commonweal debt investment, a model based on bankruptcy law provisions for commonweal debts, offers the advantage of a relatively prioritised repayment order. Since 2021, the real estate sector has faced significant challenges, prompting the central government to emphasise goals like "ensuring housing delivery, safeguarding livelihoods, and maintaining stability", with housing delivery being fundamental. The preferred approach to restructuring in this context is market-oriented and legal. Restructuring investment alternatives include commonweal debt investment, equity investment, a combination of commonweal debt and construction agency, and asset acquisition. While commonweal debt investment is widely used, the unique nature of real estate bankruptcy requires that debts associated with demolition, consumer purchases, construction project payments, and guarantee debts take precedence over commonweal debts. Therefore, the transaction structure and exit strategies for commonweal debt investment become key elements in real estate bankruptcy investment agreements and restructuring plans. Creditors are creating risk control mechanisms using innovative models and leveraging their extensive experience.

Pre-restructuring is a mechanism that bridges out-of-court restructuring with the formal bankruptcy reorganisation system. It enables distressed enterprises and key stakeholders, including debtors, creditors, and investors, to engage in equal, voluntary commercial negotiations. During this phase, the various financing and debt restructuring methods previously mentioned can be utilised to formulate pre-restructuring agreements or plans. Administrators also have the opportunity to undertake tasks such as asset investigation, debt claim verification, and the recruitment and selection of restructuring investors. Provided there are no significant shifts in relevant conditions, the progress made during the pre-restructuring phase can be smoothly integrated into the subsequent bankruptcy reorganisation process. This approach facilitates the early rescue of distressed enterprises with minimal judicial intervention. In recent years, pre-restructuring has seen increasing application, particularly in cases involving listed companies. This trend gained momentum following the adoption of pre-restructuring by two listed companies, *ST Liyuan (002501) and *ST Deao (002260). The use of pre-restructuring by listed companies was further evidenced in March 2022, when the Shanghai Stock Exchange and the Shenzhen Stock Exchange each issued self-discipline guidelines related to bankruptcy reorganisation for listed companies.

In light of the new challenges emerging from rapid socio-economic development, the current bankruptcy law and its ancillary systems, including judicial interpretations, have proven inadequate for contemporary practical requirements. Since 2021, the bankruptcy law has been undergoing a legislative revision process. The "Civil Procedure Law (2023 Amendment)" has already been officially implemented, and the "Company Law (2023 Amendment)" has been promulgated, set to come into effect on 1 July 2024. These amendments to laws related to bankruptcy aim to resolve existing discrepancies between relevant laws and the bankruptcy law. Looking ahead, China still needs to further resolve various economic and social risks characterised by high levels of indebtedness and the need for industrial restructuring. To navigate these challenges effectively, China must enhance and revise the legal framework governing corporate bankruptcy, and it is anticipated that the revision of the bankruptcy law can thoughtfully incorporate aspects of pertinent legislations such as the Civil Code, Civil Procedure Law, and Company Law, drawing lessons from reasonable provisions in legislation from various countries.

中国破产制度下的债务重组实践 

自2018年10月31日世界银行发布《2019年营商环境报告》以来，中国营商环境在全球的排名连年提升，成为营商环境改善最显著的十个经济体之一。“办理破产”作为世界银行监测的十个一级指标之一，对190个经济体的营商的评价结果具有举足轻重的影响。目前我国“办理破产”指标，尤其是二级指标“回收率”，距离全球最佳实践还有较大的提升空间。因此，以市场化、法制化为方向，进一步完善破产制度配套政策、畅通企业退出渠道、推进破产案件依法高效审理并努力降低破产程序成本，对于保障债权人和债务人等主体合法权益、完善市场经济主体拯救和退出机制、更好地服务和保障国家经济高质量发展及营造国际一流营商环境具有重要意义。

 2007年06月01日施行的《中华人民共和国企业破产法》包含了重整、清算、和解三大制度。其中，破产重整除了依法清偿债务这一基本目标外，还能够通过债务、资产、管理等方面的重组使得困境企业保留各种优势资源、摆脱财务困境并最终使得企业得以存续并新生。这一制度体现了破产法的拯救和修复功能，代表着现代破产法的发展趋势。

基于《企业破产法》有关重整的基本制度，随着近年来优化营商环境过程中“办理破产”的客观需求不断提升，为实现破产重整而开展的融资及债务重组实践也发生着不断的创新和丰富。

融资问题是困境企业通过破产重整有效摆脱困境、实现新生的最关键问题。破产重整实践中涌现的融资方式主要包括：（1）债务型模式，即通过改变负债结构来获取新的资金，具体方式包括借款、债务的减免、债券和票据的发行；（2）权益型模式，即扩大企业的所有权益，以分出一部分权利（管理权、所有权等）给对方为途径吸引新的投资者，从而获得重整所需要的资金，比如发行股份以及注入优良资产等等；（3）根据企业自身特点而选用二者的混合型模式，比如：债转股模式、可转换公司债模式、资产出售、融资租赁、资产置换等。

