Provisions of the Supreme People's Court on Several Issues Concerning the Application of the Enterprise Bankruptcy Law of the People's Republic of China (II)

Fa Shi [2013] No. 22

September 5, 2013

The Provisions of the Supreme People's Court on Several Issues Concerning the Application of the Enterprise Bankruptcy Law of the People's Republic of China (II) were adopted at the 1586th meeting of the Judicial Committee of the Supreme People's Court on July 29, 2013 and took effect from September 16, 2013.

Provisions of the Supreme People's Court on Several Issues Concerning the Application of the Enterprise Bankruptcy Law of the People's Republic of China (II)

(Fa Shi [2013] No. 22, adopted at the 1586th meeting of the Judicial Committee of the Supreme People's Court on July 29, 2013)

These Provisions are formulated in accordance with the Enterprise Bankruptcy Law of the People's Republic of China, the Real Rights Law of the People's Republic of China, the Contract Law of the People's Republic of China and other related laws and based on judicial practice, with a view to specifying the issues in respect of application of laws in relation to identifying debtor's assets during the hearing of enterprise bankruptcy case by the people's court.

Article 1 In addition to all the monetary funds and physical goods owned by a debtor, the people's court shall identify any creditor's rights, equities, intellectual property rights, usufructuary rights, other property and property rights which are legally owned by the debtor, the estimated value of which may be assessed in monetary terms and which are transferrable pursuant to law as the property of the debtor.

Article 2 The following property shall not be identified as debtor's property:
1. other person's property occupied or used by a debtor based on warehousing, safekeeping, contract of hire, sales by proxy, loan, deposit or leasehold contract or other legal relationship;
2. any property for which a debtor has not yet obtained its ownership in a title retention transaction;
3. any property of which ownership is proprietary to the State and which shall never be transferred; and
4. any other property which is not owned by a debtor in accordance with laws and administrative regulations.

Article 3 The people's court shall identify any specific property upon which a debtor has created a security interest pursuant to law as the property of the debtor.
With regard to debtor's specific property, the property whereupon related security interest is quashed or any remainder thereof after the realization of the security interest may be used to settle bankruptcy costs, common benefits debt and other bankruptcy credit.

Article 4 The people's court shall identify any related portion owned by a debtor in any jointly owned property, the corresponding property rights jointly owned by a debtor and other persons in any jointly owned property, and any portion of property a debtor obtained by dividing any jointly owned property as the property of the debtor.
The people's court shall declare the legal particulars in respect of the bankruptcy liquidation for a debtor and the division of any jointly-owned property of a debtor. Where the people's court rules that a debtor shall undergo a reorganization or reach a settlement, the division of the jointly-owned property shall be subject to the provisions of Article 99 of the Real Rights Law of the People's Republic of China; if any jointly-owned property must be divided for reorganization or settlement, the people's court shall grant an approval upon the request of relevant receiver.
With regard to any debt arising from any damage to any other co-owner as a result of the division of jointly-owned property, if any other co-owner claims for the damage in the form of common benefits debts, the people's court shall provide support.

Article 5 If the enforcement procedures in respect of the property of relevant debtor are not suspended in accordance with the provisions of Article 19 of the Enterprise Bankruptcy Law of the People's Republic of China after the acceptance of a bankruptcy petition, any relevant entity which carries out the enforcement shall make rectification according to law. The people's court shall identify any property for which recovery of execution is carried out as the debtor's property.

Article 6 If the legal implementation of any bankruptcy procedures is affected due to any behavior of relevant interested party or any other reasons after the acceptance of bankruptcy petition, the people's court who accepts the bankruptcy petition may, upon the request of relevant receiver or based on its authority, take preservation measures against all or a portion of the property of the debtor.

Article 7 Any entity which has taken preservation measures against debtor's property shall timely remove the preservation measures against debtor's property in accordance with the provisions of Article 19 of the Enterprise Bankruptcy Law of the People's Republic of China as soon as it understands that the people's court has ruled to accept the bankruptcy petition submitted by relevant debtor.

Article 8 If the people's court rules to reject a bankruptcy petition or terminate the relevant bankruptcy procedures in accordance with the provisions of Article 108 of the Enterprise Bankruptcy Law of the People's Republic of China after its acceptance of a bankruptcy petition and before bankruptcy declaration, the people's court shall timely notify the entity which had taken preservation measures and removed the same according to law to reinstate relevant preservation measures based on the original preservation sequences.
Prior to the reinstatement of preservation measures by the entities removed such preservation measures or its statement of no intention to reinstate such preservation measures, the people's court accepting bankruptcy petition shall not remove the preservation measures against debtor's property.

