Viewpoint... The impact of the new company law amendment on corporate bankruptcy.

Article 232 of the new "Company Law" of the (I) stipulates that the directors are the obligors of the company's liquidation, and the liquidation group is composed of directors, unless the company's articles of association provide otherwise or the shareholders' meeting decides to select another person. At the same time, it is stipulated that if the liquidation obligor fails to perform the liquidation obligation in time and causes losses to the company or creditors, it shall be liable for compensation. In contrast, the original "Company Law" did not specify the liquidation obligor, but only stipulated that the liquidation group of a limited liability company shall be composed of shareholders, and the liquidation group of a limited liability company shall be composed of directors or persons determined by the general meeting of shareholders. If the shareholders are legal persons or unincorporated organizations, it is easy to cause the disadvantages of the absence of liquidation obligations. The new "Company Law" adds relevant provisions such as directors acting as liquidation obligors, interested parties and company registration authorities or relevant departments that can apply to the court to designate a liquidation group to carry out liquidation, which makes the subject of liquidation obligors clearer, expands the scope of compulsory liquidation applicants, and increases the operability in practice.

Article 233 of the new "Company Law" of the (II) stipulates: "The company shall be liquidated in accordance with the provisions of the first paragraph of the preceding article. If a liquidation group is not established within the time limit for liquidation or is not liquidated after the liquidation group is established, the interested party may apply to the people. The court designates relevant personnel to form a liquidation group to conduct liquidation. The people's court shall accept the application and promptly organize a liquidation group to carry out liquidation.

If a company is dissolved due to the provisions of Item 4 of the first paragraph of Article 229 of this Law, the department or company registration authority that made the decision to revoke the business license, order the closure or revoke the decision may apply to the people's court to designate relevant personnel to form a liquidation team for liquidation."

Article 183 of the original "Company Law" stipulates: "The liquidation group of a limited liability company shall be composed of shareholders, and the liquidation group of a joint stock limited company shall be composed of directors or persons determined by the general meeting of shareholders. If a liquidation group is not established within the time limit, the creditor may apply to the people's court to designate relevant persons to form a liquidation group to carry out liquidation. The people's court shall accept the application and organize a liquidation group in time."

The comparison shows that the new "Company Law" extends the scope of applicants applying for compulsory liquidation by the court to interested parties, that is, it is no longer limited to creditors, company shareholders, actual controllers, legal representatives, directors, supervisors, managers, etc. Those who have an interest in the company can also apply to the court to designate a liquidation group for liquidation.

(III) the new "Company Law" provides for the appropriate intervention of administrative power in the liquidation of companies, the registration authority may apply to the court to appoint a liquidation group to liquidate a company whose business license has been revoked. This provision is in close coordination and convergence with the provisions of Article 246 of the new Company Law on the cancellation of company registration by the registration authority in accordance with the law, which has greatly accelerated the efficiency of the liquidation of zombie enterprises.

In summary, the new "Company Law" expands the scope of applicants for compulsory liquidation of companies to interested parties, which will definitely increase the filing rate of compulsory liquidation cases. Furthermore, the new Company Law clarifies the subject of the obligation of the liquidation group, and adds the provision that the administrative power can be appropriately involved in the liquidation of the company, which makes up for the possible absence of the liquidation obligor in the original Company Law, and increases the operability and liquidation efficiency in the reality of liquidation.

Article 187 of the original "Company Law" stipulates: "If the liquidation team finds that the company's property is insufficient to pay off its debts after cleaning up the company's property, preparing the balance sheet and property inventory, it shall apply to the people's court for bankruptcy in accordance with the law. After the company is declared bankrupt by the people's court, the liquidation team shall transfer the liquidation affairs to the people's court."

Article 237 of the new Company Law stipulates: "If the liquidation group finds that the company's property is insufficient to pay off its debts, it shall apply to the people's court for bankruptcy liquidation in accordance with the law. After the people's court accepts the bankruptcy application, the liquidation group shall transfer the liquidation affairs to the bankruptcy administrator designated by the people's court."

