What should a creditor do if the debtor goes bankrupt? (2)

In the previous issue of ‘What should a creditor do if the debtor goes bankrupt? (1)’, we have analyzed the types of debt assets and the impact of whether the debtor has entered the litigation process on debt recovery. This issue will introduce various measures for safeguarding rights under special circumstances.

Scenario 1: Creditors and debtors have debts toward each other.

According to Article 40 of the “Enterprise Bankruptcy Law”, the creditor may propose to the administrator to set off the debt prior to the acceptance of the bankruptcy application. It should be noted that in order to avoid malicious use of the right of set off, Article 40 of the “Enterprise Bankruptcy Law”, Articles 41, 44, 45, and 46 of the “Provisions on Several Issues Concerning the Application of the Enterprise Bankruptcy Law (II)” stipulate some restrictive conditions, such as the creditor obtains the creditor’s rights of others against the debtor after the acceptance of the bankruptcy application would not be accepted.

Scenario 2: To catch chances during the bankruptcy proceedings.

The “Enterprise Bankruptcy Law” grants creditors the right to inquire and vote. In view that the courts have been in charge of the bankruptcy proceedings, which also involves professional bankruptcy administrators, many creditors do not cherish the right to inquire and vote. However, there might be omissions in the bankruptcy proceedings, so it is recommended to follow up with the proceedings and implement relevant rights timely, such as to check whether the capital contribution has been invested and so on. If there is any chance, creditors could request the court to revoke the relevant resolution in accordance with Article 64 of the “Enterprise Bankruptcy Law” and Article 8 of the “Provisions on Several Issues Concerning the Application of the Enterprise Bankruptcy Law (III)”.

Scenario 3: To take actions related to debts with guarantee.

The creditor may promptly request the guarantor to assume guarantee liability. Article 687 of the “Civil Code” stipulates that if a court has accepted a debtor’s bankruptcy case, the general guarantor no longer has the right of prior defense. Article 23 of the “Interpretation of Supreme People’s Court on Application of the Security System under the Civil Code” stipulates that after a court accepts a debtor’s bankruptcy case, after a creditor’s claims are filed in the bankruptcy proceeding, the creditor could bring a lawsuit before the court requesting the guarantor to assume guarantee liability. According to Article 31 of the “Minutes of the National Court Work Meeting on Bankruptcy Trials”, “After bankruptcy proceedings end, if a creditor requests a guarantor to assume guarantee liability for the part which is not paid up in the bankruptcy proceedings, it should raise the request within six months after the bankruptcy proceedings end.”

Scenario 4: Do not forget the possibility of bankruptcy reorganization.

If the debtor still wants to survive, the creditor could take the bankruptcy reorganization into consideration. The debtor could apply for bankruptcy reorganization in accordance with Articles 95 and 105 of the “Enterprise Bankruptcy Law”. The creditor could apply for bankruptcy reorganization in accordance with Articles 70 of the “Enterprise Bankruptcy Law”. In addition, the creditor could apply the court to change the bankruptcy proceedings into the bankruptcy reorganization proceedings in accordance with Article 1 of the “Provisions of the Supreme People’s Court on Several Issues on the Applicable Laws for Enterprise Bankruptcy Cases Pending at the Time of Implementation of the Enterprise Bankruptcy Law”.

Scenario 5: To find new property that meets the requirements after the bankruptcy proceedings are concluded.

If there is any residual value after deducting distribution expenses, creditors may claim additional distribution. According to Article 123 of the “Enterprise Bankruptcy Law”, if the creditor found any new property within two years from the date of termination of bankruptcy procedures, the creditor may claim additional distribution. Those new property refers to those property which are newly found, or those property which have been distributed by the debtor’s malicious behaviors, such as the property is transferred at an obviously unreasonable price, the debtor makes a debt settlement with any individual creditor, the debt fabricates debts and so on.