The Development of Bankruptcy Trustee System in China

1. Xu Yangguang School of Law,Renmin University of China Beijing Bankruptcy Law Society The Development of Bankruptcy Trustee System in China

2. WeChat Official Account

3. Content 1. Introduction 2. The roster of private trustees 3. Selection of trustees 4. Remuneration of trustees 4.1 How to determine the remuneration 4.2 who is the decision maker 4.3 How to deal with the special problem 5. Informatization in bankruptcy cases 5.1 Construction of information platform 5.2 Online auction of bankruptcy assets 6. Conclusion

5. 6257 cases in China 哈尔滨 ★ 乌鲁木齐 ★ ★ 长春 ★ 沈阳 呼和浩特 北京 ★ ★ ★ 银川 天津 ★ ★ ★ 石家庄 太原 ★ ★ 西宁 济南 ★ 1672 cases in Jiangsu 兰州 ★ ★ 西安 南京 郑州 ★ 上海 ★ ★ ★ ★ 合肥 武汉 拉萨 ★ 成都 ★ ★ 重庆 杭州 1626 cases in Zhejiang ★ ★ 南昌 ★ 长沙 福州 贵阳 ★ ★ 昆明 ★ 台北 ★ 广州 南宁 1182 cases in Guangdong ★ ★ ★ 香港 澳门 ★ 海口

6. 1. Introduction There are two main methods that help us make the achievement- 6257 cases of 2017: The first method: setting up specialist bankruptcy tribunals. China has started toset up nationwide insolvency tribunals and heading towards creating insolvent courts that have jurisdiction across the administrative regions. Up to now, the number of national tribunals specializing in liquidation and bankruptcy proceedings has increased from only 5 in the beginning of 2015 to 97, including 3 higher people’s courts, 63 intermediate people’s courts, 31 people’s courts, covering 23 provinces nationwide. The second method: reforming the private trustee system and fostering the market of private trustees so as to establish a team of professional trustees

7. 1. Introduction The Enterprise Bankruptcy Law of China enacted by legislature in 2006, establishes a market-oriented, law-based and internationally oriented private trustee system (also know as “administrator system”), in place of the administrative-oriented “liquidation team system” under the Old Law（1986）. According to the Enterprise Bankruptcy Law, only three types of institutions including the law firms, accounting firms and bankruptcy liquidation firms are qualified for trustee in bankruptcy cases.

8. 2. The roster of private trustees SPC issued the “Provisions of the Supreme People’s Court on Designating the Administrator during the Trial of Enterprise Bankruptcy Cases” in 2007. It is necessary to ensure that this provision would be applied across the country but also taking into consideration of local regional differences and imbalances. The following problems have to be addressed: (i) how would a court choose and appoint a trustee from numerous professional intermediary institutions; (ii) how to set the basic principles for appointment of trustees; (iii) how to appoint a trustee fairly and efficiently when accepting the bankruptcy petition.

9. 2. The roster of private trustees The higher people’s court of each province has established its own Roster of Trustees. In addition to rosters for firms, some courts have also established a roster for individual bankruptcy trustees on a personal basis, who would be individual professionals of firms on the roster for firms. Latest figures from the SPC show a total of 5,536 registered private trustees including rosters for both firms and individual trustees in November 2017.

10. 3. Selection of trustees The Enterprise Bankruptcy Law authorizes the court to appoint trustees for specific cases. Detailed methods of appointment are formulated in accordance with the relevant provisions, with fairness and efficiency as two fundamental principles. The court which accepts the enterprise bankruptcy case shall appoint a trustee from its local roster. For commercial banks, securities companies, insurance companies and financial institutions, as well as those bankruptcy cases with major national impact, complex legal relationships, and wide dispersion of property, the relevant people's court may appoint the trustee from the rosters throughout the whole country. The people's court may make public announcements to invite the institutions to participate in the bidding and competition.

11. 3. Selection of trustees One simple way to selecte the trustee is appointing an institution in the roster of trustees according to order, or through lottery mechanism. the Higher People's Court of Zhejiang Province has reformed the method of appointment of trustees at an early stage by a mixture of competition and lottery mechanism, balancing the fairness and efficiency. Conclusion: The legislative concept of the trustee system should shift its focus from pro-forma fairness to substantive fairness. Innovation of new appointment methods and comprehensive reform of the system of designating administrators is required.

12. 4. Remuneration of trustees 4.1 How to determine the remuneration In China, Remuneration of trustees is set by the court based on a prescribed scale on a percentage basis with reference to assets realised in the case. In many other countries, there are two main bases to determine trustee’s remuneration: a time-cost basis or a percentage on the assets realised. Each method has its own advantages and disadvantages, but the SPC has finally chosen the latter basis. In my opinion, with improvement of relevant laws and social credibility, the time-cost method may be introduced when conditions are ripe.