The impact of the above changes to the new Companies Act on liquidation or insolvency operations is as follows:

In practice, most of the dissolved or liquidated enterprises are "three no" enterprises or zombie enterprises, but there are also some enterprises have a certain value of reorganization to save or resume operations, but suffer from the broken capital chain or property was seized and preserved, the company's operation is difficult. In the process of dissolution or liquidation of the company, even if individual shareholders are willing to reorganize the company, according to the provisions of the original Company Law, the liquidation stage found that the company is insolvent should apply to the court for bankruptcy, which makes the settlement or reorganization without procedural possibility. According to the relevant provisions of the enterprise bankruptcy law, the debtor has the right to apply for company reconciliation in the process of bankruptcy liquidation accepted by the court, and the debtor, shareholders and creditors have the right to apply for company reorganization. The combination of the new company law and the enterprise bankruptcy law has reserved a certain space in the procedure, It is conducive to the rescue of valuable enterprises.

Article 341 of the new "Company Law" stipulates: "If a company has its business license revoked, ordered to close down or revoked, and has not applied to the company registration authority for cancellation of company registration for three years, the company registration authority may pass the national enterprise credit information The announcement will be made in the publicity system, and the announcement period shall not be less than 60 days. After the expiration of the announcement period, if there is no objection, the company registration authority may cancel the company registration.

If the company's registration is canceled in accordance with the preceding paragraph, the liability of the original company's shareholders and liquidation obligors shall not be affected."

The new company compulsory cancellation system enables the company registration authority to apply for compulsory liquidation and compulsory cancellation system to closely cooperate and link up, greatly accelerating the efficiency of zombie enterprises to clean up and retire. However, if the company that meets the conditions for compulsory cancellation has registered real estate, vehicles, stocks and other property under its name, the company registration authority shall carefully decide whether to forcibly cancel the company. Unless the company or shareholders are missing, the company registration authority shall notify the company or shareholders of its intention to forcibly cancel the company before deciding to cancel the company, so as to avoid disputes over property ownership caused by the cancellation of the company and the elimination of the subject qualification.

At the same time, the company registration authority has the right to force the cancellation of the company, which does not mean that the original company shareholders and liquidation obligors are relieved of their responsibilities. According to Article 18 of the (II) for Judicial Interpretation of the Company Law, if a shareholder or director fails to set up a liquidation group to commence liquidation within the statutory time limit, or fails to perform the liquidation obligation, the creditor shall have the right to claim that he or she shall be liable for compensation or settlement in accordance with the law.

In summary, the company's compulsory cancellation system will reduce the number of cases of "three no" or zombie enterprises written off through compulsory liquidation or bankruptcy liquidation, but it will also inevitably increase the number of claims by creditors suing the company's shareholders or liquidation obligors due to the company's forced cancellation.

Article 240 of the new Company Law stipulates: "If a company has not incurred debts during its existence, or has paid off all its debts, the company registration may be canceled through a summary procedure in accordance with the provisions upon the commitment of all shareholders.

The cancellation of company registration through summary procedures shall be announced through the national enterprise credit information publicity system, and the announcement period shall not be less than 20 days. After the expiration of the announcement period, if there is no objection, the company may apply to the company registration authority for cancellation of company registration within 20 days.

If the company cancels the company's registration through a summary procedure, and the shareholders make false promises to the contents stipulated in the first paragraph of this article, they shall be jointly and severally liable for the debts before the cancellation of registration."

The impact of the summary deregistration proceedings provided for in this article on liquidation and bankruptcy is as follows:

(I), a company that has been promised by all to meet the simple cancellation registration may directly apply for cancellation of the company without having to perform the liquidation procedures stipulated in the Company Law, and all investors have promised to force investors to clean up their debts in good faith and put an end to the occurrence of false liquidation and debt evasion. Simple deregistration helps to improve the exit efficiency of market entities and reduce exit costs. This provision will reduce the rate of bankruptcy liquidation cases.

