(a) What is the underlying philosophy of the insolvency law of this economy? (For example is it distributive, rehabilitative or penal?)

 

The insolvency law of Taipei,China covers four different types of proceedings, i.e., bankruptcy, special liquidation, composition and reorganization.

The philosophy of bankruptcy and special liquidation is distributing the bankrupt's total assets (including capability and credit for repayment) and seeking an equitable repayment schemes between the creditors.

The philosophy of composition and reorganization is seeking the rehabilitation of the corporate debtor.

(b) Are there elements of more than one philosophy present in the insolvency law of this economy?

 

Please refer to (a) above. In addition, the insolvency law through certain penalty provisions also imposes obligations on the insolvent to act duly in accordance with the applicable procedures.

(c) Briefly describe the relevant elements, and if applicable, any penal sanctions available.

 

The elements of Taipei,China insolvency law are as follows:

• Insolvency proceeding starts from the incapability of repayment.
• Insolvency proceeding is to satisfy all creditors on a pari passu basis.
• Insolvency proceeding also protects the benefit and right of the insolvent;
• Insolvency proceeding is one that the court participates for enforcement;
• Insolvency proceeding is not in its nature penal but has significant impact in the insolvent's franchise.

(a) In which judicial category is insolvency law classified in the legal system of this economy? (For example civil, commercial or administrative.)

 

Taipei,China insolvency proceeding is under the jurisdiction of the civil court.

(b) Which Courts, tribunals or administrative bodies in this economy are competent to exercise jurisdiction in insolvency matters?

 

The district court sits for civil cases are competent to exercise jurisdiction in insolvency matters.

(c) Are any limitations placed on the jurisdiction of any of these bodies?

 

There are no limitations placed on the jurisdiction.

(a) What types of insolvency procedure are available in the legal system of this economy for the administration of corporate debtors in financial difficulty? (For example bankruptcy, liquidation (winding up), receivership, restructuring or other forms of administration.)

 

The insolvency procedures have four types: bankruptcy, composition, reorganization and special liquidation. All the procedures are participated and supervised by the court with appropriate jurisdiction except for the composition which could be conducted with the involvement of Commerce Chambers.

(b) Briefly describe the main features of each type of insolvency procedure for corporate debtors: including, for example the manner in which each procedure is initiated and administered, and the aims of each procedure.

 

The main features of each type of the insolvency procedures described above are:

Bankruptcy

• Grounds: the debtor's assets (including capability and credits) cannot satisfy the debts. Debtor's stopping payment will be presumed unable to satisfy the debt.
• Existence of multiple creditors: No bankruptcy will be adjudicated if there is only one creditor.
• Initiator: the creditor(s), the debtor itself (i.e., the directors, executive shareholders or management representatives of the corporate debtor), or the court.
• Classification of creditors: preferred, secured and unsecured creditors.
• Moratorium: except for the secured creditors or preferred creditors which are not required to follow the bankruptcy procedures, all unsecured creditors must follow the bankruptcy procedures to satisfy their claims on a pro rata basis.
• Effect: the bankrupt can be rehabilitated and the unsecured creditors fail to register their claims with the court shall be deprived of the claims against the corporate debtor.

Composition

• Grounds: the debtor's assets (including capability and credits) cannot satisfy the debts. Debtor's stopping payment will be presumed unable to satisfy the debt.
• Existence of multiple creditors: no composition will be scheduled if there is only one debtor.
• Initiator: the debtor (i.e., the directors, the executive shareholders or the management representatives) only.
• Moratorium: all creditors agreeing to the composition proposal adopted in the creditors meeting and approved by the court shall follow the proposal for the satisfaction of their claims, except that secured creditors or preferred creditors have the discretion not to agree to the proposal.
• Effect of failure: the court has the authority to order the bankruptcy procedures to be commenced, unless such failure resulted from the errors in carrying out procedures

