Provisions on Several Issues Concerning the Application of the «PRC Enterprise Bankruptcy Law»(2)

Article 2: The following property may not be found to be property of a debtor:

(1) another's property in the possession of, or used by, the debtor by virtue of a storage, custody, work, agency sale, borrowing, deposit, lease or other such contract or other legal relationship;

(2) property in a retained ownership transaction the ownership of which the debtor has yet to secure;

(3) property exclusively owned by the state and that may not be transferred; and

(4) other property that is deemed not to belong to the debtor in accordance with laws and administrative regulations.

Article 3: Specific property over which the debtor has created a security interest in accordance with the law shall be found by the people's court to be property of the debtor.

The portion of the specific property of the debtor remaining after the security rights have been extinguished or realised may be used in the bankruptcy procedure to discharge bankruptcy expenses, debts of common interest and other bankruptcy claims.

Article 4: The relevant share of co-owned property in which the debtor shares proportional ownership, the corresponding property rights in co-owned property in which ownership is jointly shared by the debtor and the portion derived by the debtor from the division of co-owned property in accordance with the law shall be found by the people's court to be property of the debtor.

The declaration by a people's court of the bankruptcy and liquidation of a debtor shall constitute a statutory reason for the division of co-owned property. If the people's court renders a ruling for the reorganisation of the debtor or a settlement, the division of co-owned property shall be carried out in accordance with Article 99 of the Property Law; where co-owned property must be divided for the purposes of the reorganisation or settlement, and the administrator requests such division, the people's court shall permit the same.

If another co-owner requests the discharge of a debt arising from the losses incurred by him/her/it as a result of the division of the co-owned property as a debt of common interest, the people's court shall uphold such request.

Article 5: If, after acceptance of the bankruptcy petition, the procedure for enforcement against the property of the debtor is not suspended in accordance with Article 19 of the Enterprise Bankruptcy Law, the entity that took the enforcement measures shall correct the same in accordance with the law. The people's court shall find property returned from enforcement in accordance with the law to be property of the debtor.

Article 6: After acceptance of the bankruptcy petition, the people's court that did so may, pursuant to the application of the administrator or ex officio, take preservation measures against all or part of the debtor's property if the lawful conduct of the bankruptcy procedure could be affected by an act of a relevant stakeholder or other reason.

Article 7: The relevant entity that has taken preservation measures against the property of the debtor shall, in a timely manner, lift such measures in accordance with Article 19 of the Enterprise Bankruptcy Law once it becomes aware that the people's court has ruled to accept the bankruptcy petition relating to the debtor.

Article 8: If the people's court rules to dismiss the bankruptcy petition after it accepted the same but before it declares the bankruptcy, or rules to conclude the bankruptcy procedure pursuant to Article 108 of the Enterprise Bankruptcy Law, it shall, in a timely manner, notify the entity that had originally taken preservation measures and lifted the same in accordance with the law to restore the relevant preservation measures based on its original preservation ranking.

Until the entity that lifted the preservation measures in accordance with the law restores the same or indicates that it will not do so, the people's court that accepted the bankruptcy petition may not lift the preservation measures on the property of the debtor.

Article 9: If the administrator institutes a legal action pursuant to Article 31 or 32 of the Enterprise Bankruptcy Law, requesting the revocation of a relevant action involving the property of the debtor and return of the property of the debtor by the counterparty, the people's court shall uphold such request.

If the failure by the administrator, through his/her own fault, to exercise the right of revocation in accordance with the law results in the inordinate impairment of the property of the debtor and a creditor institutes a legal action requesting that the administrator bear the attendant liability for compensation in respect of his/her/its losses, the people's court shall uphold such request.

Article 10: Where a debtor passes from an administrative liquidation procedure to a bankruptcy procedure, the starting point for the revocable actions specified in Articles 31 and 32 of the Enterprise Bankruptcy Law shall be the date on which the administrative or regulatory department rendered its revocation decision.

