Legal professionals explained in detail the Shenzhen "Personal Bankruptcy Ordinance": Will it be abused by debtors?
In recent years, malicious consumption and excessive consumption have frequently occurred. For example, consumers who borrow online loans cause insolvency and inability to repay their debts. Will these consumers use personal bankruptcy to avoid debt?
How can an "honest and unfortunate" debtor get out of the "debt quagmire"?
my country’s first personal bankruptcy legislation, the “Regulations on Personal Bankruptcy in the Shenzhen Special Economic Zone” (hereinafter referred to as the “Regulations”) was voted and passed at the 44th meeting of the Standing Committee of the Sixth Shenzhen Municipal People’s Congress on August 26, and the full text was passed on August 31 Announced.
According to plan, the "Regulations" will be officially implemented on March 1, 2021.
The adoption of the "Regulations" put an end to my country's long-standing situation where there was only a "half bankruptcy law."
So, what are the main problems that the "Regulations" solve in the current economic operation?
What measures have been put forward to ensure that personal bankruptcy is not abused?
1. What problems should the "Regulations" solve?
The issue of continuous insurance for business owners is a more prominent issue in the current economic operation.
He Huan, an assistant professor at the Law School of Shanghai University of Finance and Economics, believes that the promulgation of the "Regulations" is a good attempt to solve the problems caused by business owners' insurance.
"When a company applies for a loan from a bank, the bank often requires the business owner to provide a joint guarantee. Once the company goes bankrupt, the business owner often shoulders a huge amount of guarantee responsibility and is in deep financial trouble. The problem of even guarantees cannot be solved, and it also affects the application of the corporate bankruptcy law. The "Regulations" have found a breakthrough in the issue of continuous guarantees in the production and operation of enterprises, and are beneficial to the financial difficulties of enterprises and business owners." He Huan said.
The "Regulations" stipulate that natural persons who live in the Shenzhen Special Economic Zone and have participated in Shenzhen social insurance for three consecutive years and lose the ability to pay off debts due to production, operation, and consumption, or whose assets are insufficient to pay off all debts, can be liquidated in accordance with these regulations. , Reorganization or settlement.
This includes production and operation and living consumption.
Xu Shengfeng, a partner and lawyer in the Shenzhen office of Zhong Lun Law Firm, and Wang Haijun, a partner and lawyer in the Shenzhen office, and his team (hereinafter referred to as "Zhong Lun Law Firm") wrote an in-depth interpretation of the Regulations.
Zhong Lun Law Firm believes that according to the above-mentioned provisions, the "Regulations" are applicable to individual industrial and commercial households, which fills the gap in the bankruptcy system for individual industrial and commercial households.
According to the provisions of the "General Principles of the Civil Law" and the "Civil Code", individual industrial and commercial households are natural persons who are legally registered to engage in industrial and commercial operations. Although they can have a name, they are essentially the same as individuals in terms of the scope and method of debt obligations.
According to statistics, as of the end of January 2020, the number of commercial entities registered in Shenzhen has reached 3.298 million, of which 1.236 million are self-employed, accounting for 37.5%.
In addition, there are a large number of self-employed commercial entities participating in market economic activities in the form of micro-business, e-commerce, and freelancers.
He Huan believes that “this time Shenzhen’s legislation does not limit the scope of application to the situation of business owners, but includes consumers and other natural persons engaged in production and business operations. From a long-term perspective, the legislation is forward-looking. But if From a conservative point of view, we can first make institutional arrangements from the perspective of business owners’ insurance. After accumulating experience, the scope of legislation can be extended to consumers and other business persons. Especially for ordinary consumers, if there are more With the support of research and data, the legislation will be more scientific."
2. Will the personal bankruptcy law be abused by debtors?
In recent years, malicious consumption and excessive consumption have frequently appeared among young people. For example, consumers who borrow online loans cause insolvency and inability to repay their debts. Will these consumers use personal bankruptcy to escape debt?
