Enterprise Bankruptcy Law of China Ⅶ

Chapter IX

Compromise

Article 95 A debtor may, according to the provisions of this Law, directly apply with the people's court for compromise; and he may do so after the people's court accepts the application for bankruptcy and before it declares the debtor bankrupt.

To apply for compromise, the debtor shall present the draft of a compromise agreement.

Article 96 Where upon examination, the people's court deems that the application for compromise conforms to the provisions of this Law, it shall rule on a compromise, announce it and hold a creditors' meeting at which to discuss the draft of a compromise agreement.

The creditor secured by the specific property of the debtor may exercise his right from the date when the people's court rules in favor of compromise.

Article 97 A resolution on a compromise agreement shall be adopted at the creditors' meeting with the consent of more than half of the creditors who are present at the meeting and who have the right to vote, represent two-thirds or more of the total amount of unsecured claims.

Article 98 Where a compromise agreement is adopted at the creditors' meeting, it shall be subject to decision by the people's court to confirm it and terminate the procedure for compromise, and the people's court shall announce the matter. The administrator shall hand over the property and business operations to the debtor and submit to the people's court a report on the performance of his duties.

Article 99 Where the draft of a compromise agreement is not adopted at the creditors' meeting, or the draft, though adopted at the meeting, is not confirmed by the people's court, the people's court shall decide to terminate the procedure for compromise and declare the debtor bankrupt.

Article 100 A compromise agreement that is confirmed by the people's court shall have a binding force on the debtor and all the creditors involved in the compromise.

A creditor involved in the compromise refers to a party that, at the time when the people's court accepts the application for bankruptcy, holds unsecured claims against the debtor.

Where a creditor involved in the compromise fails to declare his claims according to the provisions of this Law, he shall not exercise his right during the period when the compromise agreement is being honored. However, after the complete implementation of the compromise agreement, he may exercise his right according to the conditions for repayment as stipulated by the compromise agreement.

Article 101 The right enjoyed by the creditor in favor of the compromise against the debtor's guarantor and joint-and-several debtors shall not be affected by the compromise agreement.

Article 102 A debtor shall pay off his debts according to the conditions stipulated by the compromise agreement.

Article 103 With respect to a compromise agreement that is established through fraud or other illegal acts on the part of a debtor, the people's court shall decide to invalidate it and declare the debtor bankrupt.

Under the circumstances as specified in the preceding paragraph, the payment that a creditor involved in the compromise receives due to the honoring of the agreement shall not be returned, provided that it is in the same proportion as that received by the other creditors.@@page@@

Article 104 Where a debtor cannot or fails to honor a compromise agreement, the people's court shall, upon request by the creditor involved in the compromise, decide to terminate the honoring of the compromise agreement and declare the debtor bankrupt.

Where the people's court decides to terminate the honoring of a compromise agreement, the commitment on adjustment of the claims made by the creditor involved in the compromise shall be invalidated. However, the repayment received by the said creditor due to the honoring of the compromise agreement shall remain effective and the part of the claims involved in the compromise that has not been paid shall be the bankruptcy claims.

The creditor as specified in the preceding paragraph may continue to join the distribution, only when the payment received by the other creditors reaches the same proportion.

Under the circumstances as specified in the first paragraph of this Article, the guaranty provided for the honoring of a compromise agreement shall remain effective.

Article 105 When after the people's court accepts an application for bankruptcy, the debtor and all the creditors themselves conclude an agreement on settlement of the claims and debts, they may request the court to decide to confirm the agreement and terminate the procedure for bankruptcy.

Article 106 With respect to the debts that are to be reduced or exempted according to a compromise agreement, the debtor shall cease to be liable for repayment from the time when the compromise agreement is completely honored.

Chapter X

Bankruptcy Liquidation

Section 1 Bankruptcy Declaration

Article 107 Where the people's court declares a debtor bankrupt according to the provisions of this Law, it shall, within five days from the date when the decision thereon is made, serve it on the debtor and the administrator and shall, within 10 days from the said date, notify the known creditors and announce the matter.

After a debtor is declared bankrupt, he is known as the bankrupt, his property is known as the bankruptcy property, and the claims established against the debtor at the time when the people's court accepts an application for bankruptcy is known as bankruptcy claims.

Article 108 Under one of the following circumstances prior to declaration of bankruptcy, the people's court shall decide to terminate the procedure for bankruptcy and announce it:

（1） where a third party provides a full amount of guaranty to, or repays all the debts due for, the debtor; or

（2） where the debtor has repaid all the debts due.

Article 109 A creditor secured by the specific property of the bankrupt shall enjoy the priority in being repaid with the specific property.

Article 110 Where when a creditor enjoying the priority as specified in the provisions of Article 109 of this Law exercises the priority to repayment but is not repaid in full, the un-repaid part shall be taken as common claims. The claims of a creditor that abandons the priority right to repayment shall be taken as common claims.@@page@@

Section 2 Realization and Distribution

Article 111 An administrator shall draw up a realization plan for bankruptcy property in time and submit it to the creditors' meeting for discussion.