(II), it is difficult to apply the summary write-off procedure in the case of a company's write-off through compulsory liquidation or bankruptcy liquidation, because:

1. In the case of compulsory liquidation or bankruptcy liquidation, the liquidation group or the administrator will audit the company's accounts according to law, evaluate the company's assets, notify the creditors of the company's creditor's rights, and the liquidation plan and liquidation report shall also be confirmed by the court. The property management plan, property conversion plan and property distribution plan of bankruptcy liquidation cases shall also be confirmed by the deliberation and voting of the creditors' meeting and the ruling of the court, and after the liquidation is completed, the court shall decide to terminate the compulsory liquidation and bankruptcy proceedings. None of the materials required for the above procedures can be replaced by a letter of commitment from all investors and do not fall within the scope of the enterprise under the simplified cancellation procedure.

2. As the compulsory liquidation or bankruptcy liquidation is filed by the court, the liquidation obligation is performed by the liquidation group or the administrator, and there is no need for all investors to issue a letter of commitment.

The third paragraph of Article 17 of the new "Company Law" stipulates: "When a company studies and decides on major issues in restructuring, dissolution, bankruptcy application, and operation, and formulates important rules and regulations, it shall listen to the opinions of the company's labor union, and pass the employee representative assembly Or listen to the opinions and suggestions of employees in other forms".

The new "Company Law" clarifies "the establishment and improvement of a democratic management system with the workers' congress as the basic form", adds that the company should listen to the opinions and suggestions of employees when applying for bankruptcy, and gives employees more participation in the company's liquidation or bankruptcy application. right. The impact of the amendment of this article on the bankruptcy of the company is:

If the (I) debtor voluntarily applies for bankruptcy, it shall submit the "employee placement plan and the payment of employee wages and social insurance expenses" to the accepting court in accordance with Article 8 of the Enterprise Bankruptcy Law at the court's acceptance review stage ". The new provision of the new "Company Law" mainly means that the debtor should listen to opinions and suggestions on the placement of employees and the protection of employees' interests through the employee representative assembly or other forms when filing for bankruptcy. In other words, when the debtor voluntarily applies for bankruptcy, it should submit to the accepting court the resolution of the workers' congress on the employee resettlement plan. However, when a creditor applies to the court as an applicant for bankruptcy, the resolution opinion is generally not a necessary document for the debtor to submit to the court.

When a (II) state-owned enterprise goes bankrupt, the employee resettlement plan must be approved by the employee representative assembly before it can be implemented. There is no similar provision for the bankruptcy of non-state-owned enterprises. In other words, the approval of the employee resettlement plan by the employee representative assembly is not a necessary condition for the bankruptcy of non-state-owned enterprises.

The first paragraph of Article 20 of the new "Company Law" stipulates: "When a company engages in business activities, it shall fully consider the interests of the company's employees, consumers and other stakeholders, as well as social public interests such as ecological and environmental protection, and assume social responsibilities".

According to the new provision of the Company Law and the judicial interpretation of the Supreme People's Court and relevant guidance cases, it can be determined that the cost of social responsibility in the bankruptcy of a company can be included in the common interest debt, as follows:

According to the "Reply of the Supreme People's Court on the Protection of Consumer Rights of Commercial Housing", Article 2 of the Supreme People's Court Law Interpretation [2023] No. 1 stipulates: "Consumers of commercial housing purchase houses for the purpose of residence and have paid all the price, and claim that their The right to claim for house delivery takes precedence over the right to priority compensation, mortgage and other claims of the construction project price, the people's court shall support it. If a consumer of commercial housing who has paid only part of the price has actually paid the remaining price before the end of the court debate of the first instance, the provisions of the preceding paragraph may apply". Article 3 stipulates: "In the case that the house cannot be delivered and there is no possibility of actual delivery, the people's court shall support the consumer's claim for the return of the price of the commercial house before the priority compensation right, mortgage right and other claims of the construction project price". The above provisions make it clear that real estate enterprises should give priority to protecting the rights and interests of commercial housing consumers in the bankruptcy settlement plan, which is the actual performance of the company's social responsibility.