Where a debtor passes from a compulsory liquidation procedure to a bankruptcy procedure, the starting point for the revocable actions specified in Articles 31 and 32 of the Enterprise Bankruptcy Law shall be the date on which the people's court ruled to accept the petition for compulsory liquidation.

Article 11: When a people's court rescinds a transaction involving the property of the debtor carried out at a markedly unreasonable price pursuant to a request by the administrator, the parties to the transaction shall return in accordance with the law the property or price obtained from the other party.

If the acquirer requests discharge, as a debt of common interest, of the debt incurred as a result of the price paid by him/her/it and refundable by the debtor due to the rescission of the transaction, the people's court shall uphold such request.

Article 12: Where the debtor has prepaid during the year before the acceptance of the bankruptcy petition a debt not yet due and such debt falls due before acceptance of the bankruptcy petition and the administrator requests revocation of such debt repayment, the people's court shall deny such request, unless the debt repayment occurred within six months before acceptance of the bankruptcy petition and the circumstance specified in the first paragraph of Article 2 of the Enterprise Bankruptcy Law applies to the debtor.

Article 13: If, after acceptance of the bankruptcy petition, the administrator fails to request revocation of a transfer of property without consideration, a transaction carried out at a markedly unreasonable price or a renouncement of a claim pursuant to Article 31 of the Enterprise Bankruptcy Law and a creditor institutes a legal action pursuant to Article 74, etc. of the Contract Law, requesting revocation of the aforementioned action by the debtor and inclusion of the property recovered as a result thereof in the property of the debtor, the people's court shall accept such case.

If a counterparty argues in his/her/its defence that the scope of exercise by the creditor of his/her/its right of revocation exceeds his/her/its claim, the people's court shall reject such argument.

Article 14: If the administrator requests, pursuant to Article 32 of the Enterprise Bankruptcy Law, the revocation of individual discharges by the debtor of debts secured by his/her/its own property, the people's court shall deny such request unless, at the time of the discharge of the debts, the value of the property used as security was less than the amount of the claims.

Article 15: If the administrator requests, pursuant to Article 32 of the Enterprise Bankruptcy Law, the revocation of individual discharges by the debtor of debts to creditors made as the result of legal actions, arbitration or enforcement procedures, the people's court shall deny such request unless the debtor and creditors maliciously colluded to harm the interests of other creditors.

Article 16: If the administrator requests, pursuant to Article 32 of the Enterprise Bankruptcy Law, the revocation of the following individual discharges by the debtor of debts to creditors, the people's court shall deny such request:

(1) the payment of water charges, electricity charges, etc. by the debtor in order to meet his/her/its basic production requirements;

(2) the payment of labor remuneration or compensation for personal injury by the debtor; or

(3) other individual discharges of debts that are of benefit to the property of the debtor.

Article 17: If the administrator institutes a legal action pursuant to Article 33 of the Enterprise Bankruptcy Law requesting that the actual possessor of property that was concealed or diverted return the property of the debtor or requesting that the act of fabrication of a debt or the acknowledgement of a fraudulent debt by the debtor is invalid and return of the property of the debtor, the people's court shall uphold such request.

Article 18: If the administrator institutes a legal action on behalf of the debtor pursuant to Article 128 of the Enterprise Bankruptcy Law on the grounds that the property of the debtor incurred a loss due to deliberateness or gross negligence in the relevant action involving the property of the debtor by the legal representative or other directly responsible person of the debtor and requests that the aforementioned responsible person bear the attendant liability for compensation, the people's court shall uphold such request.

Article 19: The limitation of actions in respect of the debtor's claims on others shall be tolled from the date of acceptance of the bankruptcy petition by the people's court.

If the debtor fails, without a legitimate reason, to promptly exercise his/her/its rights in respect of claims that have fallen due, resulting in his/her/its claims against others exceeding the limitation of action during the year before acceptance of the bankruptcy petition, the limitation of actions for the aforementioned claims shall commence to count anew from the date of acceptance of the bankruptcy petition by the people's court.

