Southeast Asia Information Port News (www.dnyxxg.com) Over a year ago, a specialized and innovative small and micro enterprise faced bankruptcy due to a broken capital chain. Faced with the difficulty of attracting external investors for the restructuring of small and micro enterprises, the Shenzhen Intermediate People's Court boldly broke through, forging a new path of "preserving the founding shareholders' management rights and ensuring the rapid and successful restructuring of small and micro enterprises"—preserving the founders' equity ratio for management decisions to ensure the company's development; and balancing the interests of creditors through debt-to-equity conversion or cash repayment for ordinary creditors.
This innovative practice not only saved this small and micro enterprise but also lit a beacon of hope for many other small and micro enterprises in similar situations.
Qingmou Company, specializing in computer technology services in the medical field, possessed multiple patents and was a specialized and innovative small and medium-sized enterprise in Shenzhen and a national high-tech enterprise. Due to operational problems leading to a broken capital chain, it was unable to pay its debts and filed for bankruptcy.
After investigation, the court found that the company's total assets were over 3.91 million yuan, but its total liabilities reached over 46.04 million yuan. Liquidation would mean that many creditors would lose everything.
“This is a knowledge- and technology-intensive micro-enterprise with excellent market prospects. It would be a real pity to let it go bankrupt and liquidate like this. Moreover, the founder and his team have put in a lot of effort and accumulated a lot along the way, and have a strong desire to save themselves.” Judge Zhao Zhong of the Shenzhen Bankruptcy Court carefully reviewed the case file and found that the company had restructuring value. After multiple communications with the debtor, its shareholders, and creditors, he immediately reported to the collegial panel, suggesting that the procedure be changed from liquidation to restructuring, which was unanimously agreed to.
However, another problem arose. “Micro-enterprises usually have small asset sizes, and it is often difficult to recruit external investors during restructuring. There is also no one other than the founders and shareholders who has the willingness or ability to maintain the company’s operation,” Zhao Zhong said. However, corporate restructuring also has an “absolute priority principle”—if creditors are not fully repaid, the company’s shareholders cannot enjoy any rights; otherwise, the restructuring plan will be difficult to pass.
How to find a suitable balance of interests among creditors, founders, and the company's continued development? Zhao Zhong suggested that perhaps the founding shareholders could remain in the company, but with necessary restrictions on their equity interests, similar to the system of class shares. His idea, which considered the interests of multiple parties, gained widespread support. Therefore, the Shenzhen Bankruptcy Court boldly broke through existing limitations and, after multiple communications with the debtor, its shareholders, and creditors, decided to formulate a draft reorganization plan through capital increase and share expansion.
Ultimately, the company formulated a reorganization plan: ordinary creditors could choose between debt-to-equity conversion or cash repayment. Those choosing debt-to-equity conversion would have their claims converted into company shares at a uniform ratio, and these shareholders would also enjoy priority in dividend payments and priority in exiting the company. The founding shareholders would retain their equity stake in operational decision-making and be responsible for the company's management.
From ruling on the reorganization of Company Qing to approving the reorganization plan and terminating the reorganization proceedings, the Shenzhen Bankruptcy Court successfully reorganized this small and micro-sized enterprise in just two months.
It is reported that Shenzhen has innovated a fast-track bankruptcy trial model nationwide. By streamlining procedures such as centralized appointment of administrators, pre-voting of plans, and simultaneous property inquiries and asset valuation, the cost of bankruptcy proceedings has been reduced by more than 30%, the average trial period has been shortened to 5 months, more than 900 zombie companies have been quickly liquidated, and more than 100 small and medium-sized enterprises have quickly gotten rid of debt difficulties and continued to operate, promoting the efficient release of production factors.
