Keywords: bankruptcy, bankruptcy liquidation

Li Haiyi   Dong Enzhong   

Case details

Liaoning [Company Name] was originally named Liaoning [Company Name] Home & Building Materials Supermarket Co., Ltd. It was established on June 23, 2004, as a limited liability company jointly funded by [Company Name] Chain Commercial Group Co., Ltd. and Tianjin [Company Name] Building Materials Supermarket Co., Ltd. On December 31, 2006, [Company Name] Asia Holdings Co., Ltd. acquired Tianjin [Company Name] Home & Building Materials Supermarket Co., Ltd. Subsequently, [Company Name] Asia Holdings Co., Ltd. was renamed [Company Name] (Tianjin) Commercial Co., Ltd., and Liaoning [Company Name] Home & Building Materials Co., Ltd. was renamed Liaoning [Company Name] Home & Building Materials Supermarket Co., Ltd. Its registered address is No. [Number], [Middle Road], Shenyang City; the legal representative is Scott [Name]. Liaoning [Company Name] has a registered capital of 5 million yuan. The investor is [Company Name] (Tianjin) Commercial Co., Ltd., holding a 100% equity stake. The business scope of Liaoning [Company Name] includes: wholesale and retail sales of building materials, decoration and renovation materials, construction machinery, hardware and electrical products, furniture, kitchenware and related equipment, daily necessities, general sundries, chemical products (excluding highly toxic substances, hazardous chemicals, and precursors), instruments and meters, telecommunications equipment, general labor protection supplies, office supplies, home décor items, floriculture and gardening products, arts and crafts, automotive accessories, and cleaning and maintenance products; technical information consulting; rental of construction equipment and tools; merchandise display services; after-sales installation and maintenance of sold products (for those requiring qualification certificates, compliance with relevant national regulations is mandatory); and leasing of counters (the contractor shall obtain its own license separately).

According to the “Audit Report on the Financial Statements of Liaoning [Company Name] Home & Building Materials Supermarket Co., Ltd. for the Year 2012,” issued by Liaoning Zhongheng Certified Public Accountants LLP and provided by the debtor (Liao Zhongheng Hui Shen [2013] No. 231), as of December 31, 2012, the debtor’s total assets amounted to 606,692.77 yuan, primarily consisting of accounts receivable, including 454,189.57 yuan from Beijing [Company Name] Home & Building Materials Supermarket Co., Ltd. The total liabilities amounted to 45,982,986.23 yuan, mainly composed of accounts payable, such as 45,140,647.67 yuan owed to [Company Name] (Tianjin) Commercial Co., Ltd. as an advance payment.

Liaoning [Company Name] Home & Building Materials Supermarket Co., Ltd. (hereinafter referred to as “Liaoning [Company Name]”) applied to the Shenyang Intermediate People’s Court (hereinafter referred to as “Shenyang Intermediate Court”) for bankruptcy liquidation due to poor business performance, severe insolvency, and inability to repay its maturing debts. On September 4, 2013, the Shenyang Intermediate Court issued Civil Ruling No. [2013] Shen Zhong Min San Po (Yu) Zi No. 2, ruling to accept Liaoning [Company Name]’s bankruptcy liquidation application. On September 5, 2013, the Shenyang Intermediate Court issued Decision No. [2013] Shen Zhong Min Po Zi No. 1–1, appointing Liaoning Tongfang Law Firm as the administrator and designating Attorney Yang Xingquan as the head of the administrator. The Shenyang Intermediate Court served the administrator with the Civil Ruling accepting the bankruptcy liquidation application and the Decision appointing the administrator.

Acceptance of Bankruptcy Liquidation: On September 4, 2013, the Shenyang Intermediate People's Court issued Civil Ruling No. [2013] Shen Zhong Min San Po (Yu) No. 2, ruling to accept the bankruptcy liquidation of Liaoning [Company Name].

