The Supreme People's Court Issues the Provisions of the Supreme People's Court on Several Issues Concerning the Application of the Enterprise Bankruptcy Law of the People's Republic of China (II)(“Provisions”)

On September 5th, 2013, the Supreme People’s Court (“SPC”) issued Provisions, effective as of September 16th, 2013. The Provisions include 48 articles, specifying the concerns relating to the property of the debtor in such perspectives as the definition for the property of the debtor, the right of rescission, the right of recall, the right of setoff, the release of preservation for the property of the debtor and the termination of implementation, and hearing of the relevant derivative actions of the debtor, etc. Hereinafter 3 aspects for your reference:

To clarify the rules on the implementation of debtors’ joint-owned property. In accordance with the provisions joint-owned property stipulated in Property Law, Provisions clarifies that where the bankruptcy liquidation procedure is applied to the debtor, its joint-owned property could be partitioned; where the court issues judgment on the reorganization or settlement of the debtor, if the bankruptcy administrator applies to partition joint-owned property, the court shall support this application; where the partition of joint-owned property infringes co-owners’ property, if the co-owners require the debtor to pay off as common benefits debt, the court shall support.

To clarify the jurisdiction of those pending lawsuits during the bankruptcy procedure. Provisions clarifies, where the pending lawsuits related to debtors which have been accepted by a court before its bankruptcy application has been accepted by another court, the original court shall hear the case continuously; where debtor’s bankruptcy application has been accepted by a court, these new lawsuits related to the debtor shall be heard by the court who has accepted debtor’s bankruptcy application.

To clarify the abnormally incomes obtained by the bankrupt enterprise’s directors, supervisors and senior managers by taking the advantage of power. Provisions clarifies that the abnormally incomes include performance bonus, salary obtained where the enterprise is in arrears with other employees’ salary, and other kinds of abnormally incomes; on the remission of such abnormally incomes, it shall be dealt with differently:

For performance bonus, and other kinds of abnormally incomes, which shall be dealt with as the normal bankruptcy claims;

For the salary obtained where the enterprise is in arrears with other employees’ salary, which shall be calculated based on the average salary of all the employees, for the amount exceeded the average salary, it shall be dealt with as the normal bankruptcy claims.
The Provisions has stipulated many practical rules on the bankrupt property and bankruptcy procedure. However, in the recent years, malicious bankruptcy becomes a new phenomenon, since the relevant laws and regulations have not given a word on such activities, it is still the gray area for bankruptcy cases.