Reorganization

• The purposes of reorganization are to solve the cash flow problem of the corporate debtor and to allow its continuous operation. The features of reorganization are:
• Eligible companies: public companies only.
• Grounds: the company must convince the court that it would have to cease operations (temporarily or permanently) if no reorganization is implemented.
• Initiator: the board of directors, shareholders or creditors. The court will not initiate the proceeding by itself.
• Classification of creditors: preferred, secured and unsecured creditors.
• Moratorium: during the reorganization proceeding, no creditor may take actions against the corporate debtor or its assets; all pending actions shall be ceased during the reorganization period.
• Effect of failure: the court has the authority to order the bankruptcy procedures to be commenced.

Special liquidation

• Grounds: when a company winds up and proceeds with liquidation, if there is hardships in conducting liquidation or a significant suspicion of the company's book (which shows the company's debts are over its assets), the court may, at its discretion or at the petition, change the liquidation to a special liquidation.
• Initiator: the creditors, (regular) liquidators, shareholders, or the court.
• Effect: the bankruptcy, composition, or compulsory execution procedure, if any, shall be terminated; a creditors meeting will be held to decide a proposal subject to the court's approval; the liquidator cannot make payments to the unsecured creditors, while, the liquidator may, with the approval from the court, pay the secured claims.
• Effect of failure: the court has the authority to order the bankruptcy procedures to be commenced.

(c) Identify the relevant legislation governing each type of insolvency procedure available for corporate debtors.

 

The Bankruptcy Law governs the bankruptcy and composition proceedings. The Company Law governs the reorganization and special liquidation proceedings.

(a) Is it usual or customary in respect of a corporate debtor which is insolvent to attempt to negotiate an informal administration before formal insolvency procedures are commenced?

 

Yes.

(b) In relation to each type of insolvency procedure available in the legal system of this economy, who may commence the procedure? (For example the corporate debtor, secured creditors, unsecured creditors, directors, shareholders, the State.)

 

Please refer to I3 (b) above with respect to the initiators thereof.

(c) On what basis may each type of insolvency procedure be commenced, or what requirements must be satisfied before the procedure may be commenced? (For example non-payment of debts; balance sheet/cash flow insolvency; trading losses; resolution by directors to enter insolvency procedure.)

 

The grounds and/or requirements for each type of the insolvency proceedings is as follows:

• Bankruptcy: the debtor's assets (including capability and credits) cannot satisfy the debts. Debtor's stopping payment will be presumed as being unable to satisfy debts.
• Composition: same as bankruptcy proceeding.
• Reorganization: the corporation seeks for reorganization must show the cause that it would have to cease the operations (temporarily or permanently) without reorganization.
• Special Liquidation: the court will, at its discretion or at the petition of the regular liquidator, shareholders or creditors, order for special liquidation if there is hardships in conducting regular liquidation or significant suspicion of a corporation's book (which shows the corporation's debts are over its assets.)

(d) How is each type of insolvency procedure commenced? (For example by application to the Court, by administrative act, by written notice to the business organization.)

 

The procedures for commencing each type of the insolvency proceedings are as follows:

• Bankruptcy: except for the bankruptcy ordered by the court, the bankruptcy proceeding can be commenced by the petition filed by the creditor or debtor itself.
• Composition: the composition proceeding can be commenced by the debtor's petition, together with a preliminary composition plan that will be reviewed by the creditors meeting and eventually approved or disapproved by the court.
• Reorganization: the chairman of the board of directors can petition to the court for reorganization upon a majority vote of two-thirds of the directors present in a board meeting. The shareholder who holds more than ten percent of the total shares can also petition to the court for the reorganization. In addition, the creditors, whether secured, preferred or unsecured, who have the claim equal to or more than 10% of the corporate debtor's total issued shares can also petition to the court for the reorganization.
• Special Liquidation: the court will order the special liquidation by itself or a petition should be filed with the court by the creditors, regular liquidator, or shareholders.

