Encounter Bankruptcy | 50 Questions and Answers on Reorganization Investment Practice II

Question 11: What are the circumstances in which the restructuring investor is negotiated?

 

If the following circumstances exist after examination, the administrator may apply for negotiation to determine the reorganization investor:

 

1. the debtor and the intended investor have initially formed a feasible debt settlement plan and a plan for the adjustment of the investor's rights and interests during the period of the debtor's own operation and management;

 

2. at the time of acceptance of the reorganization application, the debtor has identified the intended investor, the intended investor has continued to provide funds for the continuation of the debtor's business and to compensate the claims of the employees, and the debtor has formulated a feasible plan for debt settlement and adjustment of the rights and interests of the investor;

 

3. the possibility of a sharp loss of reorganization value and the need to identify the reorganization investor as soon as possible;

 

4. there are other circumstances unsuitable for public recruitment of restructuring investors, and the consent of the creditors' meeting or the creditors' committee is granted.

 

Question 12: What are the basic principles of open recruitment of investors?

 

In the absence of explicit provisions in the law, public recruitment of investors is not a necessary procedure in the reorganization procedure, and the appropriate way to introduce investors should be selected according to the actual situation of the case and in order to promote the success of the reorganization. The recruitment of investors usually follows the following principles.

 

1. the principle of openness and transparency

 

The principle of open and transparent recruitment requires that the recruiter can fully give the investor time and space to conduct due diligence on the debtor and its reorganization status, so that the investor can make the most favorable investment judgment; it also requires the interested parties to be fully aware of the recruitment in a timely manner. The process and results should be supervised in a timely manner to eliminate reasonable doubts about the results of the recruitment by creditors and other interested parties.

 

2. adhere to the principle of marketization

 

In essence, investor recruitment is a market behavior and requires both parties to reach an agreement through negotiation. Successful investor recruitment can inject new capital and high-quality assets into the reorganization, which is in line with the common interests of all parties involved in the reorganization and is conducive to maximizing the overall value. Adhering to the principle of marketization is conducive to a full game between the recruiter and the investor, maximizing the potential of various elements and resources, and making the final investment plan more operable.

 

3. maintain the debtor's operating value principle.

 

The operating value of an enterprise refers to the value of the assets of the enterprise as a business entity, that is, the market value of the enterprise in a state of continuous operation. Under normal circumstances, the operating value of an enterprise should be higher than the liquidation value, that is, higher than the value that the net assets of the enterprise can obtain through liquidation. A bankrupt enterprise may still be a profitable capital entity in the operating state, and can avoid the waste of a large amount of enterprise property. This is also the theoretical basis of the whole reorganization system, that is, the design of a series of systems to provide a rescue path for troubled enterprises with operational value, which is different from liquidation and reconciliation.

 

4. the principle of maintaining social stability

 

The reorganization procedure involves the interests of at least five parties. If the interests of all parties are not well balanced, it is very easy to cause mass and sudden incidents and affect social stability and order. Therefore, when recruiting restructuring investors, we should focus on whether the proposal put forward by the investors has positive social significance and whether it is conducive to the stability maintenance work in the restructuring.

 

Guiding Principles for 5. Court Supervision

 

Article 23 of China's Enterprise Bankruptcy Law stipulates that the people's court shall guide the conduct of the supervisory administrator by exercising the power of appointment, replacement, permission and approval of the draft reorganization plan to the bankruptcy administrator in accordance with the law. The implementation of the people's court's leading role in the overall supervision of the administrator and the compulsory approval of the draft reorganization plan is an important prerequisite for the smooth progress of the reorganization, and it is also a judicial guarantee to safeguard the interests of creditors.

 

Question 13: What are the procedures for public recruitment of restructured investors? (Take the recruitment of managers as an example)

 

The 1. manager shall prepare the recruitment documents and report them to the people's court for the record;

 

The 2. manager issues the recruitment announcement/information;

 

3. intention investors to sign up;

 

After the preliminary examination and adoption of the 4. manager, the investor is intended to sign a confidentiality agreement and pay the deposit;

 

The 5. intends to conduct due diligence on investors and the Manager provides necessary assistance;

 

The 6. manager reviews the reorganization plan and bids publicly; if the reorganization plan of multiple intended investors is reviewed and passed, the reorganization investor can be selected by the creditors' meeting;

 

After the 7. investor is formally selected, it shall sign the Investment Agreement with the Manager and provide the corresponding performance guarantee;

 

The 8. manager drafts the Draft Reorganization Plan and the Reorganization Investment Contract in accordance with the contents and principles determined in the reorganization investment plan.

 

The 9. investor confirms the relevant contents of the Draft Reorganization Plan produced by the Manager and signs the Reorganization Investment Contract with the Manager.

 

10. submit the draft reorganization plan to the creditors' meeting for consideration.

 

Question 14: How to draft the recruitment announcement?

 

Generally speaking, the recruitment announcement should set out the following matters: the basic information of the case; the qualifications that the investor who intends to reorganize should have; the method and time limit for registration to participate in the recruitment procedure; the method and time limit for obtaining the recruitment documents. At present, most recruitment announcements are relatively brief and often contain only some basic information, but in fact, investment value and investment expectations should be the focus of recruitment information disclosure and publicity. It is recommended that the recruitment document should include the following:

 

1. the basic information of the debtor, I .e. the name, domicile, registered capital, shareholders and other basic information of the debtor;

 

2. the debtor's assets and liabilities and advantages, the administrator should explain the debtor's assets and liabilities, focusing on the debtor's core competitiveness and attracting investors;

 

3. recruitment procedures, I .e., registration methods, deadlines, documents to be submitted, margin, due diligence and comparison methods, etc., to facilitate the participation of restructuring investors in insolvency proceedings.

