Guiding Opinions on Several Issues Concerning the Lawful and Proper Trial of Civil Cases Involving the Novel Coronavirus Pneumonia Epidemic (2)

(Issued by the Supreme People's Court on May 15, 2020.)

Fa Fa [2020] No.17

For the purpose of further thoroughly implementing the work arrangements of the Central Committee of the Communist Party of China for promoting the prevention and control of the novel coronavirus pneumonia (COVID-19) epidemic and social and economic development in a planned manner, firmly and duly carrying out the "six stabilitizations" work and completing the "six protections" tasks, and guiding people's courts at every level in duly trying in accordance with the law civil cases involving contracts, financing, bankruptcy, etc. affected by the COVID-19 epidemic, we set forth the following guiding opinions.

I.     Trial of Contract Cases

1 . Where a party is unable to perform a sale and purchase contract by the specified deadline or the cost of performance has increased due to the epidemic or the measures taken to prevent and control the epidemic, continued performance would not affect achievement of the objectives of the contract and a party requests termination of the contract, the people's court shall reject such request.

If the epidemic or the measures taken to prevent and control the epidemic make(s) it impossible for the seller to complete the order or deliver the goods by the deadline agreed upon, continued performance would not permit achievement of the buyer's contract objectives and the buyer requests termination of the contract and refund of the advance payment or deposit paid, the people's court shall uphold such request; if the buyer requests that the seller bear liability for breach of contract, the people's court shall reject such request.

2 . Where a sale and purchase contract can continue to be performed, but the epidemic or the measures taken to prevent and control the epidemic has/have caused the performance costs, such as for manpower, raw materials or logistics, to markedly increase or the price of the products to markedly decrease, making continued performance clearly unfair for one of the parties, and the adversely affected party requests an adjustment of the price, the people's court shall adjust the price based on the principle of fairness and in light of the actual circumstances of the case.  If the epidemic or the measures taken to prevent and control the epidemic make(s) it impossible for the seller to deliver the goods by the deadline agreed upon or the buyer to effect payment by the agreed upon deadline and a party requests that the deadline for performance be revised, the people's court shall revise the deadline for performance based on the principle of fairness and in light of the actual circumstances of the case.

If a contract is revised by means such as an adjustment of the price or revision of the deadline for performance and a party requests that the other party bear liability for breach of contract, the people's court shall reject such request.

3 . If, after entering into a sale and purchase contract for epidemic prevention supplies with a buyer, the seller instead sells such supplies to a third party at a high price, making the contract unperformable, and the buyer requests that the profit derived by the seller serve as the measure of damages for its losses, the people's court shall uphold such request.  If a seller is unable to perform a sale and purchase contract due to lawful diversion or temporary requisitioning of epidemic prevention supplies by the government and the buyer requests that the seller bear liability for breach of contract, the people's court shall reject such request.

4 . If the epidemic or the measures taken to prevent and control the epidemic make(s) it impossible for a seller to deliver premises by the deadline specified in the contract for the sale and purchase of commercially developed premises or impossible for the buyer to pay the premises purchase amount by the agreed upon deadline, and a party requests termination of the contract and that liability for breach of contract be borne by the other party, the people's court shall reject such request. However, if a party requests revision of the deadline for performance, the people's court shall revise the same based on the principle of fairness and in light of the actual circumstances of the case.

5 . If leased premises are used for business operations and the epidemic or the measures taken to prevent and control the epidemic cause(s) the lessee to experience a liquidity crisis or a marked drop in operating revenue and the lessor requests termination of the lease contract and that the lessee bear liability for breach of contract on the grounds that the lessee failed to pay the rent at the agreed upon time, the people's court shall reject such request.

With respect to a contract for the lease of temporary premises booked for a special purpose, such as an exhibition, conference or temple fair, if the epidemic or the measures taken to prevent and control the epidemic cause(s) the cancellation of the activity in question and the lessee requests termination of the lease contract and refund of the advance payment or deposit, the people's court shall uphold such request.

