Liquidation and Bankruptcy Department-Shanghai Yingdong Law Firm

Business: ■Department; ■Cases

Liquidation and Bankruptcy Department

Time：2020-06-23 07:43 Click： second

Contents:

Business Sectors:

Compulsory liquidation and bankruptcy liquidation

Pre-reorganization and reorganization

Pre-bankruptcy counseling

Introduction:

Liquidation and bankruptcy is one of the major business of Shanghai Yingdong Law Firm. The Liquidation and Bankruptcy Department has established a legal service team which is composed of partners as a leader, senior lawyers as a main force, and new lawyers as an assistant. The lawyers of the Department have working experience in legal and financial industries and are skilled at providing clients with legal assistance and support through teamwork and specialized services. In 2020, two cases handled by the team were selected as typical cases of the Shanghai Bankruptcy Court.

Details:

Department Introduction:

Business Sectors:

Business bankruptcy, personal bankruptcy or personal debt liquidation

Compulsory liquidation and bankruptcy liquidation

Providing liquidation and cancellation services for zombie enterprises that have reached an impasse in corporate governance or have not operated for a long period of time; applying for bankruptcy for debtors; serving as an agent for creditors to file their claims, finding out the status of assets of the bankrupt enterprise, whether its shareholders have withdrawn their capital contribution, whether its executives have illegally embezzled its assets, and whether its shareholders’ assets are mixed with its assets, through bankruptcy liquidation procedures, and accelerating auction and sale of assets with the aid of the administrator and the court to realize fair payment of claims; realizing the accelerated capital contribution of shareholders under the subscribed capital system, and solving the issues that cannot be solved in a single enforcement procedure, such as failure to allocate the company’s assets under the waiting list for seizure, low-price disposal of assets when the company is insolvent, payment to specific creditors and disguised malicious transfer of assets, through bankruptcy procedures; lawful debt discharge for honest and trustworthy debtors through bankruptcy procedures to avoid being exhausted by different litigation and enforcement procedures, and more importantly, to lift high consumption restrictions on the company’s legal representative, actual controller and direct principal so that they are able to easily start a new undertaking.

Pre-reorganization and reorganization

Providing pre-reorganization services for companies in temporary distress but worth saving; solving the issues that creditors are at different places and cannot be coordinated, the company’s accounts and main assets have been seized and the company is unable to operate; assisting debtors to reach legally valid restructuring agreements with various creditors in respect of debt relief, debt-to-equity conversion, deferred repayment, etc.; introducing strategic investors to intervene in the pre-organization process at the early stage, and preparing for the formal bankruptcy reorganization process at a later stage; representing shareholders, debtors and creditors in the bankruptcy liquidation process to apply for reorganization, and negotiating with the reorganization investors to maximize the interests of all parties and achieve a rebirth of the company.

Pre-bankruptcy counseling

In the context of the Regulations of Shenzhen Special Economic Zone on Personal Bankruptcy having been officially implemented and the “centralized personal debt liquidation” being carried out tentatively and widely in Zhejiang, Jiangsu and Shandong, national legislation on personal bankruptcy is on the horizon, and many honest debtors with heavy debts who can declare “personal bankruptcy” need debt relief, but are in urgent need of “pre-bankruptcy counseling”. Through the “pre-bankruptcy counseling” process, the Department can help debtors accurately identify the minefields before filing for personal bankruptcy and take preventive and control measures, so as to fully prepare for the upcoming complete process of personal bankruptcy, thus ensuring timely and smooth filing and making it possible for clients to “go back into battle with a light burden”.

Typical Cases:

Application for bankruptcy liquidation for Shanghai Xinkui Technology Co., Ltd. (selected as Typical Cases of 2020)

After accepting the debtor’s engagement, our team checked and confirmed that the debtor was unable to pay its debts that had fallen due and its assets were insufficient to pay all its debts, which qualified the debtor for bankruptcy liquidation, and therefore the debtor voluntarily filed for bankruptcy liquidation to the Shanghai Third Intermediate People’s Court. However, during the review process, our team found that the debtor may have capital contributions that were not in place, and fully disclosed the relevant legal risks to the debtor in a timely manner; furthermore, our team was aware that the debtor had intangible assets of high value such as environmental impact assessment license, registered trademarks, etc., and did not completely lose the possibility of carrying on business to settle its debts. After thorough communication and negotiation with the court, the administrator, the creditors and the applicant, considering that the rate of satisfaction of the creditors would be almost zero after bankruptcy liquidation, the creditors stated that they were willing to settle and the debtor wanted to carry on business. After mediation, the debtor’s major shareholder agreed to pay RMB 100,000 to the administrator, which could be used to pay the outstanding amounts owed to Shanghai Employment Service Center for the Disabled, the remuneration for the administrator and the case acceptance fee first while other ordinary creditors would not file any claim for the time being. The settlement agreement, after reached, was approved at the creditors’ meeting and submitted to the court for approval. The court ruled that the settlement agreement was approved and the settlement process was ended. [Case No.: 2020 Shanghai 03 Bankruptcy No. 1]