13. 4. Remuneration of trustees 4.2 Who is the decision maker In China, the court and the creditors' meeting has the right to determine the administrator’s remuneration. If the trustee is overpaid, it may directly affect the return to the creditors. It is thus obvious that there are inherent conflicts of interests between creditors and the trustee. At the beginning of a bankruptcy case, this is a particular problem as the creditors’meeting has not yet been held. In summary, the creditors' meeting has the right to know, negotiate and dissent with regard to the trustee’s remuneration; and the people's court has the right to make a decision.

14. 4. Remuneration of trustees 4.3 How to deal with the special problem In some bankruptcy cases, there are insufficient assets to pay the remuneration of the administrator. To tackle this problem, there are three general types of solutions in China: One method is to make payment in advance by the interested parties; The second one is to apply for aid funding from local government fiscal budget; and the third method is to set up mutual aid funding. Up to now, about twenty trustees associations have been established. Of course, a nationwide fund set up by the central government to subsidise these “asset-less” bankruptcy cases will be a major step forward.

15. 5. Informatization in bankruptcy cases In recent years, the SPC attaches great importance to the positive role of “big data” and information technology in the bankruptcy cases. The application of information technology techniques in all aspects such as standardization of judicial criteria has made breakthrough progress. 5.1 Construction of information platform 5.2 Online auction of bankruptcy assets

18. 5. Informatization in bankruptcy cases 5.1 Construction of information platform The National Insolvency and Restructuring Information Network was launched on August 1st, 2016. Both our bankruptcy law research center and Beijing Insolvency Law Society contributed to the construction of the Network and drafting of relevant rules. This is maybe the first national bankruptcy law platform in the world. The information platform consists of three platforms: (i) data base of national bankrupt enterprises’ reorganization cases; (ii) working platform of judges in bankruptcy cases and (iii) working platform of trustees.

19. 5. Informatization in bankruptcy cases 5.1 Construction of information platform The Network aims to achieve five goals: assuring openness and transparency of the insolvency procedures by using online platform; disposing of insolvent assets through online auction; raising restructuring funds through online platform; replacing the traditional method of insolvency trial notice with electronic method. The Network is not only a working platform of the judges and the trustees, but also an open platform on the internet for the public to obtain information about bankruptcy cases.

20. 5. Informatization in bankruptcy cases 5.1 Construction of information platform In addition, creditors' meetings can be held online via this internet platform. According to the traditional mode of handling bankruptcy cases, convening creditors’ meetings requires a lot of time and cost; but holding creditors' meetings online allows creditors around the world to participate at the same time without geographic restrictions, which will significantly cut down the costs and improve the efficiency of bankruptcy cases. Since March 2017, there have already been 57 creditors’ meetings held via this platform. WeChat meeting APP is also coming online soon.

21. 5. Informatization in bankruptcy cases 5.2 Online auction of bankruptcy assets In China, the traditional enforcement is judicial auction by auction houses and this practice prevailed until 2013 when the Higher People’s Court of Zhejiang Province started to collaborate with the Taobao platform of Alibaba for network judicial auction purposes. Ever since, this method has become the preferred way to dispose of property in court enforcement procedures. The trustees can choose these internet platforms to auction the bankruptcy assets.

22. Five qualified Internet Service Providers for Judicial Auction: www.taobao.com www.jd.com www.rmfysszc.gov.cn www.gpai.net www.caa123.org.cn Welcome every one to our online auction.

23. 6. Conclusion The history of China's bankruptcy legislation including the private trustee system is relatively short. However, the Enterprise Bankruptcy Law has been one of the important pieces of legislation premised upon the market economy theories. We strongly believe that, with full cooperation between academics and practitioners in joint efforts to achieve marketization and promote general acceptance of practising the rule of law principle, wide acceptance and digitization of the practice of Enterprise Bankruptcy Law, the China bankruptcy regime is bound to make substantial achievements, which may become China’s contribution to the international insolvency legal system.

24. Indeed, bankruptcy may be the last haven for the legal genera- list. The whole panorama of the law flashes through the bankruptcy arena. Issues involving contracts, sales of goods, real property, personal property, taxes, leases, mortgages, security interests, labor, pensions, torts, products liability, environmental concerns, alimony and support, and even the Constitution arise under bankruptcy’s broad umbrella. —— Charles JordanTabb Bankruptcy law is not always easy … However，doing bankruptcy law is –or at least should be- challenging,interestingandevenenjoyable. ——David G. Epstein

25. xuyangguang@126.com+86 13911309302 Xu Yangguang（徐阳光） Thankyou !