25 August 2021
On April 28, 2021, in order to resolutely implement the decision and deployment of the Party Central Committee, the Supreme People's Court will take effective measures to promote the fair and efficient trial of bankruptcy cases in accordance with the law, based on the judicial trial function, and help market entities to treat and clear, and serve the high-quality development of the economy. Build a market-oriented, legalized, and international business environment, and publicly release representative bankruptcy cases. These cases reflect the effectiveness of my country’s bankruptcy system in the following four aspects: (1) Promote the realization of optimized resource allocation and focus on maintaining the ability of the company to continue operations; (2) Fully protect the creditors’ decision-making power in the disposal of major assets, and improve creditors’ procedures Participation; (3) Fully respect the opinions of creditors and guarantee the creditors' right to recommend and replace the administrator; (4) Apply the new voting mechanism for the draft reorganization plan, and creditors whose rights and interests have not been adjusted or affected do not participate in the voting. The following is only a summary of the specific content of Case 1 "Chongqing Huayuan Natural Gas Co., Ltd. Bankruptcy and Reorganization Case":
Brief introduction of the case: Chongqing Huayuan Natural Gas Co., Ltd. (hereinafter referred to as Huayuan Company) has a registered capital of 20.1 million yuan and 163 employees. It is an important natural gas supplier in Dazu District, Chongqing. Huayuan Company applied to the People's Court of Dazu District, Chongqing City for reorganization due to serious insolvency. On November 28, 2016, the court ruled to accept the reorganization case of Huayuan Company. According to the draft reorganization plan, Huayuan Company will establish a new company with all its operating assets and other high-quality assets related to the natural gas business, and the remaining assets will still belong to Huayuan Company. The reorganization investor Shandong Shengli Co., Ltd. (hereinafter referred to as Shengli Company) invested in the acquisition of all the shares of the new company and took over the existing employees and natural gas business in its entirety. Shengli Company paid 663.8 million yuan for equity transfer in installments, specifically used to pay off the bankruptcy claims of Huayuan Company. On September 27, 2017, the second creditors meeting of Huayuan Company was held, and each voting group passed the draft reorganization plan. On November 20, 2017, the court ruled to approve the reorganization plan. During the implementation of the reorganization plan, the newly established company, Chongqing Shengbang Gas Co., Ltd., has continued to improve and has achieved a cumulative profit of approximately 180 million yuan.
Judgment summary and typical significance: This case is a typical case of using the sale-type reorganization method to maintain the overall operating value of the enterprise, rescue the distressed enterprise, and protect the legitimate rights and interests of all parties.
The essence of reorganization is to save the debtor’s economic and social value and to achieve optimal allocation of resources. Sale-type reorganization transfers the debtor’s vigorous operating assets to others, so that the operating assets can survive and develop in the new enterprise, and the repayment of creditors with the transfer proceeds is an important form of reorganization. In this case, the valuable operating assets of the debtor’s enterprise will be preserved through the overall sale, avoiding being improperly divided and sold.
In this case, the investor was willing to take over the high-quality assets of Huayuan Company, but he was unwilling to accept such creditor's rights in consideration of the uncertainty of external debt receivables. Accordingly, the court actively practiced the sale-style reorganization, divesting assets with overall operating value to establish a new company. The strategic investor obtains the equity of the new company after paying the equity transfer payment, and the equity transfer payment is used to pay off the debtor's debts. This not only ensures the maximum operating value of the debtor’s assets, but also effectively protects the legal rights and interests of the creditor.
For further information, please contact:
Wu Di, Lee Tsai & Partners
lawtec@leetsai.com
