Author: Wang Zhenxiang
(This article was first published on China Business Law Journal column "Insolvency & Securitization of NPAs", authorised reprint)
In case of liquidity crisis or debt default of non-financial enterprises with large debt scale and difficulties, creditors often panic due to information asymmetry, and then take comprehensive recovery and preservation measures against debt enterprises, forming the trend of "stampede" and "run". In order to safeguard the interests of financial institutions, the China Banking and Insurance Regulatory Commission is gradually improving and implementing the creditor Committee of financial institutions (hereinafter referred to as the "debt committee") system, requiring all financial institutions to study and determine reorganization measures as a whole under the principle of "one enterprise and one policy". In practice, northeast special steel, Yongtai energy and other large enterprises try to deal with their own debt crisis through the debt Committee and connect the reorganization procedure.
Operation mechanism of debt Committee
The reform plan for accelerating the improvement of the withdrawal system of market subjects jointly issued by 13 ministries and commissions including the national development and Reform Commission requires to study and improve the creditor committee system of financial institutions, and clarify the procedure conversion and resolution effectiveness recognition mechanism with the creditor Committee in court.
According to the working procedures of the creditor Committee of financial institutions (hereinafter referred to as the working procedures) jointly issued by the four ministries and commissions including the China Banking and Insurance Regulatory Commission in December 2020, the main body that can initiate the establishment of the debt committee is expanded from banking institutions to holding creditor's rights in their own or managed asset management products Bancassurance institutions and securities and futures fund operating institutions acting as bond trustees according to law (collectively referred to as "financial institutions").
As a consultative, self disciplined and temporary organization, the debt committee is established by more than three financial institutions with creditor's rights according to the level, volume and business complexity of debt enterprises. The debt Committee has a chairman and vice chairman unit to lead the working group of the debt committee to communicate with creditors of debt enterprises and other non-financial institutions, and disclose important information to all member institutions in a comprehensive, accurate and timely manner.
According to the organizational structure, rules of procedure, work flow and decision-making mechanism determined by the creditor agreement jointly signed by the member institutions, the debt committee makes consultation and decision-making on matters such as increase or decrease financing, debt restructuring and bankruptcy restructuring. The working procedures also stipulates the status and role of member institutions, industry associations and regulatory agencies in debt restructuring and reorganization.
Cohesive function
The current judicial practice shows that out of court reorganization often needs to be coordinated with the reorganization procedure in order to give full play to the best effect. Generally, the creditor's rights of financial institutions account for the largest proportion in bankruptcy reorganization cases. As a temporary organization cooperating with financial institutions, the debt committee can play a great role in the connection between out of court reorganization and in court reorganization.
First, the debt commission can effectively correct the information asymmetry between financial institutions and debt enterprises, so as to avoid that financial institutions are eager to take radical financial punishment and judicial actions against debt enterprises, resulting in debt enterprises rushing into the reorganization process in order to avoid further decline in asset value and solvency. Considering that the legal draft reorganization plan shall not be submitted for voting for more than nine months, the reorganization procedure without full communication and negotiation is very unfavorable to the recruitment of reorganization investors and the voting of reorganization plan.
Secondly, compared with the government, courts and managers, as a financial institution specializing in investment and financing business, it is closer to the market and more capable of judging the development prospect and reorganization value of debt enterprises. The debt Commission has the ability to make analysis from the perspective of national macro policies and the market prospect of enterprise products or services, so as to provide important support for the recruitment of reorganization investors and the voting of reorganization plans in the future.
Thirdly, as a market-oriented and legalized organization, the debt committee can unify the opinions of creditors of financial institutions through internal consultation, become a good platform for financial institutions to participate in the bankruptcy proceedings, effectively avoid the disadvantages that the opinions of creditors of financial institutions have not been paid enough attention to by restructuring investors and managers, and reduce the cost of financial institutions exercising the supervision power of bankruptcy proceedings.
Finally, the debt commission can rely on the professional advantages of member institutions and their cooperative service institutions to recommend qualified restructuring investors and managers to the court, improve the efficiency of the restructuring process, reduce the losses caused by the suspension of interest during the restructuring period, and avoid the risk of a significant decline in the solvency of debt enterprises due to failure to pass the restructuring plan within the legal period.
Proposal
The debt commission may, on behalf of its member institutions, actively recommend to the court managers who have professional ability and can perform their management duties in accordance with the law, independently, fairly and impartially, communicate and negotiate with the debtor enterprise, the territorial Government and the acceptance court based on their own management ability, and issue a plan on whether and how the debtor enterprise implements self-management, Eliminate the malpractice that requires the independent decision of the court or to be decided by the first creditors' meeting, and avoid the vacuum of debt enterprise management or the decline of solvency caused by the acceptance of reorganization.
The debt commission can hire accounting firms and law firms to provide advisory services on whether debt enterprises enter the reorganization process, the protection of the rights and interests of creditors of financial institutions and the exercise of supervision rights, and the negotiation of reorganization plan. It can also actively seek cooperation with financial asset management companies and local asset management companies, Provide comprehensive financial service support for financing and operation in reorganization procedures.
The debt committee can also coordinate the member institutions to give full play to the ability advantages of financial advisers, assign a working group to participate in the recruitment and negotiation of restructuring investors, clarify the opinions of financial institutions on the repayment method and time limit, and avoid passive acceptance of the restructuring plan or refusal to agree to the restructuring plan, resulting in bankruptcy and liquidation of debt enterprises.
The member institutions shall specify the working mechanism and responsible department of the debt Committee and the authorization mechanism of the participants. Before deciding whether to promote the debtor enterprise to enter the reorganization procedure and other major matters, the member institutions shall independently analyze and carefully vote. Once the resolution takes effect, it shall not refuse to implement, otherwise it may incur regulatory accountability. In addition, member institutions can reserve their own rights and interests for the entry, voting and withdrawal of the debt Committee, so as to avoid restrictions on the exercise of their own rights and interests due to the coercive force of the creditor agreement.