Guiding Case No. 214 issued by the Supreme People's Court of (II)-Shanghai Moumou Port Industrial Co., Ltd. bankruptcy liquidation to bankruptcy reorganization case, the accepting bankruptcy court ruled that because the bankrupt enterprise belongs to the port and terminal reorganization enterprise, it is the environment The purpose of the rectification of the main body of governance responsibility is to allow the bankrupt enterprise to retain its business qualifications, maintain its business value, and enhance the solvency of the bankrupt enterprise to all creditors. The costs incurred as a result of environmental remediation, which are for the benefit of all creditors, shall be recognized as a common interest debt and shall be paid off at any time with the estate of bankruptcy. The guidance case establishes the rules for the determination of common-interest debts for environmental pollution control in bankruptcy reorganization cases, and makes it clear that environmental governance costs in bankruptcy proceedings can be treated as common-interest debts.

It can be seen that in the future, more and more bankruptcy claims based on the principle of social responsibility will be recognized as priority claims in the company's bankruptcy proceedings.

The first and second paragraphs of Article 23 of the new Company Law stipulate: "If the shareholders of a company abuse the independent status of the company as a legal person and the limited liability of shareholders to evade debts and seriously harm the interests of the creditors of the company, they shall bear joint and several liability for the debts of the company.

If a shareholder uses two or more companies under its control to commit the acts specified in the preceding paragraph, each company shall be jointly and severally liable for the debts of either company."

The Supreme People's Court published Law [2018] No. 53 "Minutes of the National Court Bankruptcy Trial Work Conference" on March 4, 2018, that: "When the people's court hears the bankruptcy cases of affiliated enterprises, it should be based on the specific relationship model between the bankrupt affiliated enterprises., Adopt different ways to deal with it. It is necessary to deal with the highly mixed relationship of legal personality through substantive merger, to ensure the fair settlement of all creditors, but also to avoid improper use of substantive merger to harm the legitimate rights and interests of relevant stakeholders. Article 32 of which provides for the principle of prudent application of the substantive merger bankruptcy of related enterprises, the court hearing bankruptcy cases to make a separate judgment on the reasons for the bankruptcy of the members of the related enterprise and apply a single bankruptcy procedure as the basic principle, should respect the independence of the personality of the enterprise legal person. When there is a high degree of confusion of legal personality among the members of the related enterprises, the cost of distinguishing the property of the members of the related enterprises is too high, and the interests of the fair settlement of creditors are seriously harmed, the substantive merger and bankruptcy of the related enterprises may be exceptionally applied to the trial."

From the above provisions, joint and several liability for the debts of all members is the core thrust of the substantive merger and bankruptcy of related enterprises, and in the absence of a legal basis, the substantive merger and bankruptcy in the current bankruptcy business practice is widely applied. The new Company Law revises the new horizontal legal personality denial system, which provides a legal basis for the substantive merger and bankruptcy of related companies.

Provisions (I) the period of shareholders' capital contributions

Article 47 of the new "Company Law" stipulates that the period of capital contribution is five years. According to Article 266 of the new "Company Law", if the capital contribution period of a company registered and established before the implementation of the new law exceeds five years, Except as otherwise provided by laws, administrative regulations or the State Council, it shall be gradually adjusted to within the time limit specified in this law; if the capital contribution period and capital contribution are obviously abnormal, the company registration authority may require it to adjust it in accordance with the law. Specific implementation measures shall be formulated by the State Council. The provisions of the new Company Law restricting the interests of the period under the shareholders' contribution system have increased the obligations and responsibilities of shareholders' capital contribution, and to a certain extent alleviated the obligation of the administrator to recover the shareholders' capital contribution in the bankruptcy proceedings.

Provisions on accelerated maturity of (II) shareholders' contributions

Article 54 of the new Company Law stipulates that if the company is unable to pay off the debts due, the company or the creditors of the due claims shall have the right to require the shareholders who have paid the capital contribution but have not reached the time limit to pay the capital contribution in advance. The Supreme Court's "Minutes of the Ninth People's Meeting" has two conditions for the accelerated expiration of shareholders' capital contributions: first, there is no property available for execution, and there are reasons for bankruptcy but no application for bankruptcy; second, the period of shareholders' capital contributions is maliciously extended. The provisions of the Enterprise Bankruptcy Law and the (II) for Judicial Interpretation of the Company Law on the accelerated maturity of shareholders' capital contributions are: in bankruptcy proceedings, the administrator's recovery of shareholders' capital contributions is not limited by the period of capital contribution. The new Companies Act provides for accelerated maturity as long as the debts due cannot be paid off, relaxing the conditions for accelerated maturity.