6 . Where premises of a state-owned enterprise or premises of a government authority, institution of higher learning, research institute or other such administrative or public institutional entity is leased for business operations and the lessee, such as a micro or small enterprise in the service industry or individual/family proprietorship, that has encountered difficulties in its operations due to the impact of the epidemic or the measures taken to prevent and control the epidemic requests that the lessor exempt it from rent for a certain period of time in accordance with relevant state policies, the people's court shall uphold such request.

Where non-state-owned premises are leased for business operations, the epidemic or the measures taken to prevent and control the epidemic cause(s) the lessee to have no operating revenue or experience a marked drop in its operating revenue, such that continuing to pay rent in accordance with the existing lease contract would be clearly unfair to it, and the lessee requests a reduction or exemption of the rent, extension of the lease term or an extension to pay the rent, the people's court may advise the parties to submit to mediation with reference to the policies on the reduction and exemption of rent.  If the mediation proves unsuccessful, the people's court shall amend the contract based on the principle of fairness and in light of the actual circumstances of the case.

7 . If the epidemic or the measures taken to prevent and control the epidemic make(s) it impossible for a contractor to complete construction during the agreed upon construction period and the owner requests that the contractor bear liability for breach of contract, the people's court shall reject such request. If the contractor requests an extension of the construction period, the people's court shall, in view of the circumstances, uphold such request depending on the extent to which the epidemic or the measures taken to prevent and control the epidemic affect(s) performance of the contract.

If the epidemic or the measures taken to prevent and control the epidemic cause(s) manpower, construction material and other such costs to increase substantially or the contractor to suffer manpower expense, equipment leasing fee or other such losses, such that continued performance of the contract would be markedly unfair to it, and the contractor requests an adjustment of the price, the people's court shall adjust the price based on the principle of fairness and in light of the actual circumstances of the case.

8 . Where the parties have entered into an offline training contract but, due to the impact of the epidemic or the measures taken to prevent and control the epidemic, the offline training cannot be conducted, but the objectives of the contract can be achieved by means such as online training or revision of the training period and the party receiving the training requests termination, the people's court shall reject such request.  If a party requests that the contract continue to be performed by means such as online training, revision of the training period or adjustment of the training fees, the people's court shall amend the contract based on the principle of fairness and in light of the actual circumstances of the case.

If offline training cannot be conducted due to the impact of the epidemic or the measures taken to prevent and control the epidemic and the objectives of the contract cannot be achieved through online training or the actual circumstances of the case indicate that conduct of the training online is not feasible and the party receiving the training requests termination of the contract, the people's court shall uphold such request. If a revision of the training period under a time sensitive training contract would not permit achievement of the objectives of the contract and the party receiving the training requests termination of the contract, the people's court shall uphold such request.  Once the training contract is terminated, the training fee paid in advance shall be refunded in whole or in part depending on the number of hours of training that have been received, etc.

9 . Where a person with limited civil capacity pays out, without the consent of his/her guardian, an amount incompatible with his/her age or mental capacity in participating in a pay to play online game or a reward to an online streaming platform and the guardian requests that the online service provider refund the amount in question, the people's court shall uphold such request.

II.     Trial of Finance Cases

10 . With respect to industries that have been impacted relatively seriously by the epidemic or the measures taken to prevent and control the epidemic, and financial loan disputes in which enterprises that have satisfactory growth prospects but have encountered temporary setbacks due to the impact of the epidemic or the measures taken to prevent and control the epidemic, particularly micro, small and medium-sized enterprises, are involved, people's courts shall fully take into consideration the series of financial support policies, such as the Circular on Further Strengthening Financial Support for Preventing and Controlling the Novel Coronavirus Pneumonia Epidemic issued by the People's Bank of China and four other departments: with respect to litigation claims, such as the calling of loans and unilateral termination of contracts that violate financial support policies raised by financial institutions, people's courts shall reject such claims; with respect to interest, as well as disguised interest charged in the guise of other fees such as advisory fees and security fees by financial institutions, the excess portion shall be rejected in strict accordance with dedicated state preferential credit interest rate policies for relending, rediscounting, etc.; with respect to personal loan repayment disputes involving housing mortgages, credit cards, etc. of persons who are in hospital for treatment or in isolation due to having contracted COVID-19, persons who are required to be in isolation for observation due to epidemic prevention and control, persons involved in epidemic prevention and control work, as well as persons who have lost their source of income due to the impact of the epidemic or the measures taken to prevent and control the epidemic, the people's court shall revise the repayment period based on the principle of fairness and in light of the actual circumstances of the case.