Article 20: If the administrator institutes a legal action on behalf of the debtor requesting that the investor pay in in accordance with the law his/her/its outstanding capital contribution or repay the principal of, and interest on, the capital contribution that he/she/it illegally withdrew and the investor argues in his/her/its defence that the deadline specified in the company's articles of association for payment of his/her/its subscribed for capital contribution has not expired or that the limitation of actions for the breach of his/her/its capital contribution obligation has expired, the people's court shall reject such argument.

If the administrator institutes a legal action on behalf of the debtor pursuant to relevant provisions of the Company Law requesting that the promoter of the company or the directors and/or senior management personnel bearing the obligation to monitor the performance by the shareholders of their capital contribution obligations or that the other shareholders, directors, senior management personnel, de facto controller, etc. that assisted in illegally withdrawing the capital contribution bear the attendant liability in respect of the shareholder breaching his/her/its capital contribution obligation or illegally withdrawing his/her/its capital contribution and return the property to the property of the debtor, the people's court shall uphold such request.

Article 21: If a creditor institutes any of the legal actions set forth below in respect of the property of the debtor before the acceptance of the bankruptcy petition and trial of the case has not been concluded at the time of acceptance of the bankruptcy petition, the people's court shall adjourn the trial:

(1) requesting that a subordinate debtor directly repay the debt to him/her/it in the stead of the debtor;

(2) requesting that the investor or promoter of the debtor, or the directors and/or senior management personnel bearing the obligation to monitor the performance by the shareholders of their capital contribution obligations or that the other shareholders, directors, senior management personnel, de facto controller, etc. that assisted in illegally withdrawing the capital contribution directly bear to him/her/it liability for the unpaid capital contributions or the illegal withdrawal of the capital contribution;

(3) requesting that the/a shareholder of the debtor directly repay to him/her/it the debt owed to him/her/it by the debtor on the grounds of the severe mixing up of the legal personality of the shareholder with that of the debtor; or

(4) instituting other individual discharge legal actions in respect of the property of the debtor.

Once the debtor is declared bankrupt, the people's court shall render a judgment dismissing the creditor's litigation claims pursuant to Article 44 of the Enterprise Bankruptcy Law, unless the creditor changes his/her/its claim at first instance to inclusion of the relevant property requested for recovery in the property of the debtor.

If, before the debtor is declared bankrupt, the people's court rules to dismiss the bankruptcy petition or conclude the bankruptcy procedure pursuant to Article 12 or 108 of the Enterprise Bankruptcy Law, trial of the aforementioned adjourned case shall resume in accordance with the law.

Article 22: If, before acceptance of the bankruptcy petition, a creditor institutes in a people's court any of the legal actions specified in the first paragraph of Article 21 hereof in respect of the property of the debtor and the people's court has already rendered a civil judgment or written mediation statement that has entered into effect but the enforcement of which has yet to be completed, the relevant enforcement action shall be suspended pursuant to Article 19 of the Enterprise Bankruptcy Law after the acceptance of the bankruptcy petition, and the creditor shall report the relevant claim to the administrator in accordance with the law.

Article 23: If, after acceptance of the bankruptcy petition, a creditor institutes in a people's court any of the legal actions specified in the first paragraph of Article 21 hereof in respect of the property of the debtor, the people's court shall not accept the same.

If creditors request, through the creditors' meeting or creditors' committee, that the administrator recover property of the debtor in accordance with the law from subordinate debtors, the investors of the debtor, etc. but the administrator refuses to do so without a legitimate reason and the creditors' meeting petitions the people's court for replacement of the administrator pursuant to Article 22 of the Enterprise Bankruptcy Law, the people's court shall uphold such petition.

If the administrator does not attempt to recover property and individual creditors institute a relevant legal action on behalf of all of the creditors requesting that subordinate debtors or the investors of the debtor, etc. discharge their debts toward the debtor or return property of the debtor, or petition in accordance with the law for their combined bankruptcy, the people's court shall accept such case.

