Eight Questions and Answers Related to Bankruptcy Issues Under the Context of COVID-19 Prevention and Control

At the end of January 2020, an outbreak of pneumonia caused by a novel coronavirus infection occurred, and governments across the country worked together to fight the epidemic. To address the concerns of creditors and bankrupt enterprises, the Hangtianxin bankruptcy team has specially prepared eight questions and answers related to bankruptcy issues.

Question 1

Q: I am the legal representative of the company. Before the outbreak of the novel coronavirus pneumonia epidemic, my company was developing normally, and the cash flow was normal. However, due to the impact of the epidemic, there are short-term financial difficulties, and I cannot repay the due debts. The creditor has applied for bankruptcy. Will the court find that my company has grounds for bankruptcy and accept the bankruptcy application?

A: According to Article 2 of the "Enterprise Bankruptcy Law," if a corporate legal person cannot repay its due debts and its assets are insufficient to repay all debts or clearly lacks the ability to repay, its debts shall be cleared in accordance with this law. Under the current epidemic situation, it is necessary to make a distinction as to the reasons why an enterprise is being applied for bankruptcy. Article 2 of the "Notice of the Hangzhou Intermediate People's Court on Doing a Good Job in Bankruptcy Trials During the Epidemic Prevention and Control Period" also stipulates: "For enterprises whose main business is good and whose cash flow was normal before the outbreak of the epidemic, but which only have short-term financial difficulties due to the impact of the epidemic and cannot repay the due debts, if creditors apply for their bankruptcy, the court should carefully grasp the determination of the reasons for bankruptcy and generally will not accept bankruptcy liquidation applications filed by creditors against such enterprises." Therefore, for enterprises that are temporarily experiencing operational difficulties, financial tightness, and inability to repay due debts due to epidemic prevention and control, the court will carefully and prudently grasp the determination of the reasons for bankruptcy and decide whether to accept the bankruptcy application based on the enterprise's ability to repay before and after the outbreak of the epidemic.

Question 2

Q: I am a creditor. Now, due to the isolation measures taken by the government during the novel coronavirus pneumonia epidemic, I cannot submit a creditor's claim at the time specified by the administrator. What should I do?

A: First, you can negotiate with the administrator to use electronic filing or platform filing to submit a creditor's claim. Considering the current epidemic situation, the administrator is usually discussing with the court to use the method of an online creditor's meeting. Several platforms that can currently hold online creditor's meetings (such as DingTalk) have modules for online creditor's claim submissions that can be used. If the above-mentioned methods of submitting creditor's claims are not available, you can negotiate with the administrator to use WeChat, SMS, written mail, etc., for "pre-submission." At the same time, you need to submit evidence materials such as an effective judgment document to prove that you indeed have a creditor's right, and the administrator will temporarily classify the creditor's right as a pending confirmation creditor's right.

Secondly, if the above methods are not feasible, you can also submit a creditor's claim before the first distribution of bankruptcy property after the epidemic is lifted. According to Article 56 of the "Enterprise Bankruptcy Law," "If a creditor fails to submit a creditor's claim within the deadline determined by the People's Court, it may supplement the claim before the final distribution of bankruptcy property; however, the previous distribution will not be re-distributed to it." In order to avoid damage to the creditor's substantive rights, it is therefore recommended to submit a claim before the first distribution of bankruptcy property. Before the formal submission, the creditor should actively contact and communicate with the administrator to understand the progress of the bankruptcy proceedings.

Question 3

Q: I am a creditor and received the "Notice of Creditor Claim Review and Determination" sent by the administrator before the new year. Now I have objections to the creditor's claim determination because of the epidemic; I cannot raise written objections to the administrator within 15 days, and I cannot sue the court within 15 days. How are my rights protected?

A: Affected by the epidemic, if the creditor has any objections to their creditor's rights, they can first contact the administrator by phone, negotiate with the administrator to raise written objections through electronic channels such as email, WeChat, and SMS, or submit written objection materials after the official resumption of work.

Question 4

Q: My company was applied for bankruptcy by creditors due to insolvency before the outbreak of this novel coronavirus pneumonia epidemic, but I do not want to go bankrupt. I want to negotiate a repayment plan with the creditors and propose bankruptcy reconciliation. Can I apply for bankruptcy reconciliation during the current epidemic prevention and control period?

A: During the epidemic prevention and control period, the applicant can apply for bankruptcy reconciliation. Specifically, you can first propose a specific reconciliation plan to the bankruptcy administrator, and after negotiation, determine a written "draft reconciliation agreement." Then, the administrator will convene a creditors' meeting through online means for discussion. After more than half of the creditors with voting rights attending the meeting agree and the amount of creditor's rights they represent accounts for more than two-thirds of the total amount of unsecured creditor's rights, the People's Court will make a ruling to approve it.

Question 5

Q: Under the current control situation of the novel coronavirus pneumonia epidemic, can the creditor's meeting originally scheduled for the end of February still be held on time?