11 . Where an enterprise producing and dealing in epidemic prevention supplies creates a floating charge over movable assets such as its production equipment, raw materials, semi-finished products and products, and the mortgagee applies for realization of its security rights in accordance with Article 196 of the PRC Civil Procedure Law, if the respondent or a materially interested party is able to show, after acceptance of the application by the people's court, that realization of the charge rights would jeopardize the enterprise's production and dealing in its epidemic prevention supplies, the handling of the matter may wait until the epidemic or epidemic prevention and control measure impact factors have been eliminated.

12 . Stock pledge and margin financing/securities lending disputes triggered by securities market price fluctuations during the epidemic prevention and control period shall be handled in light of the differing circumstances: with respect to an exchange-traded stock pledge or margin financing/securities lending dispute in which the creditor is a securities company, the people's court may, with reference to the relevant policies issued by the China Securities Regulatory Commission, guide the securities company in resolving the disputes with different customer segments through consultations based on the policies. Where the consultations prove unsuccessful, the people's court shall, in accordance with the law, uphold the litigation claims of the customers that demand that the securities company bear liability for compensation for the additional loss caused due to forced liquidation in violation of regulations. With respect to over-the-counter stock pledge disputes where the creditor is another financial institution, the people's court shall fully take into consideration the impact that realization of the stock pledge would have on the normal operations of the listed company, strengthen policy guidance and harmonization of the interests of the various parties, and endeavor to minimize the impact on the securities market.

13 . When a people's court tries a civil compensation case for tort arising due to misrepresentation by a listed company and is determining the amount of the investors' losses, it shall, in accordance with Item (4) of Article 19 of the Supreme People's Court, Several Provisions for Trial of Civil Damages Cases Arising from Misrepresentation in the Securities Market, distinguish the losses from the drop in stock prices arising due to epidemic or epidemic prevention and control measure impact factors and misrepresentation factors, and determine the scope of the compensation for the losses lawfully, fairly and reasonably.

14 . With respect to a dispute arising in connection with the performance of a "performance valuation adjustment mechanism" between a company materially affected by the epidemic or the measures taken to prevent and control the epidemic, such as one in wholesaling, retailing, accommodation, catering, logistics, transport, culture or tourism, or its shareholders or de facto controller, and its investor, the people's court shall fully take into consideration the actual circumstances of the impact of the epidemic or the measures taken to prevent and control the epidemic on the performance of the target company and guide both parties into holding consultations to amend or terminate the contract. If the parties fail to reach a consensus through the consultations and continued performance on the basis of the specified performance criteria or performance compensation amount would be clearly unfair to one of the parties, the people's court shall amend or terminate the contract based on the principle of fairness and in light of the actual circumstances of the case.  If it terminates the contract, it shall allocate the losses arising from the termination of the contract in a reasonable manner in accordance with the law.

If the "performance valuation adjustment mechanism" does not expressly specify that the company's small and medium shareholders bear joint and several liability with the controlling shareholder or de facto controller for the performance compensation, the people's court shall reject a claim from the investor demanding that the small and medium shareholders bear joint and several liability to it with the company and its controlling shareholder or de facto controller.

