The Bearing Of Collateral Management Expenditure And The Distribution Of Collateral Realization In Bankruptcy Liquidation

In the case of bankruptcy, the coexistence of secured creditors and commoncreditors is a common phenomenon, and after the People’s Court accepted theapplication for bankruptcy liquidation, before the secured creditors achieve theirbeing-repaid priority right, the value of the collateral often changes. The changes ofcollateral value are caused by two main reasons: the first is the market rules anddepreciations; the second is the insolvency administrator’s collateral management.In the first case, in accordance with existing laws and regulations of collateral valueassignments, it is rare to find a problem; whereas in the second case, due to the costof collateral management, plus some special circumstances arise in the bankruptcycases, the problems of the bearing of collateral expenditure and the distribution ofcollateral realization become more difficult to solve.Through the analysis of existing laws and regulations, and combined with thetheory of law and the relevant regulations of American bankruptcy law, this paperresearches the nature of collateral management expenses, and determines who willbe liable for bearing the expenditure. Meanwhile, in order to facilitate the reader’sunderstanding, this paper makes an adaptation of a bankruptcy case as a hypotheticalcase. First, this article discusses whether the expenses should belong to bankruptcyexpenses or common benefits debt. After researches and discussions, this papersuggests that the expenditure should belong to bankruptcy expenses. This article alsolimits the insolvency administrator’s liability range of compensation: when theinsolvency administrator contravenes the law or has subjective intent, and alsocauses economic damage to the debtor’s property or the creditor’s rights, only in thatcase, the insolvency administrator should be liable for the expenses of collateralmanagement.After determining the bearing of collateral management expenditure, this articlediscusses how to allocate the collateral realization. This paper summarizes severalcommon viewpoints into three: secured creditors have priority claim in a limitedamount, deducting the expenses from the collateral full value, and the secured creditors can achieve their priority claim on the full value of the collateral. Throughthe analysis of relevant theories and existing laws in China, and after the discussionof the three different collateral value allocation plans, this paper eventually come toa conclusion that the secured creditor may have priority claim on the full value ofthe collateral.