Application for transfer of the debtor subject to enforcement, Shanghai Industrial Zone Enterprise Development Co., Ltd., into bankruptcy procedures

After accepting a creditor’s engagement, our team applied for enforcement of the claim of more than 8 million RMB, and the court ruled that the enforcement was terminated on the grounds that the debtor had no assets available for enforcement. The agent believed that the debtor was involved in a number of enforcement cases with a large amount of total liabilities, which had exceeded its ability to repay; in such circumstances, the debtor was eligible for bankruptcy liquidation and could get money through bankruptcy liquidation. Therefore, the debtor applied to the enforcement court for transferring the case to bankruptcy procedures, and the court ruled that our application was accepted and an administrator was appointed. So far, two creditors’ meetings have been held, and the total amount of claims declared and confirmed by creditors is over 500 million RMB. As confirmed by the administrator, the assets under the debtor’s name available for disposal are a construction project in progress in Jinshan District and the land use rights thereof, which are currently in the auction process.

Application for bankruptcy liquidation for Shanghai Yiguang New Energy Technology Co., Ltd.

Bankruptcy of Suzhou Nanmen Real Estate Development Co., Ltd.

Zhu Linjun sued the shareholders of Nanmen Company, Zhou Xinhua, Zhang Jianye and Lu Zhongda, to hold the three shareholders responsible for the capital reduction of Nanmen Company without notifying its creditors. After accepting the client’s engagement, our team held that the registered capital was 20 million RMB when the claims were formed and when the appellant was assigned the claims, which means that the reliance interest of the original creditors and the appellant should be limited to 20 million RMB, and the capital reduction came after a capital increase; therefore, the capital reduction did not damage the reliance interest of the appellant. Moreover, the capital increase was a good faith effort made by the appellee, and the appellant could not be blamed for the failure of the good faith effort and bound by stricter obligations, which was against the principle of honesty, credibility, equality and justice. Furthermore, the law requires that a capital reduction must be notified to creditors and announced to the public, which took shape in the times of the paid-in capital system; until now, there is no law that clearly stipulates what kind of responsibility should be assumed if a capital reduction is not notified. The first instance judge adopted our main point of view and dismissed the suit brought by the other side. The other side filed an appeal, and the second trial is currently going on.

Intervention of potential investors for the Hanbi Bay Phase II Project

Our team was engaged and instructed by Shanghai Jinyuan Shengshi Holdings Co., Ltd. to participate as a creditor in the bankruptcy reorganization of Shanghai Qingchen Property Co., Ltd. and seek for potential investors for the Hanbi Bay Phase II Project of Qingchen Property. The project consists of five parcels of land with a total land area of 71,742.5 square meters and a building plot ratio of 1.0. According to the valuation report issued by Shanghai Anya Shenxin Asset Valuation Co., Ltd. on November 30^th, 2020, the value of the project is approx. 1.4 billion RMB. Currently, the case is under intensive negotiation.

Bankruptcy of Zhongchang Marine Holdings Co., Ltd.

Zhongchang Marine Holdings Co., Ltd. was established on March 22^th, 2011 with a registered capital of 1.1 billion RMB, and is engaged in water transport business. The company is insolvent and listed as a dishonest entity subject to enforcement by the court and, therefore, has engaged our Firm to conduct pre-bankruptcy counseling and provide a full range of legal services for bankruptcy pre-organization, liquidation and reorganization. A number of individual repayments have been made while the company seals of Zhongchang Marine Holdings Co., Ltd. and its subsidiaries are in the possession and control of the largest creditor. In order to recover losses, our Firm is currently applying for bankruptcy liquidation to the Third Intermediate People’s Court in the name of Zhongchang Marine, and will apply for consolidated bankruptcy with its affiliated company Daishan Marine Investment, request the administrator to revoke the illegal equity transfer of Zhongchang Marine Investment on the grounds of the said individual repayments, and then introduce strategic investors and apply for bankruptcy reorganization after recovering the core assets. Currently, the case has been formally accepted.

