Viewpoint... The impact of major emergencies on the submission deadline of the draft reorganization plan and countermeasures.

2019 new coronavirus pneumonia outbreak (hereinafter referred to as the new crown outbreak) is raging, the virus is more infectious and the number of people infected than SARS. The epidemic has hindered the production and operation of most restructured enterprises, made it more difficult to recruit investors, and restricted the normal performance of managers and other social intermediaries. In some reorganization cases, the recruitment of reorganization investors and the preparation of a draft reorganization plan cannot be completed within the original deadline due to the epidemic, and there is a risk of bankruptcy liquidation due to the inability to submit the draft reorganization plan within the statutory deadline. Therefore, how to extend the period for submitting the draft reorganization plan in accordance with the law to the extent reasonably necessary to compensate for the adverse impact of the epidemic on the formulation of the reorganization plan is a question worthy of consideration and discussion.

 

The new crown outbreak in 1. and its legal nature.

 

 

The Xinguan epidemic is a major infectious disease epidemic that has spread rapidly and spread to all provinces and cities across the country and even other countries and regions since its sudden outbreak in Wuhan City, Hubei Province, in December 2019, seriously damaging public health. On January 20, 2020, the National Health and Care Commission officially issued Document No. 1 of 2020, which included pneumonia infected by the new coronavirus in Class B infectious diseases as stipulated in the the People's Republic of China Law on the Prevention and Control of Infectious Diseases (hereinafter referred to as the Law on the Prevention and Control of Infectious Diseases), and adopted prevention and control measures for Class A infectious diseases. On January 31, 2020, the World Health Organization held a press conference to announce that the new crown epidemic was classified as a "public health emergency of international concern". According to official data, 31 provinces, autonomous regions and municipalities directly under the Central Government have been infected with the new coronavirus confirmed cases, as of February 23, 2020 at 24:00, the country's cumulative number of confirmed cases of more than 77,000 people, the death toll of more than 2,500 people. In addition to our country, another 29 countries have confirmed cases.

 

 

 

 

In terms of suddenness and the degree of harm to society, the new crown epidemic is one of the the People's Republic of China emergencies specified in the Public Health Emergency Response Act (hereinafter referred to as the Emergency Response Act) and the the People's Republic of China Public Health Emergency Response Regulations (hereinafter referred to as the Public Health Emergency Response Regulations), acts related to the new crown epidemic are regulated and adjusted by the Emergency Response Act, the Public Health Emergency Response Regulations, and the Infectious Disease Prevention and Control Act.

 

In terms of the speed and impact of development, the new crown epidemic is unforeseeable, unavoidable and insurmountable under existing medical and health conditions, and is a force majeure under Article 180 of the General Principles of Civil Law. According to the provisions of the General Principles of Civil Law, if a civil obligation cannot be performed due to force majeure, he shall not bear civil liability (if otherwise provided by law, in accordance with its provisions), and if the right of claim cannot be exercised due to force majeure, the statute of limitations shall be suspended.

 

 

 

 

 

 

Adverse impact of the 2. new crown epidemic on the development of restructuring plans

 

 

The new coronavirus is highly contagious, and the gathering or movement of people increases the likelihood of virus transmission. In order to prevent the epidemic from continuing to spread and achieve "external import prevention and internal proliferation prevention", various localities have adopted epidemic prevention and control measures such as suspension of production and business, traffic control, community closure, and personnel isolation. Although the control measures have been gradually adjusted to allow some enterprises to resume work and production, relax restrictions on the movement of people, restore highway access, etc., but as of the date of the formation of this article, there are still many restrictions on the entry of people and vehicles from foreign cities. The severe epidemic situation has led to a prolonged stagnation of most business activities, with accommodation and catering, wholesale and retail, leasing business services, culture, sports and entertainment, manufacturing, and construction all being impacted to varying degrees.