(III) liability for violation of capital contribution provisions

1. Article 49 of the new Company Law stipulates that if a shareholder fails to pay his capital contribution in full on time, he shall, in addition to paying the full amount to the company, be liable for the losses caused to the company.

2. Article 50 of the new "Company Law" stipulates that when a limited liability company is established, if the shareholder fails to actually pay the capital contribution in accordance with the provisions of the company's articles of association, or if the actual value of the non-monetary property actually contributed is significantly lower than the capital contribution paid, the other shareholders at the time of establishment and the shareholder shall bear joint and several liabilities within the scope of insufficient capital contribution.

3. Article 51 of the new Company Law stipulates that after the establishment of a limited liability company, the board of directors shall verify the capital contribution of the shareholders and find that the shareholders have not paid the capital contribution stipulated in the articles of association in full and on time, the company shall issue a written call to the shareholder to collect the capital contribution. If the company fails to perform the obligations stipulated in the preceding paragraph in a timely manner and causes losses to the company, the responsible director shall be liable for compensation.

4. Article 52 of the new "Company Law" adds a new system of shareholder loss of rights, that is, if a shareholder fails to pay the capital contribution according to the capital contribution date stipulated in the company's articles of association, the company may issue a written reminder to the shareholder to pay the capital contribution, and shall leave a grace period of not less than 60 days. If the grace period expires and the shareholder still fails to fulfill the capital contribution obligation, the company may issue a written notice of loss of power to the shareholder upon the notice upon the notice upon the board of the notice, the shareholder loses the equity of his unpaid capital contribution.

5. Article 53 of the new "Company Law" stipulates that: shareholders who withdraw their capital contributions shall be returned; if losses are caused to the company, the responsible directors, supervisors, and senior managers shall bear joint and several liability with the shareholders.

6. Article 88 of the new Company Law stipulates that if a shareholder transfers the shares that have been paid but have not been paid for the period of capital contribution, the transferee shall bear the obligation to pay the capital contribution; if the transferee fails to pay the capital contribution in full and on time, the transferor shall bear supplementary liability for the capital contribution that the transferee fails to pay on time.

If the shareholders who fail to pay the capital contribution in accordance with the capital contribution date stipulated in the articles of association or the actual value of the non monetary property as the capital contribution is significantly lower than the capital contribution, the transferor and the transferee shall bear joint and several liability within the scope of insufficient capital contribution; if the transferee does not know and should not know the existence of the above situation, the transferor shall bear the responsibility.

The above provisions of the new Companies Act have the following implications for corporate insolvency:

(I) shareholder's capital contribution is not only an initial investment in the company, but also an important support for the future development of the enterprise, and an important embodiment of maintaining the company's operation and solvency. In the case of the company's own or compulsory liquidation and bankruptcy, there are still a large number of shareholders who owe their capital contributions and withdraw their capital contributions. The non-payment and withdrawal of capital contributions by the company's shareholders harms the normal operation of the company and affects the company's solvency, such as entering bankruptcy proceedings will certainly increase the difficulty of the liquidation group or the administrator to recover the capital contribution. The new "Company Law" limits the period of capital contribution subscribed by shareholders to five years, relaxes the conditions for accelerating the expiration of capital contribution, and increases the responsibility burden of shareholders and directors for violating the capital contribution regulations. This will definitely bring positive guidance to urge shareholders to make capital contributions in a timely manner, avoid the false increase of the original shareholders' capital contribution without bottom line and the chaos of "100-year capital contribution", and closely link the company's registered capital with the normal operation, to improve the phenomenon of shareholders' arrears and withdrawal of capital contributions, reduce the number of cases of shareholder capital contribution disputes, and to a certain extent reduce the workload of the administrator in the bankruptcy proceedings to recover the shareholders' capital contributions.

