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Published:

2022-08-02

Abstract: The right of exclusion refers to the right of priority payment for a particular property of an insolvent enterprise in insolvency proceedings because the creditor has a security right or other legal special priority in the particular property of the insolvent enterprise. From the point of view of the limited property of the bankrupt enterprise, there is a zero-sum game between the ex-right holder and the ordinary creditors. From a practical point of view, most of the property of the bankrupt enterprise is guaranteed, and the bankruptcy law is almost for the ordinary creditors. There is no effect, which is contrary to the common benefit of the bankruptcy law as an "atypical private law" that takes into account the interests of all parties. The purpose of this paper is to analyze the characteristics of the right of exclusion, compare the provisions of various countries on the basis of the right of exclusion, from a practical point of view, the bankruptcy law of our country on the restriction of the right of exclusion of some thinking and put forward some suggestions. Keywords: Bankruptcy Law Exemption Legal Priority Restriction. The Concept and Characteristics of 1. Exemption The right of exclusion refers to the right to priority payment of a particular property of the debtor (I. e. the insolvent enterprise) in insolvency proceedings because the creditor has a security interest or other statutory special priority in the particular property of the debtor (I. e. the insolvent enterprise), which may not be subject to the insolvency proceedings. [1] The system of exclusion was first established in the bankruptcy laws of civil law countries and was perfected with the development of relevant legislation. Most scholars believe that the essence of the right of exclusion is that the property security system in civil law is embodied in the bankruptcy law, and is the specific name of the security right in the bankruptcy legal system. The author summarizes the specific characteristics of the exclusion right into the following points. First, the source of the right of exclusion is the security right and the statutory special priority. The right of exclusion is not a new right established by the bankruptcy law, but the mapping and application of the security law, the security interest and other legal special priorities stipulated by the law of real right in the bankruptcy legal procedure, in which the security interest is the mortgage, pledge and lien stipulated by the property law of our country, and other legal special priorities are directly set by law for the fair protection of some special interests, there are mainly the priority of ships under the Maritime Law, the priority of aircraft under the Civil Aircraft Law, the priority of construction project price under the Contract Law, and the priority right of consumers to pay for the purchase of houses. Second, the exercise and realization of the right of exclusion is aimed at the specific property of the bankrupt enterprise. First of all, the specific property should be clearly owned, is the property in the name of the bankrupt enterprise, the bankrupt enterprise enjoys ownership, belongs to the bankruptcy property. Secondly, the specificity of a particular property, the name, scope, type, etc. of the property must be specified by the security contract, or the specific property can be inferred by the law, in general, the specific property is one or more of the property of the bankrupt enterprise, rather than all the property under the name of the bankrupt enterprise. Third, the independence of the exercise and realization of the right of exclusion. A basic principle of insolvency law is the collective settlement of all claims, I .e., all claims are settled uniformly from the proceeds of the realization of the property of the insolvent enterprise, and national insolvency laws also explicitly prohibit individual settlements in insolvency proceedings. However, the exercise of the right of exclusion is the exception of collective compensation in the bankruptcy law, because the purpose of its establishment is to protect the interests of special creditors in the bankruptcy procedure, to ensure the realization of their security interests or other legal special priority, and the right of exclusion is aimed at the specific property of the bankrupt enterprise, whether the property is disposed of in advance or not does not affect the interests of other creditors in theory, so the right of exclusion can not be restricted by the bankruptcy procedure [2], realize and be paid separately for specific property under other laws, such as property law. Fourth, the priority of the exercise and realization of the right of exclusion. Another basic principle of bankruptcy law is the equal settlement of all claims, and in the case of ordinary claims, they must be settled in the same proportion, and in the absence of special circumstances, the property shall not be distributed in excess of the proportion. The priority of the right of exclusion is to break through the principle