6.1. General information
With the start of preliminary proceedings, all individual enforcement is suspended. Only when insolvency proceedings are not started, will individual enforcement be continued. The purpose of insolvency proceedings is to pay out all the creditors by liquidating the assets of the debtor company.
When a debtor is unable to pay off the debts due, their creditors may file an application for reorganisation or liquidation by bankruptcy with a people’s court.
When one of the creditors files an application for bankruptcy, the people’s court will give a notice thereof to the debtor within five days after the receipt of the application. In case the debtor objects to such applications, this notice will be submitted to the people’s court within seven days after the receipt of the notice from the people’s court. The people’s court will decide whether or not to accept the application within 10 days since the expiration of the objection term.
The people’s court will designate an administrator when ruling on accepting the application for bankruptcy. The people’s court will inform the creditors who have definite addresses of the ruling within 25 days after making the ruling if it accepts the application for bankruptcy and makes a public announcement.
After the people’s court accepts the bankruptcy application, the debtor can’t pay off debts to specific creditors. The civil litigation or arbitration concerning the debtor that has started but hasn’t ended yet will be suspended after the people’s court accepts the application for bankruptcy, and the litigation or arbitration will proceed after the administrator takes over the debtor’s property. The civil litigation concerning the debtor after the people’s court accepts the application for bankruptcy may only be instituted with the people’s court that has accepted the application for bankruptcy.
6.3. Required documents
The applicant will submit a bankruptcy application form and relevant evidence to a people’s court. The application form for bankruptcy will contain:
- The basic situation of the applicant and the party against whom the application is filed
- The purpose of the application
- The reasons and grounds of the application
- Other matters that the people’s court thinks should be contained
When the application is filed by the debtor, the debtor will submit to the people’s court a description of their financial conditions, a detailed list of their debts and credits, all relevant financial reports, settlement proposals, together with payment of salaries and social security expenses of the employees of the bankrupt company.
6.4. Expected time frame
Upon the acceptance of the application for bankruptcy by the people’s court, the administrator is entitled to discharge or continue the performance of the contracts that have been established before the acceptance of the bankruptcy application.
When the administrator fails to give notice to the counterparts concerned within two months since the acceptance of the bankruptcy application or fails to reply to the counterparts concerned within 30 days since their requests for notifications, it will be deemed that the relevant contracts will be discharged. The people’s court will confirm the time limits for the creditors to declare credits after accepting the application. The time limits for declaring credits will not be less than 30 days or exceed three months since the date of the public announcement of the application for bankruptcy by the people’s court.
The debtor or the administrator will, within six months since the date of the ruling by the people’s court on the reorganisation of the debtor, submit a draft reorganization plan to the people’s court and the creditors’ meetings simultaneously. At the request of the debtor or the administrator with justified reasons upon the expiration of the term above, the people’s court may rule on an extension of such terms for another three months. The whole duration of insolvency proceedings usually takes between two and four years, but it could be more.
6.5. Limited companies
The administrator will, within 10 days since the conclusion of the bankruptcy proceedings, handle the procedures for the revocation of registration of the bankrupt person at the registration authority by producing the ruling of the people’s court on the conclusion of the bankruptcy proceedings.
The directors, supervisors, or officers of the bankrupt company that have violated their duties of loyalty and due diligence and contributed to the bankruptcy of the company will bear the relevant civil liability. The persons involved in the mentioned circumstances will not act as the directors, supervisors, or officers at any company within three years since the date of the conclusion of the bankruptcy proceedings.
6.6. Unlimited companies / individuals
Unlimited companies or individual debtors cannot declare insolvency. They should bear the debts until they are paid off or released by the creditors.
When the debtor and creditor have objections against the credits contained in a credit form, lawsuits may be instituted with the people’s court that has accepted the application for bankruptcy.
The salaries, medical and disability allowance, pension expenses due to employees by the debtor, basic pension insurance, basic medical insurance expenses owed to the individual accounts of the employees, and compensation that will be paid to the employees as prescribed by administrative law and regulations are not required to be declared. These will be listed and posted to the public by the administrator after an investigation. In case of objections to the records on the list, the employees may require the administrator to make corrections. If the administrator has made no corrections, the employees may initiate lawsuits with the people’s court.
(End of chapter 6 - Insolvency proceedings)