Provisions (III) of the Supreme People's Court on Several Issues concerning the Application of the Enterprise Bankruptcy Law of the People's Republic of China (“Provisions (III) ”) has become effective on 28 Mar.2019

In judicial practice, there are many doubts on the application of the “Enterprise Bankruptcy Law” in dealing with creditors’ rights and other issues, while hearing a bankruptcy case. In order to clarify some of those doubts, Provisions (III) as adopted at the 1762th meeting of the Judicial Committee of the Supreme People’s Court on 25 Feb. 2019, and has become effective on 28 Mar.2019. The main contents include:

1. For the common credits and the credits for the purpose of continuing operations during the bankruptcy proceeding, the later shall be prevail

Article 2 of Provisions (III) prescribes that for the common credits and the credits for the purpose of continuing operations during the bankruptcy proceeding, the later shall be prevail; the later credits shall be approved by the creditors’ meeting or the court in advance; in addition, the later credits shall not have priority over secured credits. This article has clarified the order of pay-off and perspective risks for those creditors who have provided loans to the debtor during its bankruptcy proceeding.

2. The secured credits could be accelerated to be due.

Article 4 of Provisions (III) clarifies the rules for the protection of the rights of creditors and guarantors. If a guarantor enters the bankruptcy proceeding, the creditors could declare credits, even if the main debt has not expired, the secured credits could be accelerated to be due when the guarantor’s bankruptcy application has been accepted. A guarantor who undertakes a general guarantee liability shall not exercise the unsafe right of defense. The distribution portion of such secured credits in the guarantor’s bankruptcy proceeding shall be withdrawn. After the guarantee liability has been confirmed, such withdrawn amount could be distributed.

3. The individual creditor has the right to inspect the debtor’s relevant documents

Article 10 of Provisions (III) prescribes that an individual creditor has the right to inspect the debtor’s finance and business documents, such as the finance report, the creditors’ meeting resolution, the creditor committee resolution, the administrator’s supervisory report and so on. In addition, if any trade secrets have been involved in any documents, then the creditor shall undertake the confidentiality obligations in accordance with relevant laws, or sign a confidentiality agreement. If any state secrets have been involved in any documents, the creditors shall undertake the relevant obligations in accordance with relevant laws and regulations.

4. The off-site voting for the creditors’ meeting

In order to make the voting more effectively and save costs for creditors, especially for those bankruptcy proceedings which might involve too many creditors, such as, tens of millions of consumers have been involved in the bankruptcy proceedings of the shared bike DingDing, Article 11 of Provisions (III) adds the off-site voting methods, which includes the telecommunication, internet and so on. It shall be noted that after the off-site voting, the administrator shall inform creditors who have participated in the voting with the results within 3 days after the creditors’ meeting has been adjourned. In addition, if any creditor applies to revoke the relevant creditors’ meeting resolution, the term for exercise the revocation right shall be counted from the date on which the creditor receives the notice.