Application for bankruptcy settlement for Shanghai Weiwude Information Technology (selected as Typical Cases of Shanghai Bankruptcy Court in 2020)

In this case, a settlement was promoted by fully mobilizing the shareholders and the actual controller and comparing the simulated claim satisfaction rate in liquidation with the projected claim satisfaction rate in bankruptcy settlement, so as to maintain the debtor’s corporate status and the value of its assets. The debtor expressed its wish to keep the company alive by reorganization or settlement and communicated actively. Finally, a settlement agreement was passed by voting at a creditors’ meeting. According to the settlement agreement, all secured claims, employee claims, social security claims and tax claims would be fully paid, the rate of satisfaction of the ordinary bankruptcy claims would be 55%, and the period of enforcement would be six months. On September 22^th of the same year, the court ruled that the settlement agreement was approved and the settlement process was ended. After the settlement agreement was performed, the company’s corporate status would continue and many related enforcement cases would be settled. The case was settled through bankruptcy liquidation, which on the one hand addressed the debt crisis for the debtor and maintained the value of the debtor’s assets, thus significantly increasing the claim satisfaction rate, protecting the best interests of the creditors, and preventing the debtor from exiting the market; on the other hand, it helped solve the “difficult to enforce” issue and could solve nearly one hundred of long-pending enforcement cases in one package through the settlement process. [Case No.: (2019) Shanghai 03 Bankruptcy No. 289]

Application of Shanghai Xinxianfeng Pharmaceuticals Co., Ltd. for bankruptcy liquidation against Shanghai Antibi’ao Xianfeng Pharmacy Co., Ltd.

After accepting the engagement, our team conducted a thorough discussion and study on the possibility of performance of this project. In order to have the case placed on file and accepted by the end of this year as expected by the client, Yingdong's bankruptcy team established a strategy of “applying by the formal examination standard and hearing by the substantive examination standard” according to judicial practice, actively communicated with the debtor (including its shareholders) and procured the debtor (including its Chinese and foreign shareholders) to initiatively submit to the court a special audit report of net assets, a shareholders’ resolution and written statement on consenting to the bankruptcy liquidation, a property inventory, a list of debts, a list of claims, the proof of social security contributions for staff, and other necessary documents for the court’s substantive examination, and finally procured the Third Intermediate People’s Court of Shanghai to render a civil ruling that the application filed by Shanghai Xinxianfeng Pharmaceuticals Co., Ltd. for bankruptcy liquidation against Shanghai Shanghai Antibi’ao Xianfeng Pharmacy Co., Ltd. was accepted, which meant there was a relationship between the two sides. However, the court also confirmed that the respondent was a “zombie enterprise” having causes of bankruptcy, which could pay off debts and exit the market exit in accordance with the Business Bankruptcy Law.

Representing a listed state-owned company, Shanghai Pharmaceuticals Holding Co., Ltd. (“SPH”), in the application of a joint venture, Shanghai Midwest Industrial Investment Co., Ltd. (“SMII”), for compulsory liquidation against another joint venture, Shanghai Midwest Pest Control Service Co., Ltd. (“SMPC”)

Shanghai Pharmaceuticals Holding Co., Ltd. is a nationwide state-owned and controlled pharmaceutical group which is primarily engaged in the whole industry chain, including R&D, manufacturing, distribution and retail sale, of pharmaceuticals, and is the controlling shareholder of SMPC with 75% of its equity. SPH became the controlling shareholder by absorbing and merging the original shareholder, Shanghai Midwest Pharmaceuticals Co., Ltd., and SMPC’s business license had been revoked before the merge by absorption. SPH had never joined in the operation of SMPC, nor had it assigned any senior management to SMPC, and SMPC was a business without personnel, without premises and without account books at the time of the case. SPH had to cooperate with SMII in the liquidation, and go through the necessary procedures for the write-off of state-owned assets to prevent the loss of state-owned assets. The lawyers of our team convinced the court that SPH was not “maliciously delaying the liquidation” by making a painstaking investigation and finding out the true history of equity changes, and the court did not render a ruling to initiate compulsory liquidation procedures against the joint venture. Meanwhile, our lawyers applied to the court for an investigation order, investigated the company’s assets, liabilities and personnel relocation by various means, and worked out a solution to all past claims and debts to procure both sides to complete the liquidation of the joint venture on their own.

Bankruptcy reorganization, bankruptcy and liquidation of Huangshan Xinhui Investment Co., Ltd.

In the bankruptcy reorganization case of Huangshan Xinhui Investment Co., Ltd., Huangshan Yuequan Hotel Management Co., Ltd. and Huangshan Xinhui Tiandi Hot Spring Hotel Management Co., Ltd. (collectively as “the Three Companies”) in the bankruptcy reorganization case, the lawyer team of Shanghai Yingdong Law Firm served as the agent of Shanghai Yongshang Equity Investment Fund Co., Ltd. and other creditors. The assets of the Three Companies were complicated, the amount of external debts was huge, and some of their assets had not been identified. In order to protect the legitimate rights and interests of our clients, our team applied to the administrator for access to relevant documents and clues to assets, including major assets, financial condition, major contracts, etc., such as real estate of the Three Companies, including property ownership certificates, real estate status (unsold/sold), collection of payments, capital verification reports or payment documents for all previous capital contributions, all contracts that had been performed, were being performed and had been signed but not yet performed, etc., and issued a relevant Investigation Report to provide a stronger support for the parties to successfully realize their claims.