He Huan believes that the legislation of the personal bankruptcy law should distinguish between honest debtors and dishonest debtors, and the object of relief applied by the personal bankruptcy law must be honest and unfortunate debtors; it must also distinguish between legitimate debts and improper debts. Some debts are Improper, such as drunk driving that causes personal tort and other malicious harm, cannot be exempted from these debts.
"In order to avoid the debtor from continuing to waste after the termination of the exemption from bankruptcy, the Regulations have made arrangements for this, such as the disclosure of the debtor's financial information; the administrator's power to investigate the debtor; the 8-year interval limit for two consecutive exemptions; liquidation procedures After the expiration of the inspection period for exemption; the circumstances of the debtor's non-exemption and the debts that are not exempted. In general, the "Regulations" have made a relatively complete institutional arrangement for restricting individual abuse of the law." He Huan said.
According to the "Regulations", debts that cannot be forgiven include personal debts, public law debts, debts known to the debtor but not recorded in the inventory, and debts arising from an employment relationship.
The "Regulations" stipulated a three-year inspection period for bankruptcy liquidation.
During the inspection period, the debtor shall continue to perform the obligations stipulated in the people's court's decision to restrict behavior and perform other obligations of the debtor as stipulated in the regulations. If the regulations are violated, the people's court may decide to extend the inspection period, but the extension shall not exceed 2 years.
The "Regulations" also restrict the behavior of debtors from three aspects: restrictions on consumption, restrictions on professional qualifications, and restrictions on loan lines.
The Legal Work Committee of the Standing Committee of the Shenzhen Municipal People’s Congress stated in the interpretation of the "Regulations" that the basic value orientation to be established in personal bankruptcy legislation is that only honest and trustworthy debtors can be protected by the personal bankruptcy system when they unfortunately fall into a debt crisis. And help them get rid of the debt crisis, re-participate in social and economic activities, and create more wealth.
For debtors who maliciously evade debts or commit bankruptcy frauds, not only cannot they escape debts through bankruptcy, but they must also be prevented and punished by legal means.
3. How to choose the three bankruptcy methods of liquidation, reorganization and settlement?
The "Regulations" stipulate that bankruptcy procedures are divided into three types: bankruptcy liquidation, reorganization, and reconciliation, of which the main two are liquidation and reorganization.
Bankruptcy liquidation means that the debtor passes through the bankruptcy liquidation process, except for the exempted property retained in accordance with the law, all of the property is allocated to the creditor for debt repayment.
After the inspection period, "honest and unfortunate" debtors who comply with behavioral restrictions and have no bankruptcy fraud can be exempted from unpaid debts in accordance with the law.
There will be restrictions on consumption behavior during the inspection period.
Reorganization means that if the debtor has predictable income in the future, a reasonable and legal reorganization plan is proposed, which will be executed by the debtor after approval by the people’s court to achieve debt liquidation and economic regeneration.
The reorganization period is no more than 6 months from the time the court accepts the reorganization application to the end of the reorganization procedure (the court decides to approve the reorganization plan).
The implementation period of the reorganization plan shall not exceed 5 years and can be extended, but the maximum extension shall not exceed 2 years.
Zhong Lun Law Firm interprets that in the reorganization process, the restrictions and constraints imposed on the debtor are more tolerant than in the bankruptcy liquidation process.
For example, restrictions on consumer behavior and exiting the country can be lifted when the court approves the reorganization plan, and there are no restrictions on employment in the reorganization process.
He Huan told China Business News that the main difference between the two procedures is the debtor's ability to repay the debt in the future.
The ideal application target of the liquidation procedure is people who are in trouble of reorganization and will not be able to pay in the future, and the reorganization procedure is suitable for people who are in trouble but have the ability to pay.
4. Protect the creditor or the debtor?
Does the Regulations focus on the protection of creditors or debtors?
He Huan believes that there is no benefit to the debtor and the creditor. In an ideal situation, the bankruptcy law is beneficial to both the debtor and the creditor, as well as to the society.
