Research On The Legal Issue Of Market-oriented Debt-for-equity Swap

Debt for equity swap refers to the swap from creditor’s rights to stock rights.It is one of the tools used to lower the debt leverage of enterprises,and a conventional method used to deal with non-performing assets.China has launched a new round of debt for equity swap with marketization as its core under the influence of multiple elements after the first round launched 17 years ago.However,two years of experiment and practice have found the current system is far from enough to meet the needs of resolving practical issues.We are in urgent need of a further study and improvement of the market-oriented debt for equity swap mechanism.The first chapter of this paper proposed the significance of studying market-oriented debt for equity swap,and justified the necessity of studying laws and regulations on debt for equity swap through analysis of theories including creditor’s rights investment and creditor’s rights liquidation,discussion of the target and value goal of market-oriented debt for equity swap,and introduction of laws,regulations and policy changes on debt for equity swap.The second chapter presented legal issues occurred during implementation of market-oriented debt for equity swap,proposed and analyzed five main issues including unclear nature of laws on debt for equity swap,ambiguous application scope and selection standards on debt for equity swap,companies’ internal management difficulties,difficulty to ensure the creditor’s interests,and difficulty to withdraw the stock rights after swap.The third chapter clarified legal solutions for the five issues including clarifying the nature of creditor’s rights investment,clarifying the application scope and selection standards,improving companies’ internal management rules,exploring "recovery"mechanism of debt for equity swap,and re-establishing stock rights repurchase agreement on debt for equity swap,through comparison and analysis of debt for equity swap rules in foreign countries.It discussed the practical approaches China would take to improve our market-oriented debt for equity swap based on confirmation of the nature of creditor’s rights investment.