Construction case filed by Palm Eco-Town Development Co., Ltd. against Ci Hengtai Property Co., Ltd.

Shanghai Yingdong Law Firm won all of the four cases filed against Cixi Hengtai Real Estate Co., Ltd. (“Hengtai”) on behalf of Palm Eco-Town Development Co., Ltd. and obtained millions of benefits for our client. However, in the process of enforcement, Hengtai went into bankruptcy liquidation. Due to a huge quantity of its assets, the high difficulty in realization of the assets, and a large number of creditors, its bankruptcy procedures lasted several years. Our team kept effective communications and connections with the administrator, actively declared claims, presented relevant clues to assets, and discussed the nature of the claims with the administrator on several occasions. As planned, this case would have been treated as an ordinary claim case in the procedures, which would have materially impaired the rights and interests of our client. With persistent efforts of our team, including communication and presence of relevant evidence and cases for classification, the case was finally treated as a priority claim case so that relevant payments were obtained for our client and the legitimate rights and interests of our client were protected.

Representing Shanghai Minglide Industry Co., Ltd. to end bankruptcy procedures by debt setoff

In 2019, a creditor of Minglide filed an application to the Shanghai Third Intermediate People’s Court for bankruptcy liquidation against Minglid, and Minglid responded on its own, arguing that the company was not insolvent, and filed an objection. However, the Shanghai Third Intermediate People’s Court finally rendered a civil ruling to accept the bankruptcy application on the grounds that Minglid had huge debts due that it was unable to pay, and appointed AllBright Law Offices as the administrator. The lawyers of our team immediately designed and made a response plan to assist Minglide in responding to the case, so as to prevent Minglide from being declared bankrupt and suffering any adverse consequences thereof. First, at the stage of claim filing, Minglide was facing more than 600 million RMB claims; among others, Minglide and Everbright Bank Shanghai Branch agreed upon a settlement of enforcement (110 million RMB), which was successfully performed. After repeated communications with the administrator, only the ordinary claims of the bankruptcy applicant were finally confirmed while other claims were rejected. Second, the creditors filed cases for confirmation of the unsuccessful claims. After communicating with the administrator, Yingdong’s bankruptcy team obtained the right to represent the debtor in the series of cases. So far, through evidence collection and active defense, our team has successfully had one case dismissed while other cases are still under intensive court sessions. The four equity transfer dispute cases were submitted to three different collegial courts; to facilitate fact finding and trial, it has been decided through communications that the four cases are tried together. In the first instance judgment of the recovery right dispute case filed by Minglide with the People’s Court of Shanghai Changning District, the only ordinary creditor was unveiled and added as a defendant to assume joint and several liability, and the Court of Changning District ruled in favor of Minglide. The cases are currently in the second instance proceedings with the Shanghai First Intermediate People’s Court. If the second instance court upholds the first instance decision, Minglide may end the bankruptcy procedures by way of debt set-off to protect the legitimate rights and interests and maintain the normal operation of the company.

Representing a creditor in bankruptcy liquidation of Yiwu Jiangsheng Clothing Co., Ltd. and pilot implementation of “personal debt liquidation” of its shareholders

The People’s Court of Yiwu, Zhejiang ruled on December 21^st, 2020 that the application filed by a creditor of Yiwu Jiangsheng Clothing Co., Ltd. for bankruptcy liquidation against Yiwu Jiangsheng Clothing Co., Ltd. was accepted. The lawyers of Yingdong’s bankruptcy team represented the largest creditor of the debtor, Shanghai Longyuan International Freight Forwarding Co., Ltd., in the liquidation. So far, our team have attended a number of creditors’ meetings and have been appointed by the court as the chairman of the creditors’ committee. As the debtor’s shareholders are required to accelerate the subscription of the registered capital, and the administrator has recovered the payment thereof and is now planning to tentatively carry out the personal debt liquidation against the shareholders. Our team has actively cooperated with the administrator to promote the debtor’s shareholders to enter into the personal debt liquidation procedures and has reached a preliminary settlement plan. The courts around Zhejiang Province are tentatively carrying out the personal debt liquidation to gain experience for the subsequent implementation of personal bankruptcy. The development of this case will become a shared experience for the implementation of personal bankruptcy.