1. It is very common that debt may occur in the
economic activities between enterprises.
However, once the debtor is in a financial difficulty
and unable to pay off the debt in time, the remedy
left for the creditor shall be very limited. In many
cases, the creditor may hesitate whether it shall
file a lawsuit to solve the debt issue. The reason
is if the failure in payment by the debtor is really
caused due to the financial problem, even the
creditor wins the lawsuit after long time litigation,
the enforcement shall still be a long term process
with uncertain result. In extreme cases, the debtor
may be filed for bankruptcy if there are many
creditors and the asset of the debtor is not
sufficient to pay off all debt. Under such
circumstances, the business and operation of the
debtor may have to be stopped.
How to File Bankruptcy

2. As a part of effort to solve the financial difficulty in enterprises, the
State Administration of Industry and Commerce (“SAIC―)
promulgated “Administrative Measures for Corporate
Debt-for-Equity Swap Registration― (“Measures―) in
November of 2011, which allows the creditors to swap the debt for
corporate equity under certain conditions, so that the debtor can
reduce its burden of debt and solve the financial problems To the
creditor, by swapping the debt for equity, it can also reduce the risk
of bad debt and open a new door for investment How to File
Bankruptcy The Scope for Debt-for-Equity Swap In
accordance with the Measures, debt-for-equity swap shall be limited
to the debt of a limited liability company or stock corporation
registered in the territory of China

3. If the debtor is a partnership or other non-corporate entities, then
debt-for-equity swap shall not apply In addition, only the debt
which falls into one of the following circumstances can be allowed to
be swapped for equity: I The contractual debts arising between
creditor and debtor during business operations

4. The creditor should have performed all its obligations under the
contract which are relating to debt payable by the debtor
Furthermore, the performance of the contract by the creditor shall not
be in violation of the law and regulation of the State as well as the
article of association of the debtor; II Debt confirmed by effective
judgments made by the courts; or III

5. Debts listed in reorganization plans approved by the courts or
settlement agreements ruled and accepted by the courts during the
course of bankruptcy reorganization or settlement The
Limitation of the Amount of the Contribution from Debt-for-Equity
Swap In accordance with the Measures, as a special form of
contribution, the debt to be swapped for equity shall be deemed as
non-monetary contribution, which shall be appraised by certified
asset appraisal firm and verified by certified accounting firm
according to current corporate law A verification report shall be
issued accordingly

6. The contribution amount from debt-for-equity swap shall not exceed
the appraised value of the debt The sum of the contribution
amount from debt-for-equity swap and other non-monetary property
shall not exceed 70% of the debtor’s corporate registered capital
Therefore, debt to be swapped for equity shall be limited in
terms of its appraised value as well as non-monetary contribution
proportion

7. The Registration of Debt-for-Equity Swap If the debtor plans
to swap debt for equity, it shall apply to the authority with required
documents and submit for registration change in registered capital
and paid-up capital The authority, after approval, shall mark
debt-for-equity swap in the legal document and make public for such
registration information

8. How to File Bankruptcy