Article 24: If the circumstance specified in the first paragraph of Article 2 of the Enterprise Bankruptcy Law applies to the debtor, the people's court shall find the income set forth below derived by the directors, supervisors and/or senior management personnel of the debtor by exploiting their functions and powers to be irregular income pursuant to Article 36 of the Enterprise Bankruptcy Law:

(1) performance bonuses;

(2) wage-type income obtained while payment of wages to the employees is generally outstanding; or

(3) other irregular income.

If a director, supervisor or member of the senior management personnel of the debtor refuses to return the aforementioned property of the debtor and the administrator requests that he/she do so, the people's court shall uphold such request.

The claim arising from the return by the directors, supervisors and/or senior management personnel of the debtor of the irregular income specified in Item (1) or Item (3) of the first paragraph may be discharged as an ordinary bankruptcy claim. A claim arising from the return of the irregular income specified in Item (2) of the first paragraph shall be discharged as the outstanding employee wages for the portion calculated according to the average wage of the enterprise's employees pursuant to the third paragraph of Article 113 of the Enterprise Bankruptcy Law; the portion calculated in excess of the average wage of the enterprise's employees may be discharged as an ordinary bankruptcy claim.

Article 25: If the administrator proposes to carry out a property disposal act that would have a material impact on the interests of creditors, such as discharging debts, or providing security to recover property that has been pledged or is under lien or negotiating with the pledgees or lien holders to sell off the property that has been pledged or is under lien to discharge debts, he/she shall report the same to the creditors' committee in a timely manner. In the absence of a creditors' committee, he/she shall report the foregoing to the people's court in a timely manner.

Article 26: If a rights holder wishes to exercise his/her/its right of recovery pursuant to Article 38 of the Enterprise Bankruptcy Law, he/she/it shall make the same known to the administrator before the plan for selling off the bankruptcy estate or the draft settlement agreement or reorganisation plan is submitted to the creditors' meeting for a vote. If the rights holder requests recovery of the relevant property after the aforementioned period, he/she/it shall bear the additional relevant expenses incurred as a result of the delayed exercise of his/her/its right of recovery.

Article 27: If a rights holder makes a request to the administrator to recover relevant property pursuant to Article 38 of the Enterprise Bankruptcy Law and the administrator denies such request, and the rights holder institutes a legal action in the people's court naming the debtor as defendant and requesting that he/she/it be permitted to exercise his/her/its right of recovery, the people's court shall accept such case.

If a rights holder makes a request to the administrator to recover the disputed property in question pursuant to the relevant effective legal document of a people's court or arbitration institution and the administrator refuses to allow him/her/it to exercise his/her/its right of recovery on the grounds that the effective legal document is erroneous, the people's court shall reject such refusal.

Article 28: If, at the time of exercising his/her/its right of recovery, the rights holder fails to pay to the administrator in accordance with the law relevant expenses, such as the processing fee, custody fee, consignment fee, commission fee and agency fee, and the administrator refuses to allow him/her/it to recover the relevant property, the people's court shall uphold such refusal.

Article 29: If, after the administrator, in a timely manner, sells off property that is difficult to keep, such as fresh and living things and perishables, or property that would be materially impaired if not sold off in a timely manner that is in the possession of the debtor but the title to which is unclear and deposits the proceeds, the relevant rights holder wishes to exercise his/her/its right of recovery in respect of the proceeds, the people's court shall uphold such exercise.

Article 30: If property of another in the possession of the debtor is illegally transferred to a third party and, pursuant to Article 106 of the Property Law, the third party has secured ownership of the property in good faith, making it impossible for the original rights holder to recover the property, the people's court shall handle the matter in accordance with the following provisions:

(1) if the transfer occurred prior to acceptance of the bankruptcy petition, the claim of the original rights holder arising from the property loss shall be discharged as an ordinary bankruptcy claim; or

(2) if the transfer occurred after acceptance of the bankruptcy petition, the debt arising due to the damage incurred by the original rights holder as a result of the performance of duties of the administrator or the relevant person shall be discharged as a debt of common interest.

