The Dilemma of Debtor-In-Possession Management in China and its Legislative Responses

Abstract

Article 73 of the Enterprise Bankruptcy Law provides for the debtor-in-possession management. However, since the application for debtor-in-possession management requires careful examination and approval by the court, it is rarely used in practice. The debtor-in-possession management has the function of encouraging the debtor to file an application for reorganization in time and improving the efficiency of reorganization, but it can not be realized at present. In order to solve the problem that debtor-in-possession management is seldom used in practice, German legislators set up “protective shield” in Insolvency Code, which is a kind of preparation procedure for restructuring and the debtor can manage its assets and business operation under the supervision of its provisional monitor. In the practice of prepackaged bankruptcy in China, debtors also bear important management responsibilities, but no formal legal rules have been established. The Enterprise Bankruptcy Law could combine the current Chinese practice of prepackaged bankruptcy with the experience of the German “protective shield”. First, the threshold for initiating debtor-in-possession management in prepackaged bankruptcy should be lowered, second, the court should provide the debtor with limited legal protection, and third, the debtor should continue to manage its assets and business operations after entering formal reorganization proceedings.