Restrictions on the Exercise of Bankruptcy Set-off Right by Subordinated Claims from a Typological Perspective—Against the Background of the Revision of the China's Enterprise Bankruptcy Law

Abstract

With the proposal of the revised draft of the Enterprise Bankruptcy Law, types of subordinated claims such as family member loans, subordinated bonds, and punitive debts have been included, and the issue of restrictions on the exercise of set off rights by subordinated claims in bankruptcy proceedings has gradually become a focus of attention. The chaotic judgment in judicial cases stems from the lack of clear set-off rules for subordinated claims in the current legislation. The "subordinated repayment" attribute of subordinated claims is inevitably in conflict with the "Preferential Transfer" function of bankruptcy set-off right. If the set-off behavior is not restricted, the fairness and disciplinary values contained in the subordination system will be weakened. Based on an empirical analysis of 12 judicial cases, combined with a comparison of the current Enterprise Bankruptcy Law, judicial interpretations and other norms, this paper clarifies the types of subordinated claims and the essence of the conflict with set-off right, and proposes a restrictive path for the exercise of bankruptcy set-off right by subordinated claims: establishing the core principle of "Prohibition as the principle, permission as the exception", designing differentiated substantive restriction systems for three types of subordinated claims, so as to provide support for unifying judicial judgment standards and improving the bankruptcy repayment order.