of equal settlement of the bankruptcy law, because the right holder is the security right holder or legal priority holder of the specific property of the bankrupt enterprise, so the price of the realization of the specific property can be paid in priority to other creditors, China's bankruptcy law even provides that the bankruptcy costs and common benefits of debt. China's current bankruptcy law does not directly use the concept of the right to exclude, but extends the concept of creditors with property security in the civil law. In the new bankruptcy law implemented on June 1, 2007, it is clearly stipulated that creditors with security rights to the specific property of the bankrupt shall have the priority of compensation for the specific property, such as Article 37 and Article 109 [3], which to a large extent reflects the recognition of the right to exclude, however, the provisions of China's bankruptcy law on the right of exclusion are still in the basic stage, and there is no comprehensive and detailed provision for the right of exclusion. Jurisprudential Study of 2. Restrictions on Exclusion There is an obvious conflict between the security system in civil law and the bankruptcy law in terms of legislative purpose, legal purpose and value orientation. The legislative value orientation of the security right system is to ensure that the creditor's claim of the security right is paid in priority to the value of the secured property [4], which plays a positive and effective role in urging the debtor to keep its promises, ensure the security of transactions and maintain market order in economic activities. The real right guarantee system, which arises from the normal economic activities, derives the right of exclusion after encountering the bankruptcy system, and the right of exclusion has a strong impact on the purpose, principle and application of the bankruptcy law, making the order of liquidation of the specific security property of the bankrupt enterprise become special and complicated. The value conflict between the exclusion right and the bankruptcy law, from the point of view of the limited property of the bankrupt enterprise, there is a zero-sum game between the exclusion right holder and the ordinary creditors, the number of cakes is limited and determined, and the distribution of cakes directly leads to the change of interests, profit and loss are closely linked. From the characteristics of the general execution of the bankruptcy procedure, when the enterprise does not enter the bankruptcy procedure, the exercise of various private rights in the civil law will not conflict in the legal treatment according to their own legal provisions, but after the enterprise enters the bankruptcy procedure, because all kinds of claims need to be generally executed in the bankruptcy procedure, that is, the bankrupt enterprise should use all the debtor's property to pay off all the payable claims in accordance with the unified procedure, at this time, many civil law rights will have the problem of conflict, so that the bankruptcy law in the distribution of limited property to make a choice, the most typical is the conflict between the right to remove the right and ordinary creditors. As Professor Xu Defeng's classic statement: in bankruptcy proceedings, the realization of the right of exclusion, that is, the realization of the security right, not only requires the formulation of a large number of fine and complex technical specifications, but also needs to make a choice and difficult value consideration. [5] Some scholars believe that bankruptcy law, as an "atypical private law" [6], needs to take into account the public interest in the face of various private rights in civil law, and make appropriate fine-tuning or even reordering of the levels of private rights. For this point of view, the author is deeply convinced. First of all, fairness is one of the basic values of law, but it is very difficult to achieve absolute fairness in law. On the road of perfecting legal fairness, it is inevitable to restrict individualism and sacrifice individual interests. In bankruptcy proceedings, when the interests of a small number of ex-rights holders and the interests of the majority of creditors or even social public interests conflict, if the interests of the former are fully protected, it is bound to harm the interests of a large number of ordinary creditors, and it is also easy to cause the bankrupt enterprise to combine the use of the ex-rights system, the radical development of the limited liability system, the transfer of assets, etc., resulting in the impairment of social public interests. Therefore, the principle of legal fairness and justice should tend to protect the interests of most ordinary creditors or social public interests. In addition, in some bankruptcy cases in which the author participates in practice, most of the property of the bankrupt enterprise is guaranteed, including not only real estate such as land and houses, but also movable property such as machinery and equipment. In this case, the bankruptcy law has almost no effect on ordinary creditors, but it has become a