A: The creditors' meeting is an important communication channel between the administrator, the People's Court, and the creditors and debtors. According to Article 61 of the "Enterprise Bankruptcy Law of the People's Republic of China," the creditors' meeting exercises eleven powers, including verifying creditor's rights, approving property management, devaluation, and distribution plans, and is an important way for the administrator to perform its duties and for creditors to exercise their rights. At the same time, according to Article 62 of the "Bankruptcy Law," "The first creditors' meeting is convened by the People's Court and held within 15 days from the date when the deadline for submitting creditor's claims expires. Subsequent creditors' meetings shall be held when the People's Court deems necessary, or when the administrator, the creditors' committee, or creditors representing more than one-fourth of the total creditor's rights propose to the chairman of the creditors' meeting." Therefore, the convening of the creditors' meeting falls into two situations. Under the current epidemic control situation, the convening of the first creditors' meeting needs to be determined by the People's Court according to the actual local situation, such as whether to postpone the meeting, the method of convening the meeting, etc. Creditors need to pay attention to the notices issued by the People's Court or the administrator and participate according to the actual situation. If you do not attend the first creditors' meeting, you need a proposal from the meeting chairman or administrator to convene it. Therefore, creditors need to determine the time and method of participation according to the notice of whether to postpone or change the method of convening the meeting determined by the People's Court, administrator, or creditors and the meeting chairman.

The specific method of holding the meeting can be through the National Court Bankruptcy Restructuring Network, WeChat, DingTalk and other network tools to hold the creditors' meeting. The resolutions made at the online meeting have the same legal effect as the resolutions made at the on-site meeting.

Question 6

Q: If I am unable to attend the creditors' meeting on time due to the need for treatment after being infected with the novel coronavirus, what should I do?

A: Creditors attending the creditors' meeting mainly exercise the powers of review, supervision, objection, and voting. Creditors can first communicate with the administrator or the People's Court to determine whether the creditors' meeting can be held on time or whether the method of holding the creditors' meeting can be changed. If the creditors' meeting is still held during the treatment period, the method of participation needs to be determined according to the following circumstances.

First, creditors can be divided into natural person creditors and non-natural person creditors according to the identity of the subject. If a natural person creditor is infected with COVID-19 and needs treatment without entrusting an agent, or if the entrusted agent is infected with COVID-19 and needs treatment, the natural person creditor may entrust an agent or change the agent to attend the creditors' meeting; if the agent entrusted by a non-natural person creditor is infected with COVID-19 and needs treatment, the non-natural person creditor may change the agent to attend the creditors' meeting. If the creditor is unable to entrust or change an agent to attend the on-site creditors' meeting, and has objections to the resolutions passed at the creditors' meeting, according to Article 63 of the Enterprise Bankruptcy Law and Article 8 of the "Judicial Interpretation III of the Enterprise Bankruptcy Law," the creditor may, within fifteen days from the date on which the resolution of the creditors' meeting is made, request the people's court to rule to revoke the resolution and order the creditors' meeting to make a new resolution in accordance with the law; if the debtor or creditor has objections to the claims recorded in the claims register, they shall state the reasons and legal basis. If the objector is still dissatisfied after the explanation or adjustment by the administrator, or if the administrator does not explain or adjust, the objector shall bring a lawsuit for claim confirmation to the people's court within fifteen days after the verification of the creditors' meeting is completed.

In short, if the inability to attend the meeting is due to the COVID-19 epidemic, active communication with the administrator to find a solution is recommended. The administrator will make every effort to protect the legitimate rights and interests of all creditors.

Question Seven

Q: According to the "Debtor's Property Management and Valuation Plan" passed at the first creditors' meeting before the year, the assets of our bankruptcy case have been put up for auction through the judicial strong clearance channel. Now, due to the impact of the epidemic, will this affect this judicial auction?

A: In the Q&A on the WeChat public account platform of the Zhejiang Provincial High Court on how to carry out enforcement work during the epidemic prevention and control period, it is mentioned that "During the epidemic prevention and control period, for items that have been auctioned but not sold, if no viewing is required, no one is viewing, or viewing has been organized, the online judicial auction can continue. For items that require viewing by bidders or require auction through on-site viewing and post-auction house clearing, on-site delivery, etc., the executing court may postpone the auction, suspend the auction, or withdraw the auction." The administrator can evaluate the assets based on their nature and characteristics. Assets that do not require viewing can continue to be auctioned without affecting the normal progress of the auction; for assets that require viewing, the administrator, after reporting to the court, may postpone, suspend, or withdraw the auction. The auction time will be determined again after the epidemic is over.

Question Eight

Q: During the COVID-19 epidemic prevention and control period, what are the main tasks of your administrator?

A: During the COVID-19 epidemic prevention and control period, the administrator, on the one hand, actively supports and responds to epidemic prevention and control work, and properly handles the epidemic prevention and control work of various bankruptcy projects in accordance with the requirements of local government departments. On the other hand, the administrator actively performs their duties by using online office, online office, and team collaboration. During the epidemic prevention and control period, the administrator still efficiently handles tasks such as claim application, claim review, enterprise takeover, asset inventory and appraisal, asset due diligence, online creditors' meetings, and disposal of bankruptcy property, making every effort to protect the legitimate rights and interests of creditors.