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Two JunHe ‘Sale-Based Reorganization’ cases selected as typical cases 2023 by the Shanghai Bankruptcy Court


In March 2024, the Shanghai Bankruptcy Court released the ‘Typical Cases of 2023’ and the ‘Typical Cases of 2023---SME Bankruptcy Protection’. JunHe’s two ‘Sale-Based Reorganization’* cases were selected.

Typical Cases of 2023 by the Shanghai Bankruptcy Court

Bankruptcy Liquidation to Reorganization Case of Daily Fresh Foods (Shanghai) Ltd.

Lead Partners: ZHAO, Min and WU, Lei

Acting Lawyers: LIU, Xiaosen

In February 2021, the Shanghai Third Intermediate People's Court (the “Shanghai Third Intermediate Court”) ruled that Daily Fresh Food (Shanghai) Ltd. (“Daily Fresh”) had entered into bankruptcy liquidation proceedings. On 9 March 2021, they appointed JunHe’s Shanghai office as the administrator (the “Administrator”) of the bankruptcy case. JunHe conducted a detailed investigation and found that, despite its heavy debt burden, Daily Fresh's land assets had good business value, which, if effectively revitalized, could not only increase the settlement rate of the claims in the case, but could also contribute to the industrial upgrading and development of the region. The Administrator coordinated with all the parties to promote the transfer of this case from bankruptcy liquidation to bankruptcy reorganization proceedings.

After Daily Fresh entered into the reorganization proceedings, the Administrator solicited and introduced reorganization investors. They adopted a ‘sale-based reorganization’ to complete the reorganization investment in order to reduce the burden of taxes and fees, increase the settlement rate of the creditors and effectively revitalize the core assets. By communicating with the creditors and exercising their rights, the Administrator obtained unanimous approval of the Draft Reorganization Plan from all groups of creditors. On 9 August 2023, the Shanghai Third Intermediate Court approved the Reorganization Plan.

The handling of this case had positive economic and social results, which significantly increased the settlement rate of the creditors in this case and contributed to the industrial innovation and upgrading of the region. In December 2023, this case was selected as a ‘Typical Case of Bankruptcy Administrator Practice’ by the Shanghai Bankruptcy Administrators Association.

‘Typical Cases of 2023---SME Bankruptcy Protection’ by the Shanghai Bankruptcy Court

Bankruptcy Liquidation to Reorganization Case of Shanghai Tiansheng Warehousing Co., Ltd.

Lead Partners: ZHOU, Hui (Nelson) and ZHAO, Min

In February 2020, the Shanghai Third Intermediate Court ruled that Shanghai Tiansheng Warehousing Co., Ltd. (“Tiansheng”) entered into bankruptcy liquidation proceedings and on 22 June 2021, the bankruptcy liquidation proceeding was transferred to a bankruptcy reorganization proceeding. After Tiansheng entered into the reorganization proceedings, JunHe was appointed by an internationally renowned investment institution to act as its reorganization investment legal advisor, assisting it to participate in the reorganization of Tiansheng and ultimately realize its investment objectives.

After Tiansheng's administrator issued a notice to solicit reorganization investors, JunHe prepared the application documents and the letter of intent for the client, participated in various negotiations, and assisted the client in their successful application. Through due diligence on Tiansheng, JunHe analyzed the possible risks of the reorganization investment and provided solutions for the client. JunHe designed a “sale-based reorganization” transaction model, drafted a “Reorganization Investment Plan” and various other types of agreements related to this case, and communicated with all parties. Finally, all the parties reached an agreement, the “Reorganization Investment Plan” was successfully submitted, the client was elected as the reorganization investor and then signed the Reorganization Investment Agreement with the administrator. The Reorganization Plan and the Reorganization Investment Agreement was finally approved by the Shanghai Third Intermediate Court.

In these two cases, JunHe acted as the administrator and the investor's lawyer respectively. The administrator and the reorganization investor were located at two ends of the scale in the reorganization process, and both parties wanted the   reorganization of the insolvent enterprise. To achieve this, it was crucial to strike a balance between the two parties and to design a reorganization plan that was acceptable to all parties and practicable. JunHe's bankruptcy and restructuring team provided professional and pragmatic legal services to help all parties seek cooperation and find consensus in their differences.  It is vital to find a balance between saving a struggling enterprise, safeguarding the rights and interests of investors and maintaining the interests of creditors.

A “sale-based reorganization” is also known as a “business transfer based” reorganization. It involves the sale of the assets of the reorganized enterprise that still have economic value or businesses with good operating values. The sold assets or businesses can be freed from the shackles of bankruptcy and their economic value is realized in the operation of other entities. Additionally, the reorganized enterprise obtains debt-servicing funds through the sale of assets and businesses and uses these to repay debts to creditors. Compared with the traditional reorganization mode, the sale-based reorganization mode can reduce the tax burden of investors, and help to eliminate the potential debt risk of the reorganized enterprise for investors. This mode has been more widely applied in Chinese judicial practice.

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