The liability for violation of the provisions of the capital contribution in the case of (II) transfer of capital contribution makes the direction of litigation for the recovery of the outstanding capital contribution by the administrator or the liquidation group more clear. The new "Company Law" clearly defines the division of non-payment obligations for the transfer of capital contributions before and after the expiration of the capital contribution period, stipulates the liability for violation of the capital contribution provisions in the case of transfer of capital contributions, avoids the ambiguity (III) the judicial interpretation of "failure to perform or not fully perform the capital contribution obligations", and makes it more operable for the administrator or liquidation group to recover the shareholders' non-payment of capital contributions by litigation in bankruptcy or dissolution procedures.

Article 57 of the new "Company Law" compared with the original "Company Law", the scope and exercise of shareholders' right to know is further expanded. The right of shareholders to consult accounting vouchers, entrust accounting firms and law firms to assist in the inspection, and consult relevant materials of wholly-owned subsidiaries has been newly added.

Article 10 of the (III) for Judicial Interpretation of the Bankruptcy Law stipulates: "A single creditor shall have the right to consult the debtor's financial and business information and materials necessary for participating in the bankruptcy proceedings, such as the report of the debtor's property status, the resolution of the creditors' meeting, the resolution of the creditors' committee and the report of the administrator's supervision. If the administrator refuses to provide it without justifiable reasons, the creditor may request the people's court to make a decision; the people's court shall make a decision within five days."

Combined with the (III) of Judicial Interpretation of Bankruptcy Law and the legal provisions of the new Company Law on shareholders' right to know, the impact on the bankruptcy of the company is as follows:

The (III) for Judicial Interpretation of Bankruptcy Law is too general on the scope of creditors' right to know, and the amendment of the bankruptcy law and the new judicial interpretation should be combined with the provisions of the new Company Law to allow creditors to exercise their right to know in bankruptcy proceedings in accordance with the rights of shareholders. In addition, for companies in which the bankrupt enterprise participates, the administrator or liquidation group may, in accordance with the relevant provisions of the new Company Law, exercise the shareholders' right to know, evaluate the equity value of the participating company in accordance with the law, and safeguard the rights and interests of the creditors of the bankrupt enterprise to the maximum extent.

Article 144 of the new Companies Act provides that a company may issue shares of a class different from the rights of common stock in accordance with the provisions of the articles of association. The main categories of shares include: preferred shares, inferior shares, shares with different voting rights, and transfer of restricted shares. Publicly issued companies (listed companies) can only issue preferred and inferior shares. And in Article 145, the company issuing class shares shall specify the matters in the articles of association of the company.

The fundamental difference between preferred shares and inferior shares lies in the different order of profit distribution and residual property claim, which corresponds to the different decision-making power and influence of the two types of shareholders on the company. Preferred shareholders have less decision-making power and influence over the company than inferior shareholders.

The provisions on the establishment of new classes of shares in the new Company Law will have the following impact on the adjustment of investors' rights and interests and the way of restructuring investment in the reorganization plan:

The (I) involves the adjustment of the rights and interests of the contributors. If the reorganization enterprise has set up class shares, when formulating the reorganization plan, the part of the adjustment of the investor's interest shall first consider retaining the interest of the priority shareholder in addition to retaining part of the original investor's equity, and accordingly limit the voting rights of the priority shareholder on the reorganization plan.

The (II) deals with the issue of debt-for-equity settlement arrangements. When formulating a reorganization plan, different debt-to-equity swaps can be considered for creditors of different natures. For example, for property-secured claims, consideration can be given to conversion to preferred shares; for ordinary claims, consideration can be given to conversion to equity that takes precedence over the original investor. Class; you can even consider property-secured creditors as first-level preferred shareholders, ordinary creditors as second-level preferred shareholders, and original investors who retain part of the equity as third-level preferred shareholders.

The (III) deals with the issue of class shareholding arrangements for restructuring investors. In the formulation of the reorganization plan, the reorganization investor may be arranged according to the wishes of the investor and the nature of the investment, and the financial investor may be considered as a preferred shareholder and the industrial investor as a inferior shareholder.