15 . When trying a medical insurance contract dispute case related to the epidemic or the measures taken to prevent and control the epidemic, a people's court shall reject a defense by the insurer that such illness does not fall within the major illness scope or major insurable accident as specified in a commercial medical insurance contract.  Where the insured who has contracted COVID-19 or the beneficiary requests pursuant to the insurance contract that the insurer cover the specified expenses incurred for treatment that was received at a medical service institution not specified in the insurance contract due to the epidemic or the measures taken to prevent and control the epidemic by the insured, the people's court shall uphold such request.  If the specified expenses incurred by the insured for treatment in a medical service institution not specified in the insurance contract received for another illness and such expenses were genuinely caused by an objective reason, such as the epidemic or the measures taken to prevent and control the epidemic, and the insured or beneficiary requests coverage thereof, the people's court shall uphold such request.  If the insured or beneficiary claims coverage pursuant to the terms of the medical insurance contract gifted by the insurance company during the period of epidemic prevention and control, the people's court shall uphold such claim.

16 . When trying a civil dispute case arising between a financial leasing company and a medical service institution over the financial leasing of medical equipment between them, the people's court shall reject a defense by the medical service institution claiming that the financial leasing contract is invalid on the grounds that the financial leasing company has not secured administrative permission to sell medical devices.

III.     Trial of Bankruptcy Cases

17 . Where an enterprise affected by the epidemic or the measures taken to prevent and control the epidemic is unable to discharge a due and payable debt and the creditor files a bankruptcy petition, the people's court shall actively guide the debtor and creditor in holding consultations to extinguish the reason for the bankruptcy filing by way of means such as payment in installments, extension of the term for performance of the debt obligations or revision of the contract amount, or guide the debtor in resolving its debt crisis through out-of-court mediation, out-of-court restructuring, pre-reorganization, etc., so as to rescue the enterprise as soon as possible.

18 . When examining whether an enterprise satisfies the conditions for bankruptcy acceptance, the people's court shall pay attention to examining whether the enterprise's difficulties are due to the epidemic or the measures taken to prevent and control the epidemic and treat it accordingly on the basis thereof.  With respect to an enterprise whose business position was satisfactory prior to the outbreak of the epidemic and has encountered business or liquidity problems due to the impact of the epidemic or the measures taken to prevent and control the epidemic and is unable to discharge a due and payable debt, its solvency shall be comprehensively assessed in light of factors such as its capacity to operate as a going concern and the development prospects of its industry so as to guard against rendering a ruling that sends an enterprise that fundamentally has the capacity to thrive into bankruptcy simply based on its cash flow and asset-to-liability situation at a specific point in time.  With respect to an enterprise that was already experiencing difficulties in its operations before the outbreak of the epidemic, whose production and operations have further deteriorated due to the epidemic or the measures taken to prevent and control the epidemic and indeed meets the conditions for bankruptcy, the bankruptcy petition shall be accepted in a timely manner in accordance with the law so as to realize survival of the fittest in the market and resource reallocation.

19 . The linkage of enforcement and bankruptcy procedures shall be further promoted.  If, in the course of an enforcement procedure, it is discovered that the judgment debtor satisfies the conditions for bankruptcy due to the impact of the epidemic but there is value in saving it, the creditors or the judgment debtor shall be guided to move the case into a bankruptcy review through means such as the judge's clarification, and the systems for the suspension of enforcement, release of preservation, suspension of interest and payment, etc. specified in the Enterprise Bankruptcy Law shall be reasonably employed to effectively preserve the enterprise's operating value so as to make room for the revival of the enterprise.  Additionally, the enterprise shall be actively guided in applying bankruptcy reorganization and the settlement procedure to comprehensively solve its debt crisis, repay all of its creditors in a fair and orderly manner, and realize the protection and rescue of the troubled enterprise.

A judicial auction procedure commenced before the enforcement court renders its transfer decision may continue to proceed after the rendering of such decision.  Where a deal is reached in the auction, the subject matter of the auction shall cease to form part of the debtor's property in the bankruptcy procedure, but the proceeds from the auction shall be allocated in accordance with the law based on the bankruptcy procedure.  If an asset appraisal report or audit report was produced during the enforcement procedure and the appraisal conclusion is still valid or the auditor's conclusions satisfy the requirements of the bankruptcy case, the same may continue to be used during the bankruptcy procedure.