 

A number of bankrupt enterprises producing epidemic prevention substances resumed production and operation with the permission of the court, and the value of these enterprises was fully activated, thus facilitating operation and recruiting investors. However, for most bankrupt enterprises in other industries, the epidemic situation and control measures have led to a low rate of resumption of work and more difficult production and operation. In addition, managers and auditing and evaluation institutions in foreign cities cannot normally carry out on-site performance of duties, and it is difficult for intended investors to investigate assets and operating conditions at the project site. Changes in economic conditions and the impact of the epidemic on the entire industry have also increased the difficulty of recruiting investors. The outbreak has caused a substantial obstacle to the development of a draft reorganization plan for some restructuring enterprises.

Picture

 

Regulation of the time limit for submitting a draft reorganization plan in 3. with the Enterprise Bankruptcy Law

 

 

 

 

According to Article 79 of the the People's Republic of China Enterprise Bankruptcy Law (hereinafter referred to as the Enterprise Bankruptcy Law), the debtor or the administrator shall submit a draft reorganization plan to the people's court and the creditors' meeting within six months from the date on which the people's court decides the debtor to reorganize. At the expiration of the time limit specified in the preceding paragraph, the people's court may, at the request of the debtor or the administrator, order an extension of three months if there are justifiable reasons. If the debtor or the administrator fails to submit a draft reorganization plan on time, the people's court shall rule to terminate the reorganization proceedings and declare the debtor bankrupt.

 

In accordance with the above provisions, the general period for submission of a reorganization plan is six months, with the opportunity for a three-month extension and only one extension, if justified. If the draft reorganization plan cannot be submitted within the aforementioned 6 3 time limit, the court shall rule to terminate the reorganization proceedings and declare the debtor bankrupt.

 

 

 

The legislative intent of Article 79 of the Enterprise Bankruptcy Law is to improve the efficiency of reorganization and to prevent the prolonged delay of reorganization proceedings from harming the interests of creditors and consuming the value of enterprise reorganization. However, for some reorganization cases with complex legal relations or difficulties in recruiting investors, even if a nine-month period is given, it is more difficult. Therefore, we have seen that many reorganization cases have made draft reorganization plans without investors. Virtual investors and the amount of debt repayment funds have led to great uncertainty in the implementation of the debt settlement plan and the debtor's business plan. On the contrary, it harms the interests of debtors and creditors. To this end, both academic and practical circles have suggested that the provision be amended. Some of them proposed that the above-mentioned 9-month period is not a constant period. After the creditors' meeting votes or reports to the Provincial Higher People's Court for approval, the period can be extended multiple times. It is recommended that the cumulative period for submitting the draft reorganization plan should not exceed 18 months. The author holds different opinions on the above views. The main reason is that the deadline for submitting a draft reorganization plan is a statutory deadline and cannot be extended based on the results of the creditors' meeting. In the absence of a law specifying the voting ratio and affecting the significant interests of creditors, only the consent of all creditors can be called the consent of creditors, otherwise the legal interests of a few opponents cannot be protected.

 

The author also suggests amending Article 79 of the Enterprise Bankruptcy Law to add another reason and a stricter extension period for approval in addition to the three-month extension. However, until the provisions of this article are modified, they shall continue to be complied.

 

Based on the adverse impact of the epidemic on the formulation of the draft reorganization plan, Beijing Bankruptcy Court, Guangzhou Bankruptcy Court, Shandong Higher People's Court, Jiangsu Higher People's Court and Shenzhen Bankruptcy Court have successively issued guidance on bankruptcy trials during the epidemic prevention and control period, proposing that the recruitment of restructuring investors and the formulation of the draft reorganization plan cannot be completed within the original deadline due to the impact of the epidemic, the period of reorganization/the period of reorganization/the time limit for submitting a draft reorganization plan may be extended as appropriate (this has been expressed differently by the courts).

 

According to a report by the People's Court on February 21, 2020, Beijing Chaoyang Court held that the new crown epidemic constituted force majeure, which prevented the reorganization of important basic matters from being carried out, and that the administrator's application for extension of the draft reorganization plan that could not be submitted on schedule was justified, ruling that the deadline for submitting the draft reorganization plan of Luowa Daily Chemical Company, an enterprise that produces anti-epidemic substances, was extended until the new crown epidemic was effectively controlled.