Article 214 of the new "Company Law" stipulates that the company's provident fund is used to make up for the company's losses, expand the company's production and operation, or convert it to increase the company's registered capital. If the provident fund makes up for the company's losses, the arbitrary provident fund and the statutory provident fund shall be used first; if the provident fund cannot be made up, the capital provident fund may be used in accordance with the regulations.

The impact of the above provisions of the new Company Law on bankruptcy reorganization is as follows:

The new provision that capital reserves can make up for losses will have a positive effect on the willingness of restructuring investors to invest. Restructuring enterprises, especially some listed companies, often have large capital reserves on the one hand and large uncompensated losses on the other. The original "Company Law" stipulates that it is not allowed to use capital reserves to make up for losses. According to relevant national tax policies and regulations, the restructuring income formed by debt relief in the reorganization can only be used as a pre-income tax deduction for the losses accumulated in the previous five years, while the accumulated losses of the reorganization enterprise may be accumulated over five years, and the excess cannot be used as a pre-income tax deduction. As a result, there may be large restructuring proceeds subject to income tax after the reorganization, which is very detrimental to the reborn business.

After the new "Company Law" provides that the new capital reserve can make up for the loss, the design of the debt-to-equity conversion plan in the formulation of the reorganization plan can greatly reduce the restructuring income formed by debt relief and reduce the risk of income tax payment. For the investors of the restructured enterprise with premium investment, the premium part forms a new capital reserve. Under the circumstance that the current laws and regulations or tax policies have no other restrictions on the capital reserve to make up for the losses, the capital reserve can make up for the large losses of the restructured enterprise quickly and to a large extent, so that the undistributed profits of the enterprise can be turned from negative to positive as soon as possible, and the investors and shareholders can also obtain investment returns as soon as possible, this is of great help to increase the investment confidence of investors.

Article 178 of the new "Company Law" stipulates: "Under any of the following circumstances, you shall not serve as a director, supervisor, or senior manager of a company:

……

The (V) individual is listed by the people's court as a person who has broken his promise due to the large amount of debt.

Where a director or supervisor is elected or appointed or a senior manager is appointed in violation of the provisions of the preceding paragraph, such election, appointment or appointment shall be invalid.

If a director, supervisor or senior manager occurs under the circumstances listed in the first paragraph of this article during his term of office, the company shall remove him from office."

The impact on the bankruptcy business of clarifying that the person who is dishonest shall not serve as the director of the company is as follows:

Based on the actual needs of small and medium-sized micro-enterprises, there is an actual need to retain part or all of the rights and interests of investors when formulating the reorganization plan for bankruptcy reorganization procedures, which is also recognized by local methods and institutes. For example, Article 26 of the Measures for the Rapid Reorganization of Small and Medium-sized Micro-enterprises in Beijing Bankruptcy Court (for Trial Implementation) stipulates that "investors of small and medium-sized micro-enterprises promise to invest funds or non-sized enterprises or non-monetary property, or promise to continue to invest commercial resources, professional ability, etc., in favor of the debtor's reorganization, the draft reorganization plan may provide for the retention of some or all of the investor's rights and interests."

The reorganization plan retains part or all of the rights and interests of the investor, but the investor is listed as a dishonest person in the course of the debtor's original operation because of the joint guarantee company debt (very common in practice). In this case, if he is prohibited from holding the post of director and supervisor of the company, it is bound to affect the implementation of the debtor's reorganization plan and the future production and operation activities of the debtor.

The original "Company Law" does not have clear or vague provisions on the qualifications of directors, supervisors and senior executives, so that in practice, some untrustworthy persons can continue to serve as directors and senior managers of the company. The clarity of this amendment may result in the actual controller of the joint and several guarantee liability of the small and medium-sized enterprises being unable to continue to serve as the director and senior management of the debtor, which may further lead:

(I) MSMEs may be difficult to implement in the absence of a restructuring investor by retaining the debtor's debt to continue to operate after restructuring, resulting in a lower success rate for MSMEs to restructure;

(II) the debtor retains the debt restructuring and the actual controller continues to operate the restructured enterprise, the actual controller can only achieve "implicit management" through other means, resulting in the parallel situation of "puppet board of directors" and "shadow board of directors" in the restructured enterprise, and the governance structure is not standardized.