自渤海钢铁重整首次引入信托工具以来， 利用信托工具作为偿债手段已在国内大型企业破产重整中有了丰富实践。2023年3月20日中国银行保险监督管理委员会（现名“国家金融监督管理总局”）下发《中国银保监会关于规范信托公司信托业务分类的通知》（银保监规〔2023〕1号）明确信托业务分为资产服务信托、资产管理信托、公益慈善信托三大类共二十五个业务方向，其中在资产服务信托业务中增设风险处置服务信托。风险处置服务信托主要特征为：（1）其交易实质是债权转变成信托受益权，信托公司通过管理运用和处分信托财产、向原债权人分配信托利益的方式实现债权清偿，原债权人最终以信托受益人身份回收资金或偿债资产；（2）受托人为决策执行者，信托公司取代破产主体及关联方职责，委托人的权益相对弱化。风险处置服务信托在破产重整与清算中的应用为风险管理提供了新的视角和工具，在提高破产效率、保护债权人利益以及促进市场稳定方面的重要作用。

近年来，债转股已成为企业债务危机化解中常见的法律手段。2016年中共中央、国务院《关于深化投融资体制改革的意见》中指出“开展金融机构以适当方式依法持有企业股权的试点”，自此商业银行持有非金融机构股份的障碍也得以突破。据不完全统计，2019年至2022年重整计划获得法院批准的49家上市公司中，43家公司的重整计划中选择以股抵债或者以股抵债搭配留债展期支付作为债权受偿方式，占比超过85%。考虑到疫情后时代下经济形势仍然严峻，面对不良债权处置的巨大压力和风险，债权人有必要考虑在规范操作和隔离风险的前提下，充分发挥债转股政策带来的空间和机会。同时重整管理人也有必要响应政策号召，积极探索重整中债转股的实施路径，并预见和剖析债转股实施中的法律问题。

共益债投资系基于破产法有关共益债务的规定而产生的债权投资模式，其具有清偿顺序较为优先的优势。2021年以来房地产行业陷入巨大困境，为了化解危机，中央提出了“保交楼、保民生、保稳定”的工作目标，其中“保交楼”是基础，而房企破产重整是当前以市场化、法制化手段实现“保交楼”的首选路径。重整投资人的投资方式简要概括为共益债务投资、股权投资、共益债+代建以及资产收购四种模式。其中，共益债投资应用较为广泛。但由于房企破产的特殊性，在法定清偿顺位中，被拆迁债权、消费性购房人债权、建设工程款债权、担保债权均排在共益债权之前。因此，关于共益债投资的交易结构以及退出路径成为房企破产投资协议和重整计划的核心内容，重整投资人在共益债投资的风险防控机制也建立了丰富的经验和诸多创新的模式。

 预重整是将庭外重组与破产重整制度衔接的困境企业拯救机制，债务人与债权人、投资人等有关利益主体可以在预重整期间开展平等、自愿的商业谈判，采用前文提及的各类融资及债务重组手段建立预重整协议或方案。同时，管理人可在此期间进行资产清查、债权申报审核及重整投资人的招募遴选等工作。在各项相关条件未发生变化的前提下，预重整期间的工作成果可以最终衔接到破产重整程序，在司法的有限介入下实现对困境企业的尽早拯救。近年来在实践中，尤其在上市公司重整案件中，预重整得到广泛应用。自2019年*ST利源（002501）、*ST德奥（002260）两家上市公司采用预重整后，运用预重整的上市公司呈上升趋势，2022年3月31日上海证券交易所及深圳证券交易所分别发布《上海证券交易所上市公司自律监管指引第13号——破产重整等事项》《深圳证券交易所上市公司自律监管指引第14号——破产重整事项》，2022年度共有26家上市公司运用预重整。

面对当前社会与经济高速发展中出现的新问题和新挑战，现行破产法及其司法解释等配套制度已无法完全适应和满足实践需要，自2021年以来破产法已经进入立法修订阶段。目前，《民事诉讼法（2023年修正）》已正式实施，《公司法（2023年修订）》也已颁布并将于2024年7月1日起实施，这些与破产相关的法律的修订，有望改善相关法律与破产法衔接的问题。在可预见的未来一定期间内，我国仍需要通过市场化、法治化的手段进一步化解高负债和产业结构调整为主要特征的各类经济风险和社会风险。因此，完善修订企业破产法律制度十分必要，期待在破产法的修订中应当适当考虑对民法典、民事诉讼法及公司法等相关法律的采纳，并借鉴各国立法之合理规定。