Provisions on Several Issues Concerning the Application of the «PRC Enterprise Bankruptcy Law» (1)

(Promulgated by the Supreme People's Court on September 9 2011 and effective as of September 26 2011.)

Judicial Interpretation [2011] No.22

With a view to correctly applying the PRC Enterprise Bankruptcy Law and taking trial practice into consideration, the following provisions are made in respect of the issue of the application of the law in enterprise bankruptcy cases accepted by people's courts in accordance with the law.

Article 1: If a debtor is unable to discharge a debt that is due and payable and either of the following circumstances applies, the people's court shall find that a reason for bankruptcy has been satisfied:

(1) its assets are insufficient to discharge all of its debts; or

(2) it is clearly insolvent.

If a relevant party asserts that the debtor does not satisfy the reasons for bankruptcy on the grounds that a party that bears joint and several liability for the debtor's debt is not insolvent, the people's court shall dismiss such claim.

Article 2: If all of the following circumstances hold simultaneously, the people's court shall find that the debtor is unable to discharge its debt that is due and payable:

(1) a claim-debt relationship has been established in accordance with the law;

(2) the term for performance of the debt obligation has expired; and

(3) the debtor has not fully discharged its debt.

Article 3: If a debtor's balance sheet, or audit report, asset appraisal report, etc. shows that all of its assets are insufficient to repay all of its liabilities, the people's court shall find that the debtor's assets are insufficient to discharge all of its debts, unless there is counter-evidence sufficient to show that the debtor's assets can repay all of its liabilities.

Article 4: If the book value of a debtor's assets is greater than its liabilities but any of the following circumstances applies, the people's court shall find that it clearly is insolvent:

(1) it is unable to discharge its debts because of a serious deficiency of funds, its assets cannot be converted into cash or other such reason;

(2) it is unable to discharge its debts because the whereabouts of its legal representative are unknown and there are no other persons responsible for managing the property;

(3) following enforcement by a people's court it is unable to discharge its debts;

(4) it is unable to discharge its debts because it has been operating at a loss for an extended period of time and turning around the operation would be difficult; or

(5) another circumstance that has caused the debtor to become insolvent applies.

Article 5: If an enterprise with legal personality has been dissolved but not yet liquidated or if liquidation has not been completed within a reasonable period of time and a creditor applies to have the debtor declared bankrupt and liquidated, the people's court shall accept the application unless the debtor presents, during the statutory objection period, evidence that no reason for declaring it bankrupt has arisen.

Article 6: A creditor that applies to have a debtor declared bankrupt shall provide evidence to the effect that the debtor is unable to discharge its due and payable debts. If the debtor does not lodge an objection to the creditor's application with the people's court during the statutory period or its objection is not sustained, the people's court shall rule, in accordance with the law, to accept the bankruptcy application.

Once it has accepted the bankruptcy application, the people's court shall order the debtor to submit in accordance with the law an account of the status of its property, detailed list of its debts, detailed list of its claims, financial accounting reports and other such relevant materials. If the debtor refuses to submit the same, the people's court may take enforcement measures such as the imposition of a fine on the person directly in charge of the debtor.

Article 7: When a people's court receives a bankruptcy application, it shall issue the applicant a written document to the effect that it has received the application and the accompanying evidence.

Once a people's court receives a bankruptcy application it shall conduct a review of the applicant's qualifications, the debtor's qualifications and reason for bankruptcy as well as relevant materials and evidence in a timely manner, and render its ruling on whether to accept the application in accordance with Article 10 of the Enterprise Bankruptcy Law.

If the people's court deems it necessary for the applicant to supplement or correct relevant materials, it shall inform the applicant within five days from the date of receipt of the bankruptcy application. The period required for the party to supplement and/or correct the relevant materials shall not be counted as part of the period specified in Article 10 of the Enterprise Bankruptcy Law.

Article 8: The court costs for a bankruptcy case shall be allocated from the debtor's property in accordance with Article 43 of the Enterprise Bankruptcy Law. If a relevant party objects to the bankruptcy application on the grounds that the applicant failed to pay the court costs in advance, the people's court shall dismiss such objection.

Article 9: If an applicant submits a bankruptcy application to a people's court and the people's court does not accept such application or fails to proceed in accordance with Article 7 hereof, the applicant may submit its bankruptcy application to the people's court at the next higher level.

Once the people's court at the next higher level receives the bankruptcy application, it shall order the lower level court to conduct a review in accordance with the law and render a ruling as to whether it accepts the application in a timely manner. If the lower level court still fails to render a ruling as to whether it accepts the application, the higher level people's court may directly render a ruling.

If the higher level people's court renders a ruling accepting the bankruptcy application, it may additionally order the lower level people's court to try the case.