tool for the distribution of benefits among the ex-rights holders. Therefore, no matter from the perspective of legal theory or bankruptcy practice, the bankruptcy law should adjust the rights and obligations of the security right holder, impose necessary restrictions on the right of exclusion, and weaken the strong position of secured claims against unsecured claims, such as the establishment of a suspension of the exercise of the right of exclusion or security in the settlement and reorganization proceedings, in order to balance the interests of the right holder and ordinary creditors, reflecting the fairness and justice of the law. In the bankruptcy laws of the main civil law countries, there are restrictions on the right of exclusion, and it has become a new trend in the development of bankruptcy law in various countries, which also constitutes the biggest difference between the right of exclusion in modern bankruptcy and the right of priority compensation in civil and commercial matters in non-bankruptcy proceedings. For example, in chapter IV, "Administration and Realization of the Insolvency Property", section III, "Subjects with Exemption Rights", of the German Insolvency Law [7], the management of the subject of the Exemption Rights, the subject of the auction, the term of the term, and the order of settlement of the variable price are clearly defined, which better balances the relationship between insolvency proceedings and the Exemption Rights. Although the new Japanese Bankruptcy Law eliminates the special chapter on the right of exclusion, in its Chapter VII, "Realization of the Insolvent Consortium", it also provides for the subject matter of the property of the right of exclusion, the exercise of the right of exclusion and its constraints. Germany and Japan are representative countries of the civil law system, and their bankruptcy laws set many restrictions on the exercise of the right of exclusion, which can effectively prevent the interests of ordinary creditors from being damaged by the excessive rights and interests of the right holders, while maximizing the efficiency of bankruptcy proceedings. The proposal of the 3. to restrict the right of exclusion in the bankruptcy law of our country. China's current bankruptcy law does not directly use the term "exclusion" in the bankruptcy law of civil law countries, but uses the common law system-property-secured claims. Compared with foreign bankruptcy laws, China's bankruptcy law is still not enough to regulate property-secured claims, I .e., the right to exclude them. The author summarizes the restrictive provisions of China's current bankruptcy law on the right of exclusion into the following points and makes a brief assessment or supplementary suggestions. First, it provides for the administrator's right of avoidance for a particular security act. Article 31 of the bankruptcy law stipulates that if the people's court provides property security for debts without property security within one year before accepting the bankruptcy application, the administrator may request the people's court to revoke it. This provision applies only to the act of additional property security on the principal obligation, I .e. where the principal obligation is established before and the property security right is established after, and where the property security right is formed at the same time as the principal claim, the administrator has no right of avoidance. However, in economic trade or financial financing, the vast majority of property security rights are formed at the same time as the main claim, so the author suggests that the provision be amended to all acts of external property security within one year prior to the bankruptcy application. Second, provide for a system for the retrieval of pledges and liens. Article 37 of the insolvency law provides that the administrator may retrieve the pledge, the lien, subject to the satisfaction of the debt or the provision of new security. As far as the author's bankruptcy business practice is concerned, in bankruptcy proceedings, the pledgee and lien can realize the pledge and lien at any time, and will generally realize quickly to reduce their own losses, which will easily cause the realization value of the pledge and lien to be lower than the market price, thus harming the interests of ordinary creditors. Therefore, the author suggests that the administrator be given the right to take back the pledge and the lien, that is, the administrator comprehensively considers the pledge, the condition of the lien and the cost of taking back, and applies to the court or the creditor committee to take back the pledge and the lien under the ex-right without harming the interests of the ex-right holder, so as to realize the overall price of the bankruptcy property and maximize the value of the bankruptcy property. Third, it provides for the premise of the exercise of the right of exclusion-the declaration of claims and the review system. According to the provisions of Articles 48, 49, 57 and 59 of the bankruptcy law [8], all creditors must declare their claims to the administrator, which shall be