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Encounter bankruptcy. The new rules on private lending should not apply to bankruptcy cases under trial.

Published:

2020-09-21

On August 20, 2020, the revised version of the Supreme People's Court's Provisions on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases (hereinafter referred to as the "New Rules") came into effect, which reduced the statutory annual interest rate for private lending from 24 per cent to four times the quoted market rate for one-year loans (hereinafter referred to as "LPR") at the time of the establishment of the contract, and now four times the one-year LPR is 15.4 per cent, and this provision applies to private lending dispute cases accepted by the people's court after its implementation, regardless of when the lending behavior in the case occurred. In the bankruptcy cases currently being tried by the court, the acceptance date of most cases is August 20, 2020, which is before the implementation of the new regulations (hereinafter referred to as "bankruptcy cases under trial"). In such cases, whether the bankruptcy administrator should take the implementation date of the new regulations as the node when reviewing the private loan creditor's rights and the interest of the bankruptcy creditor's rights (hereinafter referred to as "bankruptcy creditor's rights") with reference to the applicable private loan regulations, the distinction between the application of the new and old rules on private lending has not yet been given a unified and clear authoritative explanation or response, and there are doubts about this in insolvency practice.

This paper on the review of the interest of bankruptcy claims in the trial of bankruptcy cases, whether the new regulations should be applied, put forward their own understanding and suggestions, the right to throw bricks and jade. The author believes that in the trial of bankruptcy cases, the administrator's review of bankruptcy claims should continue to apply the "Provisions on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases" implemented by the Supreme People's Court on September 1, 2015 (hereinafter referred to as "Private Lending" Old Regulations "), should not apply the new regulations. The reasons are as follows:

The legality of 1. insolvency proceedings and its legal role.
Bankruptcy procedure is one of the legal judicial procedures in China, the people's court shall formally hear the bankruptcy case in accordance with the bankruptcy law, and the process and results of the trial shall be legally binding on the bankrupt enterprise and all its creditors. In insolvency proceedings, each claim is deemed to be due and ceases to accrue interest, and the debtor is strictly prohibited from paying off individually, and the administrator shall conduct a unified liquidation of all claims and debts of the enterprise, even if the debtor wants to voluntarily repay a creditor's claim, the bankruptcy law does not allow it. The bankruptcy claim shall be examined by the administrator on the basis of the facts of the claim, and the trial court shall decide and confirm the result of the examination after the parties have no objection. Therefore, the bankruptcy procedure has the function of stopping the dispute, to a certain extent, plays the same legal role as the civil procedure, while saving judicial resources and reducing the litigation burden of the parties. Therefore, in the trial of bankruptcy cases, bankruptcy claims have been in the process of legal judicial proceedings, should have the same legal effect as the acceptance of civil cases, that is, should be regarded as bankruptcy claims have been equivalent to entering civil proceedings before the implementation of the new regulations.

The legal values and principles of fairness in 2. insolvency proceedings.
The first article of China's current bankruptcy law stipulates that "fair liquidation of creditor's rights and debts", highlighting the legal value and principle of the fairness of bankruptcy proceedings, in practice, the fairness is not only reflected in the unified settlement of bankruptcy claims, but also should be reflected in the administrator should take the initiative to apply the unified bankruptcy claims review standards. In bankruptcy cases, bankruptcy claims such as loans have generally been reviewed by the administrator in accordance with the old rules of private lending, or verified by a meeting of creditors, or even confirmed or heard by a court ruling. Therefore, in the case that bankruptcy claims have been confirmed in accordance with the old regulations on private lending, if the date of implementation of the new regulations, that is, August 20, 2020, is taken as the node, the administrator shall, in accordance with the provisions of different private lending, conduct a differentiated examination of bankruptcy claims declared or confirmed before and after, which obviously violates the principle of fairness in bankruptcy proceedings.

The civil litigation rights of creditors under 3. bankruptcy proceedings are limited.
According to the relevant provisions of China's current bankruptcy laws and regulations, such as Article 44 of Chapter VI of the Enterprise Bankruptcy Law, the declaration of claims stipulates: "When the people's court accepts an application for bankruptcy, the creditor who has a claim against the debtor shall exercise its rights in accordance with the procedures stipulated in this Law." After an enterprise enters into bankruptcy proceedings, in principle, creditors may not directly file a civil action case with the people's court, and should first declare their claims to the bankruptcy administrator, and the administrator shall examine their claims, and if the creditors object to the results of the examination, they shall file a claim for confirmation of bankruptcy claims with the court. In bankruptcy practice, there are also many cases of rejecting creditor litigation on the grounds of enterprise bankruptcy. Therefore, regardless of legal provisions or bankruptcy practices, the civil litigation rights of creditors in bankruptcy proceedings have been greatly restricted. In this case, in the trial of bankruptcy cases, if the new regulations are still in accordance with the new regulations, only for the implementation of the new regulations The old regulations on private lending are applied to creditors who have litigated, which is extremely unfair and unreasonable for creditors who fail to file civil lawsuits due to bankruptcy procedures.

The law and practical requirements of high efficiency in the trial of 4. bankruptcy cases.
In the trial of bankruptcy cases, if the standard of creditor's rights review is revised to the new rules on lending, the administrator must carry out a "rework" review of a large number of bankruptcy claims, which greatly increases the workload of the administrator and is not conducive to the timely promotion of bankruptcy work. More importantly, if the bankruptcy claims are re-examined in accordance with the new regulations, the review results of some claims will inevitably be reduced, or cause dissatisfaction among relevant creditors, which is not conducive to the steady progress of bankruptcy work. In addition, the examination and confirmation of bankruptcy creditor's rights in bankruptcy proceedings must go through many legal links and steps, which are roughly as follows: declaration of creditor's rights-examination of administrator-examination of creditor meeting-handling of creditor's objection-confirmation of court ruling. The case of each bankruptcy case has its particularity, and the time arrangement and work progress of each link and step of the examination and confirmation of bankruptcy creditor's rights are inconsistent and complicated. In this case, A simple differential review of bankruptcy claims before and after the date of implementation of the new regulations is not feasible in bankruptcy practice.

In summary, the author believes that in the trial of bankruptcy cases, the administrator's review of bankruptcy claims should continue to apply the old rules of private lending, not the new rules.

Under the premise of the above conclusion, in the trial of bankruptcy cases, if creditors or debtors have objections to the results of the creditor's rights review of the administrator and file a bankruptcy creditor's rights confirmation lawsuit with the people's court after the implementation of the new regulations, the people's court may hear bankruptcy creditor's rights disputes according to the new regulations, which results in the inconsistency between the creditor's rights review standard of the administrator and the standard of the court in hearing creditor's rights disputes, instead, it may result in a lower judgment than the result of the administrator's review. Therefore, in order to prevent creditors from falling into the above-mentioned embarrassing situation and treat each bankruptcy claim fairly, the author suggests that the relevant provisions should be issued for the bankruptcy claim confirmation dispute cases filed by creditors after the implementation of the new regulations to clarify that the old regulations on private lending should be applied to such cases.