20 . Where, in a bankruptcy reorganization procedure, the epidemic or the measures taken to prevent and control the epidemic make it impossible to punctually submit the draft reorganization plan due to reasons such as being unable to recruit investors, conduct due diligence or conduct negotiations, the people's court may, pursuant to an application by the debtor or administrator, reasonably determine based on the extent to which the reorganization work is actually impacted by the epidemic or the measures taken to prevent and control the epidemic, the period of time that shall not be counted toward the period specified in Article 79 of the Enterprise Bankruptcy Law, but the same may not, in general, exceed six months.

Where the reorganization plan or settlement agreement has entered the execution stage but execution by the debtor is impossible due to the impact of the epidemic or the measures taken to prevent and control the epidemic, the people's court shall actively guide the parties in conducting full consultations to amend the same.  Where consultations are held to amend the reorganization plan or settlement agreement, a vote shall be taken in accordance with Articles 19 and 20 of the Minutes of the National Court Conference on Bankruptcy Adjudication Work and submitted to the court for approval.  However, if only a revision of the period for execution is involved, the people's court may directly render a ruling pursuant to an application by the debtor or creditors, with the extension generally not to exceed six months.

21 . The subject rights and procedural rights of the creditors shall be duly ensured and the adverse impact of the epidemic or the measures taken to prevent and control the epidemic on the exercise by the creditors of their rights shall be minimized.  The period for the declaration of claims in a case affected by the epidemic or the measures taken to prevent and control the epidemic may be the maximum statutory period depending on the actual circumstances. A creditor that is genuinely unable to declare its claims or provide the relevant evidentiary materials on time due to the impact of the epidemic or the measures taken to prevent and control the epidemic shall supplement its declaration within 10 days after the elimination of the obstacle and the declarant shall be exempted from the charges for the examination and confirmation of the supplemented claims. If the organization of a hearing or holding of a creditors' meeting genuinely needs to be postponed due to the impact of the epidemic or the measures taken to prevent and control the epidemic, the relevant postponement procedures shall be carried out in accordance with the law, the administrator shall inform relevant subjects, such as the creditors, 15 days in advance and duly carry out the work of explaining.

22 . A debtor's capacity to operate as a going concern shall be safeguarded to the greatest extent possible and the function of the co-benefit debt financing system shall be fully leveraged so as to provide funding support for ongoing operation.  If a debtor enterprise has the capacity to continue operating or meets the conditions to produce and deal in epidemic prevention supplies, the people's court shall, in accordance with Articles 26 and 61 of the Enterprise Bankruptcy Law, actively guide and support the administrator or debtor in continuing the debtor's operations and, on the basis of protecting the creditors' interests, select appropriate operating and management models and fully utilize the government-court coordination mechanism to uncover and unleash the enterprise's productivity.

The principle of maximization of the value of disposal of property shall be adhered to, and the administrator shall be actively guided in fully assessing the impact of the epidemic or the measures taken to prevent and control the epidemic on the value of assets being disposed of and accurately grasping the timing and method of disposal so as to avoid the interests of the creditors being impacted due to unwarranted impairment of the value of the assets.

23 . During the epidemic prevention and control period, the intensive application of information-based means for bankruptcy announcements and notices, claim declarations, holding of creditors' meetings, debtor property queries and disposal, bringing in of investors, etc. shall be further promoted in accordance with the requirements of the Supreme People's Court, Opinions on Promoting the Efficient Trial of Bankruptcy Cases in Accordance with the Law and, on the basis of enhanced information openness and disclosure and lawful protection of creditors' right to know and right to be involved, a helping hand shall be provided in the epidemic prevention and control work, bankruptcy procedure costs shall be further reduced and efficiency of the bankruptcy procedure shall be enhanced.