examined and confirmed by the administrator. Those who fail to declare their claims shall not be recognized as creditors, and shall not enjoy the right to attend and vote at the creditors' meeting, and their priority in the compensation of the secured property is even more impossible. This provision essentially identifies the nature of the exclusion right, that is, the exclusion right should first be an insolvency claim, and the exclusion right holder should be not only a security right holder, but also a creditor. However, in the case where the ex-right holder is only the creditor of the non-principal debt relationship of the security right holder, the declaration and review system of the claim of the ex-right holder is not clearly stipulated in the bankruptcy law of our country, and it is easy to cause confusion in judicial practice, so the author suggests that the judicial interpretation of the situation be made clear. Fourth, it provides for a system of suspension of the exercise of the right of exclusion. Article 19 of the Bankruptcy Law provides for a stay of execution regime, articles 75 and 96, paragraph 2, provide for the suspension of the exercise of security interests in reorganization proceedings and conciliation proceedings, respectively, and in conjunction with article 111 of the Bankruptcy Law and article 3 [9] of the Judicial Interpretation II of the Bankruptcy Law, the administrator's right to realize the secured property may be introduced. However, whether the exercise of the right of exclusion should be suspended under the bankruptcy liquidation procedure is not clearly stipulated in the bankruptcy law. Combined with the independence of the exercise of the right of exclusion and the principle of freedom without prohibition in civil law, if the ex-right holder requires priority payment of the secured property before the bankruptcy property is changed in value or distributed, the administrator has no strong legal defense, even if the bankruptcy law gives the administrator the right to realize the secured property. Therefore, the author suggests that the suspension system of the right of exclusion under bankruptcy liquidation should be clearly stipulated, and the administrator should be given the right to control the realization time of the secured property, so as to promote the bankruptcy liquidation procedure in an orderly manner and ensure the maximization of the value of the bankruptcy property. Fifth, it provides for the basis of the right of exclusion. Article 109 of the bankruptcy law provides that the right of exclusion is based on the real right of property security, and the right holder is the creditor with property security. However, in our legal system, there is some statutory special priority, as mentioned above, and the right of statutory special priority comes from the direct provisions of the law. In the practice of bankruptcy, the current judicial point of view will be the statutory special priority as a separate right, its exercise and realization of the way is no different from the separate right, but China's current bankruptcy law on the statutory special priority is not mentioned, the basis of the emergence of the separate right is not a bottom-up provisions. Therefore, the author suggests that the bankruptcy law of our country should introduce the concept of the right to separate, perfect the right basis of the right to separate, in order to reflect the scientific rigor of bankruptcy legislation. Comments: [1] Wang Xinxin, "Research on the Theory and Practice of Exemption in Bankruptcy", Political and Legal Forum, No. 1, 2007. [2] Fan Jian and Wang Jianwen, Bankruptcy Law, Beijing: Law Press, 2009, p. 146. [3] See article 37 of the the People's Republic of China Enterprise Bankruptcy Law. [4] Xu Jie, "The Function of Security Rights", Beijing: Law Press, 2006, p. 62. [5] Xu Defeng: "On the economic significance of security interests and the absence of our bankruptcy law" [J]. Tsinghua Jurisprudence, 2007,(3). [6] Zou Hailin and Zhou Zexin, "New Developments in Bankruptcy Law", China Social Sciences Press, 2013, pp. 15-18. [7] Li Fei, ed., "Contemporary Foreign Bankruptcy Law", China Legal Publishing House, 2006 edition, pp. 68-71. Unless otherwise stated, the provisions on foreign insolvency law referred to in this article are derived from that version. [8] See the relevant provisions of the the People's Republic of China Enterprise Bankruptcy Law (effective June 1, 2007), from which the following provisions of our bankruptcy law are derived, unless otherwise stated. [9] See the relevant provisions of the (II) of the Supreme People's Court on Certain Issues Concerning the Application of the the People's Republic of China Enterprise Bankruptcy Law, which, unless otherwise stated, the provisions of China's bankruptcy law mentioned herein are derived from that judicial interpretation. References: [1] Wang Xinxin, "Research on the Theory and Practice of Exemption in Bankruptcy", Political and Legal Forum, No. 1, 2007. [2] Fan Jian and Wang Jianwen: Bankruptcy Law, Beijing: Law Press, 2009

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