 

The author thinks that Chaoyang Court's extension ruling is questionable: first, if the actual extension period exceeds three months, it does not conform to the provisions of Article 79 of the Enterprise Bankruptcy Law; Secondly, it is difficult to define the deadline for submitting the reorganization plan, that is, "when the new crown epidemic is effectively controlled"; Thirdly, the court regards the new crown epidemic as a force majeure that prevents the basic matters of reorganization from being carried out, it was also ruled that the time limit should be extended until the new crown epidemic was effectively controlled, that is, the draft reorganization plan should be submitted before the epidemic was effectively controlled, and there was a clear contradiction between the reasons for the decision and the results, and the extension of the time limit failed to compensate for the delay in the epidemic.

 

Looking back at the SARS epidemic, it lasted for seven months from the outbreak in December 2002 to the end of July 2003. Although our prevention and control capabilities and medical care have been greatly improved from 17 years ago, after all, the new coronavirus is more contagious than SARS, and the number of confirmed cases has far exceeded SARS, so there is no sign of the end or disappearance of the epidemic in the short term. If a draft reorganization plan cannot be submitted after a three-month delay due to the epidemic, the court shall, in accordance with article 79 of the Enterprise Bankruptcy Law, rule to terminate the reorganization proceedings and declare the debtor bankrupt. At that time, enterprises that could have been reborn through judicial reorganization will be dragged into bankruptcy liquidation by this sudden epidemic disaster, which is not conducive to safeguarding the rights and interests of creditors, debtors, employees and other interested parties.

 

 

The 4.'s draft plan for the reorganization of the impact of the epidemic is formulated as a relief channel for the people.

 

 

 

 

For the delay period due to reasons not attributable to the parties, in Japan and Taiwan, to restore the original state to make up for the delay period. Among them, Article 97, paragraph 1, of the Japanese Civil Procedure Law stipulates: "When a party is unable to abide by the unchanged period due to a cause that is not attributable to itself, it may declare a return to the original state within one week after the cause is eliminated." Article 164, paragraph 1, of the Civil Procedure Law of the Taiwan region of my country stipulates: "If the party or agent delays the same period due to natural disasters or other reasons that should not be attributed to him, within ten days after the cause is eliminated, Please reply to the original state."

 

Due to inimputable and irresistible reasons, it is impossible to perform obligations or exercise rights within the statutory period, or to hinder the normal progress of established procedures. The remedies in my country's Civil Procedure Law include extension of time limit, suspension of litigation, suspension of execution, etc. And the suspension of the statute of limitations stipulated in the General Principles of Civil Law.

 

 

According to Article 4 of the Enterprise Bankruptcy Law, the relevant provisions of the Civil Procedure Law shall apply to the proceedings for the trial of bankruptcy cases, which are not provided for in this Law. This general provision highlights the applicability of the trial procedure of bankruptcy cases to the rules of civil procedure, and the judicial and contentious matters involving the exercise of judicial and litigation rights in bankruptcy proceedings apply to the rules of civil procedure. Changes in the period of reorganization are matters of insolvency proceedings involving judicial power and are ruled or decided by the court. Where there are no provisions in the Enterprise Bankruptcy Law, the relevant provisions of the Civil Procedure Law shall apply. So which of the two remedies in the Code of Civil Procedure, extension and suspension, which are more appropriate for a reasonable extension of the time limit for submitting a draft reorganization plan during an outbreak?

(I) Analysis on the Applicability of Delay Period Provisions

 

Article 83 of the Civil procedure Law stipulates that if a party delays the time limit due to irresistible reasons or other justifiable reasons, he may apply for an extension of the time limit within 10 days after the obstacle is removed, and whether to grant it or not shall be decided by the people's court.

 

The above provisions are similar to the provisions of the Civil Procedure Law of Japan and Taiwan of China on restitution during the unchanged period, except that the above provisions apply to any type of statutory period.

 

According to the above discussion, the new crown epidemic is a force majeure, in line with the above provisions of the "cause", that is, "irresistible cause.

 

As for the applicant, the author believes that the application should be made by the subject responsible for formulating the draft reorganization plan, that is, if the debtor manages the property and business affairs on its own, the debtor is responsible for formulating the draft reorganization plan, and the debtor should apply for an extension of the time limit; if the administrator is responsible for managing the property and business affairs, the administrator should apply.