The administrator shall, according to the realization plan for bankruptcy property that has been adopted at the creditors' meeting or that has been decided on by the people's court according to the provisions of the first paragraph of Article 65 of this Law, realize the bankruptcy property in a timely manner.

Article 112 Bankruptcy property shall be realized through auction, unless otherwise decided on by the creditors' meeting.

A bankrupt enterprise may be realized as a whole or partially. When an enterprise is being realized, the intangible assets and other property may be realized separately.

With respect to the property which shall not be auctioned or the transfer of which is restricted according to relevant State regulations, it shall be disposed of in a manner as prescribed by the State.

Article 113 The bankruptcy property shall, after the expenses for bankruptcy proceedings are defrayed and the debts incurred for the common good of creditors are repaid first, be liquidated according to the following order:

（1） the wages, subsidies for medical treatment, injuries and disability and the pensions for the disabled and the families of the deceased which the bankrupt owes, the basic old-age insurance premiums and the basic medical insurance premiums which he owes and fails to enter in the employees' personal accounts, and the compensations which should be paid to the employees as prescribed by relevant laws and administrative regulations;

（2） the social insurance premiums which the bankrupt fails to pay, other than the ones which are specified in the preceding subparagraph, and the taxes which the bankrupt fails to pay; and

（3） the common bankruptcy claims.

Where the bankruptcy property is not sufficient to satisfy the demands for repayment that are arranged in the same group, it shall be distributed on a pro rata basis.

The salaries of the directors, supervisors and senior managers of a bankrupt enterprise shall be calculated on the basis of the average wages of the employees of the enterprise.

Article 114 The bankruptcy property shall be distributed in cash, unless it is otherwise decided on by the creditors' meeting.

Article 115 An administrator shall formulate a plan for distribution of the bankruptcy property in time, and submit it to the creditors' meeting for discussion.

The following items shall clearly be started in a plan for distribution of the bankruptcy property:

（1） the titles or names and domiciles of the creditors that will share in the distribution of the bankruptcy property;

（2） the amount of the claims that will share in the distribution of the bankruptcy property;

（3） the amount of the bankruptcy property available for distribution;

（4） the order and proportion for, and the amount of the bankruptcy property subject to, distribution; and

（5） the method for distributing the bankruptcy property.

After the plan for distribution of the bankruptcy property is adopted at the creditors' meeting, it shall be submitted by the administrator to the people's court for confirmation.

Article 116 After a plan for distribution of bankruptcy property is confirmed by decision of the people's court, it shall be executed by the administrator.

Where the administrator has to distribute the bankruptcy property in installments according to the distribution plan, he shall announce the amount of the property and the claims involved in each installment. When the administrator distributes the property in the final installment, he shall make this clear in the announcement and clearly state the matters as specified in the second paragraph of Article 117 of this Law.

Article 117 With respect to a claim to which conditions on its validity or dismissal are attached, the administrator shall preserve the corresponding share of distribution in advance.

With respect to the share of distribution as preserved in advance by the administrator according to the provisions in the preceding paragraph, if, on the day of announcement of distribution in the final installment, conditions on the validity of a claim have not become effective or the conditions on the dismissal of a claim have been fulfilled, it shall be distributed to the other creditors; if on the day mentioned above, the conditions on the validity of a claim have become effective or the conditions on the dismissal of a claim have not been fulfilled, it shall be handed back to the creditors.

Article 118 The shares of the bankruptcy property for distribution that have not been collected by creditors shall be preserved by the administrator. Where a creditor fails to collect his share at the expiration of two months from the date of announcement of distribution in the final installment, he shall be deemed to abandon the right to the share, and the administrator or the people's court shall distribute the preserved share to the other creditors.

Article 119 With respect to a claim that involved in a legal action or pending arbitral decision at the time when the bankruptcy property are distributed, the administrator shall preserve the share involved in distribution in advance. Where a share of distribution remains uncollected at the expiration of two years from the date when the procedure for bankruptcy is terminated, the people's court shall distribute the preserved share to the other creditors.@@page@@

Section 3 Termination of the Procedure for Bankruptcy

Article 120 Where a bankrupt has no property available for distribution, the administrator shall request the people's court to decide to terminate the procedure for bankruptcy.

After completion of distribution in the final installment, the administrator shall submit a report on the distribution of the bankruptcy property to the people's court in a timely manner and request the people's court to decide to terminate the procedure for bankruptcy.

The people's court shall, within 15 days from the date when it receives the request of the administrator for terminating the procedure for bankruptcy, make a decision on whether to terminate the procedure. If it decides to terminate the procedure, it shall announce such decision.

Article 121 The administrator shall, within 10 days from the date when the procedure for bankruptcy is terminated and, on the strength of the decision made by the people's court on terminating the procedure for bankruptcy, go through the formalities for cancellation of registration with the authority that originally has the bankrupt registered.

Article 122 An administrator shall cease performing his duties on the day following his completion of the formalities for cancellation of registration, unless a legal action or arbitral decision is still pending.

