Creditors allowed to recommend bankruptcy administrators

By Wang Zhenxiang, Jingtian & Gongcheng

As part of the State Council’s efforts to reform the overall business environment, six major cities – Beijing, Shanghai, Chongqing, Hangzhou, Guangzhou and Shenzhen – have since the end of October 2021 been part of a pilot programme aimed at creating a more transparent and efficient exit mechanism for market players. Among the reforms, creditors of bankrupt companies will be allowed to recommend administrators to be appointed by the courts.


Under the current Enterprise Bankruptcy Law and its interpretations, courts appoint administrators from a local register by means of, among others, random selection, open invitation to bid, and recommendations from financial regulators. In practice, however, administrators are rarely appointed through recommendation.


Wang Zhenxiang Jingtian & Gongcheng
Wang Zhenxiang
Jingtian & Gongcheng

Judicial policies are transitioning from the recommendation of financial institutions as bankruptcy administrators by regulators, to recommendation by main creditors or debtors of non-financial institutions as administrators. Creditors may make the recommendation in cases applicable to pre-reorganisation, or where a financial institutional creditors’ committee has been formed, or for administration in mainland China of court-recognised Hong Kong bankruptcy proceedings.

The determination of main creditors varies between regions. In Beijing, when the aggregate creditors’ rights of one or multiple creditors, as evidenced by the debtor’s accounting report, debt inventory, financial statements and other documents, exceeds half of the total known debt, such creditors will be regarded as main creditors.

They will then be entitled to recommend one or two intermediaries as administrators. When aggregating creditors’ rights, there should be no double counting for joint and several claims, inclusion of debt relations between affiliated companies, or double counting for affiliated companies acting as joint and several debtors for each other.

The determination of main creditors does not exclude objective and genuine shareholder loan claims and other claims formed by affiliated companies.


In terms of what type of cases are suitable for the recommendation of administrators, policies vary widely from one region to another. In Beijing, administrators may be recommended if: the debtor undergoes out-of-court reorganisation or pre-reorganisation; the affiliated companies all enter bankruptcy; or the case involves a large number of stakeholders and has a significant local impact.

In Chongqing, a recommendation is limited to bankruptcies involving a relatively small amount of capital, a moderate amount of debt, and concentrated creditors’ rights. In Hangzhou, administrators cannot be recommended in bankruptcies of financial institutions, large state-owned enterprises, listed companies or debtors with a total property value exceeding RMB300 million (USD45 million), or in other socially impactful or complex bankruptcy cases.

All regional regulations require that the creditors and debtors should issue written consent agreeing to a certain intermediary as the administrator and state the reasons. In Beijing, where a financial institutional creditors’ committee makes the recommendation, it shall do so according to its working regulations and issue a written resolution.

In Chongqing, an announcement should be published on the public service network platform of the local court for no less than five days, and there should be no fewer than two intermediaries of different types. In Hangzhou, the proposer of an administrator should make a written submission within 15 days from the date of filing for a bankruptcy application review.


In many cities, including Beijing and Chongqing, it is clearly stipulated that the recommended intermediary should, in principle, be an agency listed on the register of administrators of the local court, and which has been reviewed to ensure it has the personnel and ability to perform its duties, and that there is no pre-existing interest that may affect its faithful performance of that duty.

To review potential conflicts of interest of a recommended intermediary, regional policies dictate that the agency must make sufficient filings and disclosures to allow a thorough court examination. As bankruptcies can affect a significant number of creditors, and bankruptcies of large enterprises almost invariably involve financial institutions, to demand there are absolutely no interests between competent intermediaries and the creditors or debtors may result in most ideal candidates being disqualified.

Therefore, the court is often given the final say on whether the pre-existing interests disclosed by the intermediary are significant enough to affect its faithful performance of duty. Courts tend to focus on the time and duration of the disclosed events, the size of interests in question, and the breadth of intermediary service provided.

In Beijing, the provision of out-of-court reorganisation, pre-reorganisation and other bankruptcy-related services does not necessarily constitute pre-existing interest, but basic information should nevertheless be disclosed. In Chongqing, if there is a previously unknown creditor-debtor relationship between a registered administrator and the creditor or debtor, or the administrator has been a regular provider of intermediary services to the debtor within three years prior to the acceptance of the bankruptcy filing, the court will form a review committee to make the determination.

If it was found that the intermediary refused to disclose or deliberately concealed information, it would be disqualified from acting as the administrator for the case it was recommended for, and be subject to a penalty that restricts its qualification as an administrator for a period ranging from six months to almost two years.


If other creditors or debtors object to the recommendation by the main creditors, the parties should resolve their differences through negotiation. In Beijing, other creditors may recommend a different administrator to the court before it makes a formal appointment, and the court will decide whether or not to accept its candidacy. In Chongqing, if more than two main creditors recommend different administrators and fail to reach a consensus after negotiation, the court will no longer use recommendations to appoint the administrator.

Wang Zhenxiang is a partner at Jingtian & Gongcheng


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