 

As for how to determine the date of "obstacle removal", the author believes that "obstacle" mainly refers to the factors that have a substantial impact on the reorganization work, such as the suspension of production and business of the reorganization enterprise or investors, and the existence of traffic control measures restricting the entry of people and vehicles in the area. There are differences in epidemic prevention and control measures and efforts across regions and industries, and the degree of impact on the restructuring effort varies. Therefore, the date of "obstacle removal" should be considered on a project-specific basis, taking into account the substantive obstacles to the development of a draft reorganization plan for the project, and the time of elimination of the obstacles can be identified as the date of elimination of the obstacles. For reorganization cases with multiple obstacles, the application period of ten days shall be calculated from the date when the last obstacle is eliminated.

 

It is important to note that the new crown epidemic does not have the consequences of delays in all reorganization cases, causing delays, and the extent and start and end times of delays vary for different projects in different regions. In order to ensure that the time limit for submitting the draft reorganization plan is extended within the necessary and reasonable limits, not only to eliminate the adverse impact of the new crown epidemic on the time limit, but also to prevent improper extension of the reorganization period, when the debtor or the administrator applies to the court for extension of the time limit for submitting the reorganization plan in accordance with the provisions of Article 83 of the Civil Procedure Law, he shall submit evidence on the fact that the new crown epidemic has caused the delay in submitting the draft reorganization plan and the delay. It is up to the court to review and decide whether to grant the debtor or the administrator's application for an extension of time.

 

(II) Analysis on the Application of Suspension System

 

Recently, the Supreme People's Court issued the "Notice on Conscientiously Implementing the Spirit of the Third Meeting of the Central Committee for Comprehensive Rule of Law and Effectively Doing a Good Job in Trial Execution during the Prevention and Control of Novel Coronavirus Infected Pneumonia Epidemic" (hereinafter referred to as the "Notice"). In terms of procedures, it emphasized that the cases that were postponed during the epidemic prevention and control period were postponed in principle, if the period of applying for litigation is postponed, the legitimate rights and interests of the parties shall be fully protected according to the actual situation.

 

As discussed earlier, the debtor or administrator may apply for an extension or postponement of the time limit for the submission of a draft reorganization plan, so can the stay regime apply to reorganization cases?

 

First of all, there is a law to apply the suspension system in reorganization cases.

 

Article 25 of the Provisions of the Supreme People's Court on Several Issues Concerning the Trial of Enterprise Bankruptcy Cases stipulates that after the people's court accepts an enterprise bankruptcy case, the debtor may apply to the people's court for reconciliation before the bankruptcy proceedings are concluded. In the course of the trial of a bankruptcy case, the people's court may, in accordance with the specific circumstances of the creditor and the debtor, propose a settlement proposal to both parties. If, before the people's court makes a ruling on the declaration of bankruptcy, the creditors' meeting reaches a settlement agreement with the debtor and is approved by the ruling of the people's court, the people's court shall issue a public announcement to suspend the bankruptcy proceedings. After the people's court has made a ruling on the declaration of bankruptcy, the creditors' meeting has reached a settlement agreement with the debtor and approved by the people's court, and the people's court shall decide to suspend the execution of the ruling on the declaration of bankruptcy and announce the suspension of the bankruptcy proceedings.

 

These are the provisions that directly apply the stay regime in insolvency proceedings. The previous discussion discusses that insolvency proceedings involving judicial power may be subject to civil proceedings. Thus, in addition to the suspension of insolvency proceedings by a settlement agreement between a creditor and a debtor, the provisions of the Civil Procedure Law on the suspension of proceedings may be invoked in other circumstances to decide to suspend reorganization proceedings or to suspend the time limit for the submission of a draft reorganization plan.

