Tongfang Bankruptcy Team: 
Since commencing bankruptcy practice in 2013, Tongfang Law Firm has handled a total of 51 bankruptcy cases—ranging from bankruptcy liquidation and reorganization to settlement—either by serving as the sole administrator or by forming liquidation teams together with government officials. Among these cases, 35 have now concluded their bankruptcy proceedings. In September 2022, Tongfang formally established the “Bankruptcy and Reorganization Practice Center,” bringing together more than 20 lawyers who are deeply involved in every stage of corporate bankruptcy liquidation, reorganization, and settlement cases. 
Case Summary: 
On July 19, 2022, the Shenyang Intermediate People's Court (hereinafter referred to as “Shenyang Intermediate Court”) issued Civil Ruling No. (2022) Liao 01 Po Shen 2, legally ruling to accept the bankruptcy liquidation case of a certain television newspaper (hereinafter referred to as “the Newspaper”). On July 20, 2022, the court appointed Liaoning Tongfang Law Firm as the administrator (hereinafter referred to as “the Administrator”). 
During the performance of their duties, the administrator discovered that the newspaper and its subsidiary, Shenyang Yinmou Advertising & Media Co., Ltd. (hereinafter referred to as “Yinmou Advertising”), had a close affiliation, highly blurred corporate personalities, and excessively high costs associated with distinguishing between the two companies’ assets. If the two companies were liquidated separately, it would seriously undermine the fair repayment interests of creditors. To address this issue, the administrator collected a large volume of original documents related to both the newspaper and Yinmou Advertising, conducted interviews with key personnel from both companies, obtained relevant litigation materials from the court, and commissioned accounting firms to prepare separate special audit reports: a special bankruptcy audit report for the newspaper, a special audit report for Yinmou Advertising, an audit report on the confusion of assets between the newspaper and Yinmou Advertising, and a simulated bankruptcy liquidation audit report for both entities. Additionally, the administrator secured written consent and stability-maintenance commitments from the superior authorities overseeing both the newspaper and Yinmou Advertising. After more than six months of preparation, the administrator submitted a request to the Shenyang Intermediate People’s Court to apply the substantive consolidation bankruptcy liquidation procedure in accordance with the law. Upon accepting the application, the Shenyang Intermediate People’s Court held a hearing to hear the views of the administrator, creditor representatives, supervisory authorities, both debtors, and employees. Following a rigorous review, on September 20, 2023, the Shenyang Intermediate People’s Court issued Civil Ruling No. (2022) Liao 01 Po 4-1, ruling as follows: The television newspaper and Shenyang Yinmou Advertising & Media Co., Ltd. shall be subject to substantive consolidation bankruptcy liquidation. 
Creditors Ma Moujun and Shenyang [Company Name] Printing Co., Ltd. were dissatisfied with the ruling on substantive consolidation and filed a request for reconsideration with the higher-level people’s court. The Liaoning Provincial Higher People’s Court held a hearing in accordance with the law to review the case and issued a civil ruling on December 7, 2023, dismissing the reconsideration applications filed by the relevant creditors. 
The administrator successfully convened the creditors’ meeting for the substantive merger and bankruptcy of the newspaper and Yin’s Advertising. After voting by all creditors, the creditors’ meeting approved the property management plan, the asset liquidation plan, and the distribution plan for the merged bankruptcy liquidation case. 
Case Summary: 
This case is the first substantive consolidation bankruptcy liquidation case handled by Tongfang Law Firm. 
In accordance with the guiding principles issued by the Supreme People’s Court on bankruptcy trials, substantive consolidation in bankruptcy is an exceptional measure applied to corporate insolvency and may be used only under specific circumstances that meet the conditions for substantive consolidation. Consequently, courts exercise particular care and rigor when reviewing applications for substantive consolidation in bankruptcy. In this case, the lawyer serving as the administrator cited relevant legal provisions to elaborate on the legal basis and factual criteria for the substantive consolidation and liquidation of affiliated enterprises. At the same time, the administrator submitted to the accepting court a substantial amount of solid and conclusive evidence, demonstrating from the following aspects that the two debtors meet the conditions for substantive consolidation in bankruptcy: First, both the newspaper and Yinmou Advertising—as a whole and individually—have grounds for bankruptcy liquidation; second, the newspaper and Yinmou Advertising are affiliated entities, with the newspaper exercising actual control over Yinmou Advertising, which has severely lost its independent will; the legal personalities of the newspaper and Yinmou Advertising are highly intertwined, and thus these two affiliated companies satisfy the conditions for substantive consolidation and liquidation; third, the assets of the newspaper and Yinmou Advertising are difficult to distinguish, and the cost of such distinction would be excessively high; fourth, the creditor-debtor relationships between the newspaper and Yinmou Advertising are chaotic and have seriously undermined the fair repayment interests of creditors; therefore, consolidating their bankruptcies would help safeguard the equitable recovery of creditors’ claims. 
After a rigorous review and hearing, the court found that the facts stated by the administrator and the evidence submitted sufficiently demonstrated that the newspaper and Yin’s advertising business met the conditions for substantive consolidation in bankruptcy liquidation, and ultimately ruled to accept the application for substantive consolidation bankruptcy liquidation. 
This case has provided the bankruptcy team at Tongfang Law Firm with valuable experience in handling substantively consolidated bankruptcy cases, thereby enhancing its expertise in bankruptcy-related matters.