Article 123 Within two years from the date when the procedures for bankruptcy are terminated according to the provisions of the fourth paragraph in Article 43 or of Article 120 of this Law, a creditor may request the people's court to make an additional distribution according to the plan for distribution of the bankruptcy property under one of the following circumstances:

（1） such property as should be recovered according to the provisions of Articles 31, 32, 33 or 36 of this Law are discovered; and

（2） it is discovered that the bankrupt still has other property available for distribution.

Under the circumstances as specified in the preceding paragraph, where the amount of the property is not sufficient for paying the expenses for distribution, no additional distribution shall be made and the said property shall be turned over by the people's court to the State Treasury.

Article 124 The guarantor and the joint-and-several debtors of the bankrupt shall, after termination of the procedure for bankruptcy and according to law, continue to bear the liabilities of payment of the claims that have not been paid according to the procedure for bankrupt liquidation.

Chapter XI

Legal Liability

Article 125 Where a director, supervisor or senior manager, going against his obligations, fails to be honest and hardworking, which leads to bankruptcy of the enterprise where he works, he shall bear civil liability according to law.

The person as specified in the preceding paragraph shall not serve as a director, supervisor or senior manager of any enterprise within three years from the date when the procedure for bankruptcy is terminated.

Article 126 Where, summoned by the people's court, a person who is related to a debtor and is obligated to attend the creditors' meeting as a non-voting participant refuses to attend the meeting without justifiable reasons, the people's court may force him to appear in court and impose on him a fine according to law. Where a person related to a debtor, in violation of the provisions of this Law, refuses to make representations or answer questions, or makes false representations or responds with false answers, the people's court may impose on him a fine according to law.

Article 127 Where a debtor, in violation of the provisions of this Law, refuses to submit to the people's court such data as statements on his financial position, a complete list of his debts, a complete list of his claims, relevant financial statements or payment of his employees' wages or social insurance premiums, or submits untruthful data to it, the people's court may, according to law, impose a fine on the person who is directly responsible.

Where a debtor, in violation of the provisions of this Law, refuses to hand over to the administrator his property, seals or such materials as account books and documents, or fabricates or destroys the evidentiary material concerning his property, thereby making his financial position unclear, the people's court may, according to law, impose a fine on the person who is directly responsible.

Article 128 Where a debtor commits an act as specified in Article 31, 32 or 33, thereby undermining the interests of his creditors, the legal representative of the debtor and the person who is directly responsible shall bear the liability for compensation according to law.

Article 129 Where a person related to a debtor, in violation of the provisions of this Law, leaves the place where he resides, the people's court may give him an admonition or take him into custody, and may concurrently impose a fine on him according to law.

Article 130 Where an administrator fails to perform his duties diligently and faithfully, as is required by the provisions of this Law, the people's court may impose on him a fine according to law; and where losses are caused to a creditor, a debtor or a third party, the administrator shall bear the liability for compensation according to law.

Article 131 Where a violation of the provisions of this Law constitutes a crime, the violator shall be investigated for criminal liability according to law.@@page@@

Chapter XII

Supplementary Provisions

Article 132 Where after this Law is put into effect, the wages, the subsidies for medical treatment, injuries and disability and the pensions for the disabled and the families of the deceased that the bankrupt owes to his employees, the basic old-age insurance premiums and the basic medical premiums that the bankrupt owes and fails to enter in the personal accounts of the employees and the compensations that should be paid to the employees as prescribed by relevant laws and administrative regulations——all prior to the date when this Law is promulgated and for which repayment is made according to the provisions of Article 113 of this Law but which are not fully paid, the specific property as prescribed in Article 109 of this Law shall be used to repay the rest before being used to repay the creditor secured by the specific property.

Article 133 Special matters involved in the bankruptcy to be effected among certain State-owned enterprises within the period and scope as are prescribed by the State Council before this Law is put into effect shall be handled according to the relevant regulations of the State Council.

Article 134 Where a commercial bank, securities company, insurance company or any other financial institution is under the circumstances as specified in Article 2 of this Law, the financial regulatory authority under the State Council may lodge an application with the people's court for reorganization or bankruptcy liquidation of the financial institution. Where the financial regulatory authority under the State Council adopts, according to law, such measures as take-over and trusteeship with respect to a financial institution that operates at grave risks, it may apply with the people's court for suspending the proceedings for civil action or execution, wherein the said financial institution is the defendant or the party against whom a judgment or order is being executed.

Where a financial institution goes into bankruptcy, the State Council may, according to the provisions of this Law and other laws, formulate the measures for effecting bankruptcy.

Article 135 The liquidation of the organizations other than the enterprise legal persons as prescribed by other laws, which falls within the category of bankruptcy liquidation, shall be governed, mutatis mutandis, by the procedure as prescribed by this Law.

Article 136 This Law shall go into effect as of June 1, 2007. The Law of the People's Republic of China on Enterprise Bankruptcy （for Trial Implementation） shall be annulled simultaneously.