 

Fifteenth question: how to publish the recruitment announcement?

 

Usually, the announcement of recruiting restructuring investors should be published on the national enterprise bankruptcy reorganization case information network, property rights trading center, Jingdong auction, Taobao, WeChat public number and influential media in the region, including project overview, recruitment rules and other contents.

 

Issuing a recruitment announcement with a notice period of not less than 15 days. Through modern network communication, recruitment advertisements can be published through multiple channels. In addition to publishing in print media, they can also use micro-media and self-media channels, such as WeChat public platform to widely publish to unspecified people; they can also focus on the actual situation of target enterprises to specific groups, such as industry associations, chambers of commerce at all levels, influential websites in their industries and specific WeChat groups, etc, in order to improve the dissemination of recruitment announcements and reliability, improve the success rate of the recruitment of investors.

 

Question 16: How to draft recruitment documents?

 

The core provisions such as the production of recruitment documents, especially the requirements for restructuring investors, involve the core interests of creditors, debtors and employees, and their right to know and participate should be protected. The manager should complete the production of recruitment documents before the recruitment announcement is issued, and fully solicit opinions from debtors, creditors who have declared creditor's rights and the people's court, and revise and form formal recruitment documents accordingly.

 

The recruitment documents shall provide a more detailed description of the matters related to the reorganization than the recruitment announcement, which may include: basic information on the industrial and commercial registration of the target enterprise, the composition of the enterprise's assets, the situation of claims and creditors, liabilities, analysis of the value of the reorganization and the expected benefits, preferential policies of the local government for the reorganization of the enterprise, and so on. In this link to provide attachments should be cautious, in addition to industrial and commercial registration information, land certificate, real estate certificate and other general public information, in principle, can not provide audit reports, evaluation reports, solvency analysis report text, involving the core technology of enterprises, trade secrets, etc. can not be provided.

 

Question 17: What are the documents to be signed and provided by the prospective investors during the registration phase?

 

1. registration form (template prepared by the administrator);

 

The subject qualification materials of the 2. intention investor: including but not limited to the business license of the enterprise legal person, relevant qualification certificates, the current effective articles of association of the enterprise legal person, and the identity certificate of the legal representative (or person in charge);

 

Basic information introduction materials of 3. investors: including but not limited to the subject qualification of intended investors, equity structure, historical evolution, business scope, resolutions of shareholders' meeting participating in reorganization investment, sources of funds for reorganization investment, guarantee measures that can be provided for the implementation of reorganization plan, etc.; industrial relevance with debtors and advantages of operation and management experience, etc;

 

4. power of attorney (administrator preparation template);

 

5. a due diligence confidentiality letter (if due diligence is required, the administrator prepares a template);

 

6. joint investors are also required to provide a joint investment agreement and relevant supporting documents, explaining their respective roles, rights and obligations, and sign the Mutual Joint and Several Liability Undertaking prepared by the administrator;

 

7. other documents required by the Manager.

 

Question 18: How do I set up the margin and investor default rules for the recruitment process?

 

In order to ensure that the intended investors who participate in the registration have a certain financial strength, and at the same time ensure the investors' determination to participate in the reorganization and the ability to perform the contract, the intended investors are generally required to pay a certain amount of registration deposit during the registration stage of the recruitment process. The amount of the deposit may be determined based on the value of the investment in the case or the value of the assets of the enterprise. However, the payment methods of the deposit are also different in the practice of handling reorganization cases. Some reorganization cases collect the deposit in one lump sum during the recruitment of investors, while others collect the deposit of different amounts or the same amount in stages during the recruitment process, such as paying an appropriate amount of due diligence deposit during the selection stage and paying the investment performance deposit after determining the investors (generally not exceeding 20% of the assessed debtor's property).

 

Question 19: How to sign a confidentiality agreement?

 

Intended investors will have access to information on reorganization cases, business secrets of reorganization enterprises, and even trial secrets of bankruptcy cases. Therefore, under normal circumstances, the administrator should sign a confidentiality agreement with the intended investor to clarify the confidentiality obligations of the investment intention and the legal liability for breach of confidentiality obligations.

 

Question 20: Why should an intended investor conduct due diligence?

 

Enterprises entering the reorganization process usually have poor management, unclear property rights, confusion of creditor's rights and debts, and many problems left over from history. Due diligence is one of the most important measures to control investment risk. Carrying out detailed due diligence is conducive to avoiding potential risks and conducting targeted investment negotiations in order to obtain better investment conditions. Therefore, the intended investor must conduct detailed due diligence on the reorganization of the enterprise, including legal, financial, business and other aspects, and pay special attention to key, difficult issues and asset ownership issues.

 

After the initial investment intention is reached, the investor can carry out due diligence. In addition to the matters needing attention in general M & A, such as core business, personnel status, management status, asset evaluation, possibility and cost of turning losses, local government and judicial environment, investors should also focus on understanding the work progress of managers, and determine the liabilities and assets of enterprises as accurately as possible, so as to lay a solid foundation for the formulation of restructuring investment plan.