Declare bankruptcy

Reasons for the Ruling: This Court finds that Liaoning [Company Name] Home & Building Materials Supermarket Co., Ltd. is unable to pay its debts as they become due. Upon application by the debtor, this Court has ruled to accept the bankruptcy liquidation case of Liaoning [Company Name] Home & Building Materials Supermarket Co., Ltd. An audit commissioned from an intermediary agency has revealed that Liaoning [Company Name] Home & Building Materials Supermarket Co., Ltd. is already insolvent and unable to repay a substantial amount of its maturing debts. At the first meeting of creditors held for Liaoning [Company Name] Home & Building Materials Supermarket Co., Ltd., neither the creditors nor the debtor, nor any other relevant parties, submitted any applications for conciliation or reorganization either during or after the meeting. Given the current financial condition of the company, there is no longer any possibility of conciliation or reorganization. Therefore, in accordance with Article 2 and Article 107 of the Enterprise Bankruptcy Law of the People’s Republic of China, this Court rules as follows: Liaoning [Company Name] Home & Building Materials Supermarket Co., Ltd. is hereby declared bankrupt.

On November 21, 2014, the Shenyang Intermediate People's Court issued Civil Ruling No. [2013] Shen Zhong Min Po Zi No. 1-1, declaring Liaoning [Company Name] Home & Building Materials Supermarket Co., Ltd. bankrupt.

Terminate the bankruptcy proceedings

Reasons for the Ruling: This Court holds that Liaoning [Company Name] Home & Building Materials Supermarket Co., Ltd. has been lawfully accepted by this Court and declared bankrupt. Its administration plan, liquidation plan, and distribution plan have all been approved by the creditors’ meeting. The bankruptcy property distribution plan clearly sets forth the details of bankruptcy expenses, bankruptcy claims, the amount of bankruptcy property available for distribution, as well as the order and method of distribution. This distribution plan has been confirmed by a ruling of this Court and has now been fully implemented by the bankruptcy administrator of Liaoning [Company Name] Home & Building Materials Supermarket Co., Ltd. The distribution report and application for termination submitted by the bankruptcy administrator of Liaoning [Company Name] Home & Building Materials Supermarket Co., Ltd. both indicate that the final distribution has been completed and the bankruptcy liquidation procedure has been fully concluded, thus legally warranting termination. Therefore, in accordance with Article 120 of the Enterprise Bankruptcy Law of the People’s Republic of China, the Court rules as follows: The bankruptcy proceedings of Liaoning [Company Name] Home & Building Materials Supermarket Co., Ltd. are hereby terminated.

Typical significance

This is the first bankruptcy liquidation case that I have handled as a receiver since the implementation of the administrator system under the Bankruptcy Law. Our firm assigned attorneys Li Haiyi, Dong Enzhong, Zhang Gengyuan, and Wang Lixin to form the legal team for this bankruptcy liquidation case. Despite lacking prior experience in handling such cases, our team of attorneys worked together in close unity, diligently studied bankruptcy practice, and successfully completed the bankruptcy liquidation task relatively smoothly.

In this case, the bankrupt enterprise has no bankruptcy assets available for distribution, and its bankruptcy assets are insufficient to cover the costs of bankruptcy liquidation. According to the Bankruptcy Law, if the bankruptcy assets are inadequate to pay the bankruptcy expenses, the bankruptcy proceedings can be terminated directly. However, in this case, the shareholders of the bankrupt enterprise have expressed their willingness to cover the bankruptcy expenses, thus enabling the bankruptcy proceedings to be completed.

During the handling of bankruptcy liquidation cases, the administrator must maintain close and unimpeded communication with the financial personnel of the bankrupt enterprise, thereby creating favorable conditions for subsequent audit and valuation work. Otherwise, certain tasks may become impossible to carry out or proceed smoothly. It is also important to pay attention to the bankrupt enterprise’s tax matters—such as tax filings and invoice management—to lay the groundwork for future tax deregistration procedures.

During the handling of bankruptcy liquidation cases, given the small number of bankruptcy cases and the novelty of the bankruptcy administrator system, government departments lack a thorough understanding of both the Bankruptcy Law and the bankruptcy administrator system, which has posed significant challenges to the administrators’ work. Consequently, in many instances, administrators must rely on their ingenuity and creativity to tackle the difficulties they encounter in their daily tasks.