Article 9 Where the relevant receiver files any action in accordance with Articles 31 and 32 of the Enterprise Bankruptcy Law of the People's Republic of China and requests to quash any acts in respect of debtor's assets and requires counterpart to return relevant property to the debtor, the people's court shall support the claim.
Where relevant receiver fails to exercise the right of rescission which results in the improper impairment of the debtor's property and creditors file an action to claim the receiver against the impairment, the people's court shall support the claim.

Article 10 If a debtor goes from administrative liquidation to bankruptcy procedure, the starting point for the revocable acts as provided in Articles 31 and 32 of the Enterprise Bankruptcy Law of the People's Republic of China shall be the date on which administrative regulatory organ made the decision of revocation.
If a debtor goes from compulsory liquidation to bankruptcy procedure, the starting point for the revocable acts as provided in Articles 31 and 32 of the Enterprise Bankruptcy Law of the People's Republic of China shall be the date on which the people's court ruled to accept the compulsory liquidation petition.

Article 11 Where the people's court, upon the request of relevant receiver, revokes any transaction in respect of the debtor's property made at evidently unreasonable price, the relevant purchaser and the seller shall respectively return to its counterpart the relevant property or the price of the property.
With regard to the debt arising from any payment to be returned by a debtor to the relevant assignee due to the revocation of related transaction, if the assignee requests to liquidate the debt in the form of common benefits debt, the people's court shall support the claim.

Article 12 With regard to any undue debts which have been liquidated by a debtor one year prior to the acceptance of bankruptcy petition and which have been due prior to the acceptance of bankruptcy petition, if relevant receiver applies for revoking the liquidation, the people's court shall not provide support, unless the liquidation occurs within six months prior to the acceptance of bankruptcy petition and the relevant debtor is under the circumstances specified in Paragraph One of Article 2 of the Enterprise Bankruptcy Law of the People's Republic of China.

Article 13 If any receiver fails to request the revocation of the debtor's voluntary transfer of any property, transaction at obviously unreasonable price or any waiver of creditor's right in accordance with the provisions of Article 31 of the Enterprise Bankruptcy Law of the People's Republic of China after the acceptance of bankruptcy petition, if any creditor files any action in accordance with the provisions of Article 74 of the Contract Law of the People's Republic of China and requests the revocation of the foregoing acts of the debtor to include any recovered property as the property of the debtor, the people's court shall accept the action.
If any counterpart makes it a defense that the right of rescission exercised by the debtor exceeds the creditor's rights of the relevant creditor, the people's court shall not support the defense.

Article 14 With regard to debtor's individual liquidation of any creditor's right for which a security interest is created on the property owned by the debtor, if relevant receiver applies for a rescission in accordance with Article 32 of the Enterprise Bankruptcy Law of the People's Republic of China, the people's court shall not provide support, unless the value of the property as a security is lower than that of the creditor's right during the liquidation.

Article 15 With regard to debtor's individual liquidation of any creditor's right based on action, arbitration and enforcement procedures, if relevant receiver applies for a rescission in accordance with Article 32 of the Enterprise Bankruptcy Law of the People's Republic of China, the people's court shall not provide support, unless the debtor collaborates with relevant creditors with bad faith to damage the interests of other creditors.

Article 16 With regard to debtor's individual liquidation of any of the following, if relevant receiver applies for a rescission in accordance with Article 32 of the Enterprise Bankruptcy Law of the People's Republic of China, the people's court shall not provide support.
1. water rate, power charge and other fees paid by a debtor to satisfy the requirements of basic production;
2. remuneration for labor and damages for personal injury paid by a debtor; or
3. other individual liquidation to the advantage of debtor's property.

Article 17 Where relevant receiver files an action in accordance with Article 33 of the Enterprise Bankruptcy Law of the People's Republic of China to request the actual possessor of any concealed and transferred property to return such property or claim the invalidity of debtor's fabrication of debts or recognition of fictitious debts and the return of the property to the debtor, the people's court shall provide support.