Article 31: If property of another in the possession of the debtor is illegally transferred to a third party and the third party has paid the transfer price to the debtor, but, pursuant to Article 106 of the Property Law, has not secured ownership of the property, and the original rights holder recovers the transferred property in accordance with the law, the people's court shall handle the debt arising from the third party's payment of the consideration in accordance with the following provisions:

(1) if the transfer occurred prior to acceptance of the bankruptcy petition, discharged as an ordinary bankruptcy claim; or

(2) if the transfer occurred after acceptance of the bankruptcy petition, discharged as a debt of common interest.

Article 32: If another's property in the possession of the debtor is damaged, destroyed or lost and the insurance proceeds, indemnity or substitute obtained as result thereof has not been delivered to the debtor, or although the substitute has been delivered to the debtor it can be separated from the property of the debtor and the rights holder requests recovery of the insurance proceeds, indemnity or substitute so obtained, the people's court shall uphold such request.

If the insurance proceeds or indemnity have been paid to the debtor, or the substitute has been delivered to the debtor but cannot be separated from the property of the debtor, the people's court shall handle the matter in accordance with the following provisions:

(1) if the property was damaged, destroyed or lost before acceptance of the bankruptcy petition, the rights holder's claim arising from the loss of the property shall be discharged as an ordinary bankruptcy claim; or

(2) if the property was damaged, destroyed or lost after acceptance of the bankruptcy petition, the debt arising due to the damage incurred by the original rights holder as a result of the performance of duties of the administrator or the relevant person shall be discharged as a debt of common interest.

If the debtor has not received the corresponding insurance proceeds, indemnity or a substitute for the damage, destruction or loss of another's property in his/her/its possession, or the insurance proceeds, indemnity or substitute is insufficient to cover the portion lost, the people's court shall handle the matter in accordance with the second paragraph of this Article.

Article 33: If the administrator or other relevant person in the course of performing his/her duties wrongfully transfers another's property or causes damage, destruction or loss of another's property either out of a deliberate act or gross negligence, the debt arising from the damage caused the other shall be treated as a debt of common interest, and if discharge from the property of the debtor at any time is insufficient to cover the loss and the rights holder requests that the administrator or the relevant person bear liability for supplementary compensation, the people's court shall uphold such request.

If, after the aforementioned debt is discharged as a debt of common interest from the property of the debtor at any time, the creditor institutes a legal action on the grounds that the improper performance of duties by the administrator or a relevant person has resulted in a reduction of the property of the debtor, causing him/her/it to incur a loss, and requests that the administrator or relevant person bear the attendant liability for compensation, the people's court shall uphold such request.

Article 34: If the parties to a sale and purchase contract specify in the contract that ownership of the subject matter is retained and one of the parties goes bankrupt before ownership of the subject matter passes to the buyer in accordance with the law, and performance of the sale and purchase contract has not been completed by either party, the administrator shall have the right, pursuant to Article 18 of the Enterprise Bankruptcy Law, to decide to either terminate or continue performing the contract.

Article 35: If the seller goes bankrupt, and its administrator decides to continue performing the retained ownership sale and purchase contract, the buyer shall pay the price or perform other obligations in accordance with the original sale and purchase contract.

If the buyer fails to pay the price or complete his/her/its performance of other obligations as agreed, or sells, pledges or otherwise improperly disposes of the subject matter, causing damage to the seller, and the seller's administrator requests in accordance with the law recovery of the subject matter, the people's court shall uphold such request, unless the buyer has already paid at least 75% of the total price for the subject matter or a third party has secured ownership of, or other rights in rem in, the subject matter in good faith.

If the subject matter cannot be recovered as specified in the second paragraph of this Article, and the seller's administrator requests in accordance with the law that the buyer continue to pay the price or complete his/her/its performance of other obligations and bear the attendant liability for compensation, the people's court shall uphold such request.

Article 36: If the seller goes bankrupt and his/her/its administrator decides to terminate the retained ownership sale and purchase contract and, pursuant to Article 17 of the Enterprise Bankruptcy Law, requests that the buyer deliver to him/her/it the subject matter of the transaction, the people's court shall uphold such request.