 

Article 150 of the "Civil Procedure Law" stipulates six statutory reasons for suspension of litigation. The first five are more in line with the procedures of individual cases, and the sixth "other circumstances in which litigation should be suspended" is the bottom line. The "other circumstances" covered in the law generally refer to the circumstances provided for in other laws and regulations. Article 13 of the "Emergency Response Law" stipulates that "if litigation, administrative reconsideration, and arbitration activities cannot be carried out normally due to emergency response measures, the relevant provisions on the suspension of the statute of limitations and the suspension of procedures shall apply, unless otherwise provided by law." The author believes that this provision belongs to "other circumstances in which litigation should be suspended" as stipulated in Article 150, Item 6 of the Civil Procedure Law ". The new crown outbreak is a public health emergency in an emergency. If the litigation activities cannot be carried out normally due to the adoption of epidemic prevention and control measures, the litigation may be suspended in accordance with Article 150, Item 6 of the Civil Procedure Law and Article 13 of the Emergency Response Law. If the suspension system applies in reorganization cases, the aforementioned legal provisions may be invoked in accordance with Article 4 of the Enterprise Bankruptcy Law.

 

Secondly, the reorganization case should be careful to rule the reorganization procedure suspended.

 

While the stay regime may be applied in reorganization cases, it should be applied with caution if it is ruled that the suspension of the entire reorganization proceeding would have significant implications for the following reasons:

 

1. Reorganization cases are different from ordinary litigation cases, involving the interests of the debtor, many employees and creditors and other interested parties, and the procedures are complex and cover a wide range of areas.

 

2. After the court ruled to suspend the reorganization proceedings, the administrator could not perform his duties normally, could not report his work to the court in accordance with the law or request the court to make a decision (e. g. ruling on meaningless claims, etc.), and could not carry out important work such as declaration and review of claims, liquidation and capital verification, creditors' meetings, and recruitment of investors in reorganization cases. Although the epidemic has hindered the progress of reorganization, the efficiency of reorganization requires that courts and administrators should actively change their working methods to carry out as many reorganization matters as possible, and if the court decides to suspend the reorganization proceedings, the work that could have been carried out normally cannot continue.

 

3. After the court decides to suspend the reorganization proceedings, the applicability of the system of cessation of interest, limitation of security rights, insolvency costs incurred during the reorganization period and the priority of common debts over ordinary claims will be disputed.

 

4. After the court ruled that the reorganization proceedings should be suspended, it is disputed whether the enterprise can continue to operate during the reorganization period and whether the debt arising from the continuation of business can still be considered a common benefit debt. And the reorganization of the enterprise in the continuous business ability, management team stability, equity structure stability and other aspects are generally questioned by the market, in an abnormal business state, the longer the reorganization, the more unfavorable to the enterprise.

 

Based on the above reasons, the author thinks that although there is a law to follow in the application of the suspension system in the reorganization procedure, it should be applied with caution because of the importance of the relationship. In cases where it is necessary, consideration may be given to suspending the time limit for the submission of a draft reorganization plan and, as far as possible, not suspending the entire reorganization proceedings.

 

Finally, reorganization cases in which the epidemic has led to a general standstill in the reorganization process may be ruled in accordance with the law to suspend the reorganization process.

 

The epidemic has led to a complete standstill in the reorganization work, such as the reorganization cases located in the hardest-hit areas of the epidemic, due to the implementation of high local control measures, enterprises have been suspended for a long time, all parties involved in the reorganization are isolated in their respective areas, the reorganization work can not be carried out, in which case, the court may rule in accordance with the law to suspend the reorganization process.

 

Conclusion

 

 

 

At a time when the dangers of SARS are about to be forgotten, the more contagious new coronavirus has put a pause on our lives and work. The outbreak has hampered progress in most reorganisation cases. How to extend the deadline for submitting the reorganization plan in accordance with the law without harming the interests of the relevant parties and reduce the adverse impact of the epidemic on the reorganization process is an urgent problem to be solved, and it is also a question that we need to think about how to deal with the impact of major emergencies on the reorganization period. Under the existing legal provisions, the provisions of extension, extension of time limit, suspension of submission of draft reorganization plan and suspension of reorganization procedures may be applied according to the circumstances of different cases and the degree of impact of the epidemic on specific cases. At the same time, in the process of application, the principle of reasonableness and necessity should be observed, fairness and efficiency should be balanced, and improper extension of the reorganization period should be prevented.