Article 18 Where the relevant receiver, on behalf of a debtor and in accordance with the provisions of Article 128 of the Enterprise Bankruptcy Law of the People's Republic of China, files an action against the legal representative and other persons directly responsible of the debtor on the grounds that such persons committed intentional misconduct or gross negligence with regard to the debtor's property which results in any loss to the debtor's property and request such persons to make corresponding compensation, the people's court shall provide support.

Article 19 The limitation of action for a debtor against external creditor's rights shall suspend as of the date of the acceptance of bankruptcy petition by the people's court.
If a debtor fails to exercise its rights in respect of any mature creditor's rights without justifiable reasons, which results in the situation that its external creditor's rights exceed limitation of action within one year prior to the acceptance of bankruptcy petition, the people's court may recount the limitation of action of the foregoing creditor's rights as of the date of the acceptance of bankruptcy petition.

Article 20 If relevant receiver represents a debtor to file an action and require any contributor to pay to the debtor any unpaid contributions according to law or return any capital interests drawn out illegally, and the contributor makes it a defense that the term for making contribution as set forth in the articles of association of the company has not yet expired or its violation of contribution obligations has exceeded limitation of action, the people's court shall not provide support.
Where relevant receiver files any action on behalf of a debtor in accordance with the provisions of the Company Law of the People's Republic of China and claims that the sponsor of the company and the directors who are responsible for supervising shareholders in respect of performance of the obligations of contribution, and senior management, or any other shareholders, directors, senior management or actual controller who assist in drawing out capital to take corresponding liabilities and include such property into the debtor's property, the people's court shall provide support.

Article 21 If any creditor files any of the following actions with regard to debtor's property prior to the acceptance of bankruptcy petition and the related case has not yet been concluded at the time of acceptance of bankruptcy petition, the people's court shall suspend the hearing.
1. claim subordinate debtor to pay the debts directly on behalf of the debtor;
2. claim that contributors, the sponsor and the directors who are responsible for supervising shareholders in respect of performance of the obligations of contribution, and senior management, or any other shareholders, directors, senior management or actual controller who assist in drawing out capital to take corresponding liabilities in respect of unauthentic contribution and drawing out capital illegally;
3. claim any director of the debtor to pay the debtor's debts directly by confusing debtor's shareholders with debtor's juristic personality seriously; or
4. other individual liquidation action filed with regard to debtor's property.
After the bankruptcy declaration of the debtor, the people's court shall rule to dismiss the claim of relevant creditors in accordance with the provisions of Article 44 of the Enterprise Bankruptcy Law of the People's Republic of China. Nevertheless, it will be an exception if the creditor changes its claim to including the recovered property into debtor's property during the first instance hearing.
If the people's court rules to reject a bankruptcy petition or terminate the relevant bankruptcy procedures in accordance with the provisions of Article 12 or Article 108 of the Enterprise Bankruptcy Law of the People's Republic of China prior to the bankruptcy declaration by relevant debtor, the hearing of the case which is suspended as mentioned above shall be resumed.

Article 22 If any creditor files any action with regard to debtor's property as specified in Paragraph One of Article 21 of these Provisions before the people's court prior to the acceptance of bankruptcy petition and the people's court has issued an effective civil judgment or mediation paper but their execution is not yet completed, the relevant execution shall be suspended in accordance with the provisions of Article 19 of the Enterprise Bankruptcy Law of the People's Republic of China after the acceptance of bankruptcy petition and the creditor shall declare to the relevant receiver the related creditor's rights according to law.

Article 23 If any creditor files any action specified in Paragraph One of Article 21 of these Provisions with regard to the debtor's property before the people's court after the acceptance of bankruptcy petition, the people's court shall not accept the claim.
If any creditor, through creditors' meeting or committee, requires relevant receiver to recover debtor's property from any subordinate debtor or any contributor of the debtor, the receiver refuses to do so without any justifiable reason, and the creditors' meeting applies to the people's court for change receiver in accordance with the provisions of Article 22 of the Enterprise Bankruptcy Law of the People's Republic of China, the people's court shall provide support.
If the receiver fails to recover such property and any individual creditor, on behalf of all the creditors, files related action to claim that subordinate debtor or debtor's contributors shall pay or return to the debtor the debtor's property or applies for consolidated bankruptcy according to law, the people's court shall accept the claim.