If the buyer argues in his/her/its defence that he/she/it did not fail to pay the price or complete his/her/its performance of other obligations as agreed, or did not sell, pledge or otherwise improperly dispose of the subject matter, the people's court shall reject such argument.

After the buyer performs his/her/its contractual obligations in accordance with the law and delivers the subject matter of the transaction to the seller's administrator pursuant to the first paragraph of this Article, the buyer's claim arising from the loss incurred as a result of payment of the price shall be discharged as a debt of common interest. However, if the buyer breached the contract and the seller's administrator requests that the aforementioned claim be discharged as an ordinary bankruptcy claim, the people's court shall uphold such claim.

Article 37: If the buyer goes bankrupt and its administrator decides to continue to perform the retained ownership sale and purchase contract, the deadline specified in the original sale and purchase contract for the payment of the price or performance of other obligations by the buyer shall be deemed to have expired at the time of acceptance of the bankruptcy petition, and the buyer's administrator shall pay the price to the seller or perform the other obligations in a timely manner.

If the buyer's administrator fails to pay the price or complete his/her/its performance of the other obligations in a timely manner without a legitimate reason, or if the buyer's administrator sells, pledges or otherwise improperly disposes of the subject matter, causing damage to the seller, and the seller requests recovery of the subject matter pursuant to Article 134, etc. of the Contract Law, the people's court shall uphold such request, unless the buyer has already paid at least 75% of the total price for the subject matter or a third party has secured ownership of, or other rights in rem in, the subject matter in good faith.

If the subject matter cannot be recovered as specified in the second paragraph of this Article and the seller requests in accordance with the law that the buyer continue to pay the price or complete his/her/its performance of the other obligations and bear the attendant liability for compensation, the people's court shall uphold such request. If the seller requests that the debt arising from the damage incurred by him/her/it as a result of the failure by the buyer to pay the price or complete his/her/its performance of the other obligations, or the buyer's administrator selling, pledging or otherwise improperly disposing of the subject matter be discharged as a debt of common interest, the people's court shall uphold such request.

Article 38: If the buyer goes bankrupt and his/her/its administrator decides to terminate the retained ownership sale and purchase contract, and the seller requests recovery of the subject matter of the transaction pursuant to Article 38 of the Enterprise Bankruptcy Law, the people's court shall uphold such request.

If the buyer's administrator requests that the seller refund the price paid after he/she/it recovers the subject matter of the transaction, the people's court shall uphold such request. If the value of the recovered subject matter has markedly decreased, causing the seller to incur a loss, the seller may, after deducting the amount of such loss from the price paid by the buyer on a priority basis, refund the remainder to the buyer; if the seller requests that the claim arising from the loss incurred by him/her/it as a result of the price paid by the buyer being insufficient to cover the decrease in the value of the subject matter be discharged as a debt of common interest, the people's court shall uphold such request.

Article 39: If the seller, pursuant to Article 39 of the Enterprise Bankruptcy Law, asserts his/her/its right of recovery over a subject matter in transit by notifying the carrier or actual possessor to suspend transport, return the goods, change the destination or deliver the goods to another consignee, etc., but is unsuccessful, or if he/she/it has made a request to the administrator to recover the subject matter in transit before the goods reach the administrator, and after the subject matter of the transaction reaches the administrator, the seller makes a request to the administrator to recover the same, the administrator shall permit him to do so.

If the seller fails to exercise his/her/its right of recovery over the subject matter in transit in a timely manner and after the subject matter of the transaction reaches the administrator he/she/it makes a request to the administrator to exercise his/her/its right of recovery over the subject matter in transit, the administrator shall deny him/her/it permission.

Article 40: If a rights holder makes a request to recover his/her/its property that is lawfully in the possession of the debtor while the debtor is undergoing reorganisation and the same does not satisfy the conditions agreed in advance by the parties, the people's court shall deny such request, except where the thing to be recovered could be transferred, damaged, destroyed, lost or have its value markedly decrease as the result of a breach of the agreement by the administrator or by the debtor effecting administration himself/herself/itself.