(e) What is the usual time period between the commencement of formal insolvency proceedings and the declaration or imposition of a formal administration on the corporate debtor?

 

The required time period varies. It depends on the complexity of cases. Generally, it will take a few years.

(f) How effective is the judicial or court system (or administrative system) in relation to the handling of formal insolvency proceedings?

 

Please refer to (e) above.

(a) In relation to each type of insolvency procedure available in the legal system of this economy, what is the effect on the corporate debtor, its constituent parts and its business relationships of initiation of the relevant insolvency procedure?

 

(For example How does initiation of the insolvency procedure affect:

- the powers of management of the debtor;

- the interests of owners/shareholders of the debtor;

- contracts to which the debtor is a party;

- legal proceedings to which the organization is a party;

- remedies available to persons in contractual (non-debt) relationships with the debtor).

Bankruptcy:

• ² The insolvent loses the power to manage the operation and to dispose of its assets in general and such power shall vest in the trustee in bankruptcy.
• ² The lease contract made by the insolvent as lessee may be renounced by the trustee in bankruptcy even though the term has not expired yet. No specific remedy is available to the lessor.
• ² The court shall renounce the contract entered into by the insolvent prior to the bankruptcy proceeding (at the petition of the trustee in bankruptcy) if such contract is detrimental to its creditors' rights.
• ² The trustee in bankruptcy may repudiate the guaranty made within 6 months before the court's adjudication of bankruptcy.
• ² The trustee in bankruptcy may repudiate the payments made within 6 months before the court's adjudication of bankruptcy.
• ² A moratorium may be ordered by the court upon all the unsecured creditors which shall follow the bankruptcy procedures.

Composition

• ² The company may continue the operations as usual, subject to the supervision by the supervisor and its assistant (i.e., assistant supervisor). After the commencement of composition proceeding, all acts by the company without consideration or with inadequate consideration will be deemed null and void.
• ¨ During the composition proceeding, no unsecured creditor may initiate compulsory execution proceedings against the company, and all existing compulsory execution proceedings initiated by the unsecured creditors against the company shall be terminated. Secured or preferred creditors may nevertheless exercise their rights. Creditors having their claims after the commencement of the composition proceeding are not subject to the aforesaid moratorium.

Reorganization

• ² After the court adjudicates the commencement of reorganization, the power of management of operations and disposal of property shall be delegated to the reorganizers.
• ² After the reorganizers assume the position, the shareholders meeting, as well as the directors and the supervisors shall cease to function.
• ¨ The court may, at its discretion or at the petition, order a moratorium upon all creditors after a petition for reorganization is lodged with the court.
• ² All claims of creditors established prior to the adjudication of reorganization shall be exercised only in accordance with reorganization plan, which is subject to the approvals of the secured, unsecured and preferred creditors and shareholders (if there is still the shareholders equity) and the final approval by the court.

Special Liquidation

• ² The company is in the process of winding up; the liquidator will take over the management of the company; no business activity can be made unless necessary for the liquidation; liquidator cannot make payments to the unsecured creditors, while, the liquidator may, with the approval from the court, pay the secured claims.

(b) If another insolvency procedure has already been initiated in relation to the corporate debtor, how does the initiation of a second procedure affect the first?

 

• The commencement of an insolvency proceeding stops the second proceeding of the same type. For example, a company under reorganization cannot proceed with another reorganization.
• No composition, reorganization or special liquidation proceeding can be proceeded with if the corporate debtor is subject to the bankruptcy proceeding.
• A corporate debtor which is in the process of reorganization will be exempted from bankruptcy, composition or special liquidation proceeding. The failure of reorganization will result in bankruptcy.
• The law does not forbid creditors or corporate debtor to petition to the court for the latter's bankruptcy, while the composition proceeding is in process. It is possible that during the process of composition, the petition for reorganization can be filed with the court although the court may just allow one petition. The failure of composition shall result in bankruptcy.
• The special liquidation shall exclude the composition and reorganization and its failure will result in bankruptcy.