Different judicial approaches to objections to a bankruptcy petition

JTo protect the legitimate rights and interests of debtors and creditors in bankruptcy proceedings, if they disagree with a bankruptcy petition listed on the creditors’ rights checklist, the Bankruptcy Act d The company grants the right to raise an objection and take legal action regarding any dispute regarding the confirmation of bankruptcy claims. To increase the efficiency of bankruptcy trials, Article 8 of the Provisions (III) on Several Matters Concerning the Application of the Corporate Bankruptcy Law states that when the bankruptcy administrator has finished explaining or to adjust the claims based on the grounds and legal basis invoked by the opponent, or decides not to explain or adjust, the opponent may initiate legal action or arbitration within 15 days of the examination claims of creditors at the meeting of creditors. In practice, courts have different understandings and practices regarding the trial of an opponent. This article summarizes the content and judicial opinions of court documents across China in hopes of shedding light on the inconsistency.

DIFFERENT INTERPRETATIONS

Wang Zhenxiang
Partner
Jingtian and Gongcheng

When the clock starts ticking. In most cases, the 15-day period runs from the end of the examination of the opposing claims by the competent meeting of creditors. However, in some regions, the starting point is considered the day the objector receives the writing issued by the administrator, based on the aforementioned provisions stipulating that the administrator may offer explanations or adjustments. This opinion was confirmed by the Higher People’s Court of Hebei Province in Detaiquan Special Steel vs. Mingjun Xintai Tourism Development (2021). The Shanghai Higher People’s Court and the Shenzhen Intermediate People’s Court both require administrators to provide a written response to objectors and allow them a reasonable period of time of at least 15 days from receipt of the written response, giving them gives ample opportunity to take legal action.

Roles in opposition trials. According to the Beijing High People’s Court, the debtor’s objection statement must be made by the debtor’s registered legal representative. If the right of the controlled creditor is secured, the guarantor must be notified of the inspection in writing and has the right to bring legal action to confirm the bankruptcy claims with the bankruptcy court if he believes that the adjustments are illegal. The Jiangxi Higher People’s Court made similar demands. The Sichuan Higher People’s Court further requires that where the debtor finds it difficult to file a lawsuit on his own behalf, a legal representative, shareholder/sponsor, director or supervisor may do so on his behalf, with any advantage of winning the lawsuit going to the debtor. The Shandong Higher People’s Court provides that: when the debtor opposes bankruptcy claims on the creditors’ rights checklist, the opposing creditor will be listed as a defendant; where a creditor opposes the claims of other creditors on the checklist, the opposing creditor is the defendant; when the creditor opposes his own claim, the debtor is the defendant; and where multiple parties oppose the same application, all opponents are listed as co-applicants. The Sichuan court also provides that where a creditor opposes the claims of other creditors, the debtor can be registered as a third party.

Nature of the 15-day period. As for the 15-day time limit for filing a lawsuit, court documents have yet to clearly define its legal nature, and court documents in various regions indicate an inconsistency in its interpretation. In Chen Hao vs. Wuhan Oriental Yixin Construction et al (2019)the civil judgment regards the 15-day period neither as a limitation of action nor as a lapse period, but as a guiding requirement with harmful consequences similar to the claim period, and a lawsuit can be brought after its expiration.

In China Chemistry Engineering No. 4 Construction v Shandong Jinshunda Group et al (2019), the court ruled that the 15-day period was peremptory and rejected the opponent’s request. In the 2021 Ping An Bank Taiyuan Branch Bankruptcy Application Confirmation Case, the court ruled that since the opponent did not file a lawsuit within 15 days, he was deemed to have consented to the results of the inspection during the meeting of creditors, therefore re-confirmation of the decisions of first and second instance of revocation.

Can the 15 day period be adjusted? In Weng Xiaoxiong v Xieli Hexing Real Estate Development (Pingtan) et al (2021), the court held that the 15-day period, the legal period given to opponents to bring a legal action, is not subject to termination, interruption or extension for any reason whatsoever. However, according to the Chongqing No. 5 Intermediate People’s Court, opponents can apply to the court for an extension of the 15-day period due to force majeure or for other reasonable reasons (for example, the administrator fails to publish a review result within the prescribed period) in accordance with Article 83 of the Civil Procedure Law.

Consequences of a late trial. According to the judgment procedures of the superior courts of Shandong, Jiangxi and Beijing, the opponent must file a lawsuit challenging the bankruptcy claims within 15 days, otherwise the claims are upheld. Judgment procedures of the higher courts of Chongqing, Sichuan, Yunnan and Shanghai, as well as the intermediate court of Shenzhen, indicate that if no legal action is taken, it will be considered that all parties consent or do not have no objection to the bankruptcy petitions.

ANALYSIS OF LEGAL EFFECTS

Based on various court regulations and practices, the author believes that the 15-day period is more like a statute of limitations for action. Defining it as a legal time limit in the sense of procedural law comes close to its legislative purpose, while Article 83 of the Code of Civil Procedure can also be applied to prevent any loss of the opponent’s rights for legitimate reasons.

Since corporate bankruptcy law allows creditors to make additional filings if the time limit is exceeded, considering the 15-day time limit as peremptory would seem to contradict such regulation. Furthermore, since it usually takes a long time for confirmed bankruptcy applications to be granted, simply treating the 15-day period as a guiding settlement with a slap on the wrist may not be enough to achieve the goal. to urge opponents to speed up any trial. and improving the efficiency of bankruptcy procedures.

RECOMMENDATIONS

In the absence of consensus in both legal regulation and judicial practice, the author advises debtors and administrators to respect the practice of the courts of Chongqing and Shanghai, and to fully inform the creditor of the starting point of the 15 days, the consequences of an objection, whether it can be extended and, if so, for what legitimate reasons, as well as other information relevant in the context of the official confirmation of the application for bankruptcy. The author advises creditors to place greater emphasis on timelines provided by statutes and legal interpretations, improve the effectiveness of communication with administrators, and bring legal action within prescribed timelines.

Wang Zhenxiang is a partner at Jingtian & Gongcheng

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