"For the creditor, it is the occurrence of the debtor’s financial distress, not the existence of the bankruptcy law or the initiation of the bankruptcy procedure. The bankruptcy procedure is precisely to deal with the debtor’s financial dilemma, so as to achieve the benefit of including the debtor and the creditor. If the creditor is a bank, it is actually useless for the bank to keep bad debts. After bankruptcy, the bank can get at least part of the compensation, and the debtor can get rid of the accounts, get rebirth, and regain the equilibrium point of interest. ." He Huan said.
Zhong Lun Law Firm believes that the core function and goal of the personal bankruptcy system is to forgive part of the debtor’s debts and give the debtor a chance to be reborn.
The debt forgiveness system is closely linked to the legislative goal of avoiding malicious evasion of debts. Therefore, the design of the system should pursue a balance between debtors and creditors.
5. Will personal bankruptcy be abused by creditors?
Who will file for bankruptcy?
There is no dispute about the debtor's application for bankruptcy, so can the creditor apply for the debtor's bankruptcy?
The "Regulations" stipulate that creditors who individually or jointly hold over 500,000 yuan of matured creditor's rights against the debtor may also apply to the people's court for bankruptcy liquidation of the debtor.
He Huan said that more than 99.7% of bankruptcy cases in the United States are voluntary applications by debtors. From the perspective of the motive for bankruptcy applications, generally speaking, debtors actively file for bankruptcy.
"The first thing the creditors consider is individual execution, because the compensation for compulsory execution belongs to them. To file for bankruptcy, you need to share the debtor's assets with other creditors. Only the creditors who lag behind in the execution will have the motivation to file for bankruptcy. In fact, as long as the personal bankruptcy law can provide certain relief, the debtor will take the initiative to apply for it before the creditor can take action." He Huan said.
Zhong Lun Law Firm believes that the review of precedents in foreign legislation generally grants creditors the right to apply for bankruptcy of the debtor, but some national legislation regulates the amount of creditors applying for bankruptcy to prevent small creditors from abusing bankruptcy procedures.
For example, the British Bankruptcy Law stipulates that creditors can file an application for bankruptcy against the debtor individually or jointly, and the total amount of claims of the creditor who filed the application should reach or exceed 5,000 pounds.
The "Regulations" stipulate that creditors who individually or collectively hold over 500,000 yuan of matured claims against the debtor can apply to the people's court for bankruptcy liquidation of the debtor. It is precisely by limiting the amount of the creditor's right that the bankruptcy procedure is prevented from being abused. .
In terms of the order of bankruptcy and liquidation, the "Regulations" are the same as the corporate bankruptcy system, and still follow the principle that personal injury claims have priority over property claims, private law claims have priority over public law claims, and compensatory claims have priority over punitive claims.
6. Why is 200,000 exempt property required?
The "Regulations" lists seven types of exempt property, and also stipulates that, except for medals or other honorable items, personal injury compensation exclusively for debtors, social insurance funds, and minimum living security funds, the cumulative total value of exempt properties shall not exceed Two hundred thousand yuan.
The "Regulations" made an exception to the exempt property, that is, if the value of the property within the exemption range is relatively large, and it is obviously against the principle of fairness that it is not used to pay off debts, it is not recognized as exempt property.
Zhong Lun Law Firm believes that in terms of exempting property, the regulations clearly exempt the total value of the property from exceeding 200,000 yuan to protect the debtor and his family’s basic living needs during a period of time without real estate, including rental costs and basic living Expenses and basic living materials, which takes into account the debtor’s right to survival and development and the creditor’s rights to a balance.
"Property immunity also exists in the civil execution procedure and is not unique to the personal bankruptcy law. On the one hand, it is necessary to protect the basic living needs of the debtor, which is also a manifestation of the humane feelings of the law, but on the other hand it cannot exceed the necessary limit." Huan told CBN reporters.
Author: Sun Weiwei