The fifth paragraph of Article 57 of the new "Company Law" stipulates: "If a shareholder requests to consult or copy the relevant materials of the company's wholly-owned subsidiary, the provisions of the preceding four paragraphs shall apply."

The fourth paragraph of Article 189 stipulates: "If the directors, supervisors, and senior managers of a wholly-owned subsidiary of the company have the circumstances specified in the preceding article, or others infringe on the legitimate rights and interests of the company's wholly-owned subsidiary and cause losses, the limited liability company Shareholders, shareholders of a joint stock limited company who individually or collectively hold more than 1% of the company's shares for more than 180 consecutive days, in accordance with the provisions of the preceding three paragraphs, the board of supervisors and the board of directors of a wholly-owned subsidiary may be requested in writing to bring a lawsuit to the people's court or directly to the people's court in its own name."

The original "Company Law" did not clearly stipulate the shareholders' right to know. This provision of the new Company Law makes it clear that shareholders have the right not only to consult relevant materials, resolutions, financial reports and other materials at the company level, but also to consult relevant materials of the company's wholly-owned subsidiaries; for the right of subrogation, shareholders also have the right to directly sue the directors, supervisors and senior managers of the company's wholly-owned subsidiaries in their own name to the people's court for the benefit of the company. In other words, the company's wholly-owned subsidiary is treated as the parent company, thus denying the independent legal personality of the wholly-owned subsidiary to a certain extent.

From a practical point of view, the wholly-owned subsidiary (or even the holding subsidiary) of the parent company has the rationality of applying the legal personality denial system-(1) the parent company can have a high degree of control over the wholly-owned subsidiary;(2) many companies adopt the method of financing by platform companies and put their businesses and assets in their wholly-owned subsidiaries, thus, the shareholders' right to know and voting rights on major matters of the subsidiaries they contribute to are hollowed out;(3) there is room for the controlling shareholder of the parent company to abuse the independent legal personality of the wholly-owned subsidiary, so that the core interests of the parent company are hollowed out or the legitimate claims of the shareholders of the parent company are cut off.

The changes to this effect in the new Companies Act have the following effects on insolvency:

(I) the bankrupt enterprise is the parent company, the scope of responsibility of the administrator is expanded. According to the existing rules, the scope of responsibility of the administrator is limited to the bankrupt enterprise, and generally only exercises the rights of shareholders in its wholly-owned subsidiaries, and does not intervene too much in its operation and management. However, according to the revised rules, the creditors of the bankrupt company may also require the exercise of the right to know the financial books of the wholly-owned subsidiary, and require the supervision of the directors and supervisors of the wholly-owned subsidiary. This is a reasonable claim in legal theory. If the administrator fails to take over a wholly owned subsidiary of the insolvent enterprise, it is clear that the above reasonable claims cannot be met. If the administrator takes over, it shall investigate the assets, debts and business conditions of the wholly-owned subsidiary to determine whether it should also go bankrupt, whether it should continue to operate, and whether it should pursue the responsibilities of the directors and supervisors.

(II) the insolvent enterprise is the parent company, the administrator may need to represent both the parent company and the wholly-owned subsidiary. If the parent company has not contributed to the wholly-owned subsidiary, the wholly-owned subsidiary will become a creditor of the parent company and should file a bankruptcy claim. The manager may have to hand over two, one is the parent company and the other is a wholly owned subsidiary. In this case, how the administrator handles this embarrassment of status in order to meet the legal requirements of the duty of loyalty and diligence is a problem that needs to be solved in future practice.

(III) the bankrupt enterprise is a minority shareholder of the investee company, the scope of the administrator's recourse is expanded. In the existing rules, the administrator of an insolvent enterprise only pursues the level of the investee company for the company in which the insolvent enterprise invests, and the administrator cannot effectively pursue the foreign investment of the investee company. After this amendment, the scope of the administrator's recourse has been expanded to extend to the wholly-owned subsidiaries of the investee company, thus providing a powerful tool for the administrator to protect the interests of creditors to the maximum extent.