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  1. 1. It is very common that debt may occur in the economic activities between enterprises.However, once the debtor is in a financial difficultyand unable to pay off the debt in time, the remedy left for the creditor shall be very limited. In many cases, the creditor may hesitate whether it shall file a lawsuit to solve the debt issue. The reason is if the failure in payment by the debtor is really caused due to the financial problem, even the creditor wins the lawsuit after long time litigation,the enforcement shall still be a long term processwith uncertain result. In extreme cases, the debtor may be filed for bankruptcy if there are many creditors and the asset of the debtor is not sufficient to pay off all debt. Under suchcircumstances, the business and operation of the debtor may have to be stopped.How to File Bankruptcy
  2. 2. As a part of effort to solve the financial difficulty in enterprises, theState Administration of Industry and Commerce (“SAIC―)promulgated “Administrative Measures for CorporateDebt-for-Equity Swap Registration― (“Measures―) inNovember of 2011, which allows the creditors to swap the debt forcorporate equity under certain conditions, so that the debtor canreduce its burden of debt and solve the financial problems To thecreditor, by swapping the debt for equity, it can also reduce the riskof bad debt and open a new door for investment How to FileBankruptcy The Scope for Debt-for-Equity Swap Inaccordance with the Measures, debt-for-equity swap shall be limitedto the debt of a limited liability company or stock corporationregistered in the territory of China
  3. 3. If the debtor is a partnership or other non-corporate entities, thendebt-for-equity swap shall not apply In addition, only the debtwhich falls into one of the following circumstances can be allowed tobe swapped for equity: I The contractual debts arising betweencreditor and debtor during business operations
  4. 4. The creditor should have performed all its obligations under thecontract which are relating to debt payable by the debtorFurthermore, the performance of the contract by the creditor shall notbe in violation of the law and regulation of the State as well as thearticle of association of the debtor; II Debt confirmed by effectivejudgments made by the courts; or III
  5. 5. Debts listed in reorganization plans approved by the courts orsettlement agreements ruled and accepted by the courts during thecourse of bankruptcy reorganization or settlement TheLimitation of the Amount of the Contribution from Debt-for-EquitySwap In accordance with the Measures, as a special form ofcontribution, the debt to be swapped for equity shall be deemed asnon-monetary contribution, which shall be appraised by certifiedasset appraisal firm and verified by certified accounting firmaccording to current corporate law A verification report shall beissued accordingly
  6. 6. The contribution amount from debt-for-equity swap shall not exceedthe appraised value of the debt The sum of the contributionamount from debt-for-equity swap and other non-monetary propertyshall not exceed 70% of the debtor’s corporate registered capital Therefore, debt to be swapped for equity shall be limited interms of its appraised value as well as non-monetary contributionproportion
  7. 7. The Registration of Debt-for-Equity Swap If the debtor plansto swap debt for equity, it shall apply to the authority with requireddocuments and submit for registration change in registered capitaland paid-up capital The authority, after approval, shall markdebt-for-equity swap in the legal document and make public for suchregistration information
  8. 8. How to File Bankruptcy