Reviewing And Improving The Adjustment Of Contributors’ Rights And Interests In Bankruptcy Reorganization In China ——From The Principle Of Absolute Priority

The bankruptcy reorganization is a collective debt payment process involving the financiers,creditors and the reorganization investors.The essence of bankruptcy reorganization is that equity flows from the financiers to the reorganization investors（creditors in debt-to-equity conversion）,and the funds obtained from the reorganization are used to pay off debts and maintain the company’s operations.The bankruptcy restructuring of the company requires tripartite consultation,and the capital structure is changed from the original equity structure and debt relationship to a new capital structure,which is inevitable to adjust the equity of the contributors.The study of contributors’ rights and interests in the legislation and judicial practice shuttle back and forth,found that the adjustment of contributors’ rights and interests in China’s current bankruptcy law legislation is too little,the court-approved restructuring plan is less effective than the contributors,there are legislative loopholes,should be repaired.The issues of procedural legality,adjustment mode and proportion of adjustment of contributors’ rights and interests are the key points in regulating the adjustment of contributors’ rights and interests.The retention of a contributor’s interest has been controversial in theoretical circles,and is essentially a dispute over whether the value of equity in a reorganization is zero.The difference between accepting the liquidation value and the going concern value is the key to understanding the special characteristics of reorganization.According to the "empty bottle theory",the rights of shareholders should be respected,and the arbitrary transfer of equity without compensation infringes on the property rights of shareholders.Here,we reiterate the value of the contributor’s equity in bankruptcy reorganization.The issue of the contributor’s interest is closely related to the principle of absolute priority.Absolute priority principle is designed to determine the previous contractual rights through the subsequent system.The right of the contributor to claim the distribution of the residual value is a right determined by law,and the contributor has a legal basis to obtain the distribution of the company’s assets.The concept of absolute priority principle in China is vaguely defined,and from the legislation of the U.S.Bankruptcy Code in absolute priority principle,the concept of absolute priority principle is that when the first-ranking equity holders are not fully satisfied,the second-ranking equity holders cannot be satisfied,and the clear absolute priority principle binds the adjustment of the equity of the contributors.In judicial practice,the distribution of bankruptcy is the distribution of the bankruptcy estate and also the distribution of losses.The principle of absolute priority requires that the first-ranking right holder receive full satisfaction,i.e.,the "all-or-nothing" type of distribution.By reversal of this principle,the subsequent right holder should suffer a greater disbenefit than the prior right holder.The reservation of the contributor’s interest deviates from the principle of absolute priority.The deviation from absolute priority is due to the use of complex procedures and lenient judges by insiders in a favorable position,specifically because of the uncertainty of the valuation of the company and the attempt of the contributor to obtain more benefits by using his convenient status as an insider.The solution to the problem of adjustment of contributors’ interests requires finding a justification for the retention of contributors’ interests,and there are two paths to the justification of the retention of contributors’ interests.One is the new value exception rule as a patch to the absolute priority principle,i.e.,shareholders participate in the reorganization by contributing new value,thereby retaining their equity in the reorganized company even if the junior creditors do not receive full satisfaction;the other is the construction of the relative priority The second is to establish the principle of relative priority,so that even if the priority creditors are not fully paid,the subsequent right holders can receive a certain amount of payment or distribution according to the principle of equity and fairness.The moderate repair is more in line with the current situation in China without the need to explain the reasons for the retention of contributors’ rights and interests in the event that ordinary creditors are not fully satisfied.Clarify the principles of due process and the manner and proportion of adjustment of contributors’ rights and interests.The due process of adjustment of the rights and interests of the contributors should be strictly observed.The way and proportion of adjusting the interests of the contributors should follow the substantial fairness and justice,according to the responsibility of the contributors to the company in trouble,different degrees of adjustment should be made to achieve the substantial fairness and justice.