Article 41: If a creditor wishes to exercise his/her/its right of setoff pursuant to Article 40 of the Enterprise Bankruptcy Law, he/she/it shall make a request to that effect to the administrator.

The administrator may not set off the respective debts between the debtor and a creditor at his/her own initiative, unless such setoff would be of benefit to the property of the debtor.

Article 42: Once the administrator receives the notice from the creditor proposing the setoff of debts, the setoff shall enter into effect on the date of receipt of the notice by the administrator if he/she does not object thereto following review.

If the administrator objects to the setoff proposal, he/she shall institute a legal action in the people's court during the agreed objection period or within three months from the date of receipt of the notice proposing the setoff of the debts. If he/she fails to institute the legal action by the deadline without a legitimate reason, the people's court shall deny his/her objection.

If the people's court renders a judgment dismissing the administrator's claim of the invalidity of the setoff, the setoff shall enter into effect on the date of receipt by the administrator of the notice proposing the setoff of the debts.

Article 43: If a creditor requests setoff and the administrator objects on any of the grounds set forth below, the people's court shall deny such request:

(1) at the time of acceptance of the bankruptcy petition, the debt owed to the creditor by the debtor had not fallen due;

(2) at the time of acceptance of the bankruptcy petition, the debt owed to the debtor by the creditor had not fallen due; or

(3) the types or quality of the subject matters of the respective debts are/is different.

Article 44: If, during the six months prior to acceptance of the bankruptcy petition, the circumstance set forth in the first paragraph of Article 2 of the Enterprise Bankruptcy Law applies to the debtor, and the debtor effects repayment to individual creditors by way of setoff with any of the circumstances specified in Item (2) or (3) of Article 40 of the Enterprise Bankruptcy Law applying to the claims/debts that are set off, and the administrator institutes a legal action in the people's court within three months from the date of acceptance of the bankruptcy petition claiming the setoffs are invalid, the people's court shall uphold such claim.

Article 45: If a creditor, to whom any of the circumstances set forth in Article 40 of the Enterprise Bankruptcy Law under which setoff may not be effected applies, proposes to set off a claim that gives him/her/it a priority right of repayment from specific property of the debtor against a claim that does not give the debtor a priority right of repayment from him/her/it and the debtor's administrator raises an objection on the grounds that a circumstance as set forth in Article 40 of the Enterprise Bankruptcy Law applies to the setoff, the people's court shall deny such objection, unless the claim used for setoff is greater than the value of the property from which the creditor has the priority right of repayment.

Article 46: If a shareholder of the debtor proposes to set off either of the debts set forth below against a debt owed him/her/it by the debtor and the debtor's administrator raises an objection thereto, the people's court shall uphold such objection:

(1) a debt owed by the shareholder of the debtor to the debtor arising from an outstanding capital contribution to the debtor or the illegal withdrawal of his/her/its capital contribution; or

(2) a debt owed to the debtor as a result of the shareholder of the debtor harming the company's interests by abusing his/her/its shareholder rights or affiliated transactions.

Article 47: The people's court that accepted the bankruptcy petition shall, in accordance with Article 21 of the Enterprise Bankruptcy Law, have jurisdiction over civil cases relating to the debtor instituted by concerned parties after acceptance of the bankruptcy petition by the people's court.

Pursuant to Article 38 of the Civil Procedure Law, the people's court at a higher level may take up a civil case in respect of the debtor over which the people's court that accepted the bankruptcy petition has jurisdiction at first instance, or, after approval by the people's court at a higher level, trial thereof may be delegated to a people's court at a lower level.

If the people's court that accepted the bankruptcy petition cannot exercise jurisdiction over a maritime dispute, patent dispute, civil compensation dispute arising due to a false statement to a securities market or other such case relating to the debtor, the people's court at a higher level may designate jurisdiction pursuant to Article 37 of the Civil Procedure Law.

Article 48: In the event of a conflict between these Provisions and a judicial interpretation on enterprise bankruptcy promulgated by this Court prior to the implementation hereof, such judicial interpretation shall cease to apply from the implementation date hereof.