Article 24 Where a debtor is under any circumstances specified in Paragraph One of Article 2 of the Enterprise Bankruptcy Law of the People's Republic of China and any director, supervisor and senior management of the debtor takes advantage of their authority to gain the following income, the people's court shall identify such income as ad hoc earnings in accordance with the provisions of Article 36 of the Enterprise Bankruptcy Law of the People's Republic of China.
1. performance bonus;
2. wage income obtained under the circumstances that wages of most of staff and workers have not been paid; or
3. other ad hoc income.
If debtor's director, supervisor and senior management refuse to return the foregoing debtor's property to relevant receiver and the receiver requests such personnel to return such property, the people's court shall provide support.
The creditor's rights formed on the basis of any ad hoc income under Items 1 and 3 of Paragraph One which is returned by director, supervisor and senior management may be liquidated as general creditor's rights in bankruptcy. With regard to any creditor's rights formed on the basis of the return of any unusual income specified in Item 2 of Paragraph One, the portion of salary calculated based on the average salary of the staff and workers of the company will be liquidated in the form of the arrears and the portion above the average salary may be liquidated in the form of general creditor's rights in bankruptcy, in accordance with the provisions of Paragraph Three of Article 113 of the Enterprise Bankruptcy Law of the People's Republic of China.

Article 25 If the relevant receiver plans to dispose of any property for taking back any pledge or lien by liquidating debts or providing security or concluding any agreement with relevant pledgee or lienor to realize the pledge or lien to liquidate debts, which has material impact upon the interests of creditor, the receiver shall timely report the same to the creditors' committee. If the company does not set up a creditors' committee, the receiver shall timely report to the people's court.

Article 26 If any obligee exercises recall right in accordance with the provisions of Article 38 of the Enterprise Bankruptcy Law of the People's Republic of China, it shall notify the receiver prior to the submission of bankruptcy property realization plans or settlement agreement and reorganization plan to creditors' committee for voting. If the obligee claims to take back related property after the foregoing time limit, it shall bear the related costs due to its delay in exercising the recall rights.

Article 27 If any obligee claims against the receiver for taking back related property in accordance with the provisions of Article 38 of the Enterprise Bankruptcy Law of the People's Republic of China and the receiver refuses to acknowledge the claim, and the obligee files an action before the people's court to claim against the debtor and exercise the recall rights, the people's court shall accept the claim.
If any obligee claims against the receiver for taking back any disputable property on the basis of the relevant effective legal instrument issued by the people's court or any competent arbitration organ and the receiver turns down the recall rights on the grounds that the legal instrument is wrong, the people's court shall not support the refusal.

Article 28 Where any obligee fails to pay to the relevant receiver related fees according to law for processing, safekeeping or consignment, commission or sales by proxy for exercising recall rights and its recall rights are turned down by the receiver, the people's court shall support the refusal.

Article 29 With regard to any fresh, living and perishable property which cannot be preserved and the ownership of which is not clear or any property which will suffer serious damage and loss if its value is not realized in time, if related obligee exercises the recall rights after the receiver has realized the value of the property and retained the proceeds, the people's court shall support the obligee in exercising the rights.

Article 30 In the case that any other person's property possessed by the debtor is transferred illegally to any third party and the original obligee is unable to take back the property due to the third party's acquisition of the property based on good faith in accordance with the provisions of Article 106 of the Real Rights Law of the People's Republic of China, the people's court shall handle the case in accordance with the following requirements:
1. if the transfer is made prior to the acceptance of bankruptcy petition, the creditor's rights owned by the original obligee due to property loss shall be liquidated in the form of general creditor's rights in bankruptcy; or
2. if the transfer is made after the acceptance of bankruptcy petition, the debts arising from the damage to the original obligee due to the performance of duty by the receiver or related personnel shall be liquidated in the form of common benefits debts.

Article 31 In the case that any other person's property possessed by the debtor is transferred illegally to any third party and the third party has paid the debtor all the price for transfer, nevertheless the third party has not yet acquired the ownership of the property in accordance with the provisions of Article 106 of the Real Rights Law of the People's Republic of China, if the original obligee recovered the transferred property according to law, the people's court shall handle the debts arising from the price paid by the third party in accordance with the following requirements:
1. if the transfer is made prior to the acceptance of bankruptcy petition, the debts shall be liquidated in the form of general creditor's rights in bankruptcy; or
2. if the transfer is made after the acceptance of bankruptcy petition, the debts shall be liquidated in the form of common benefits debts.

Article 32 If any insurance benefit, compensation, and substitute indemnity for the damage or loss to any other person's property possessed by the debtor have not been delivered to the debtor, or the substitute indemnity has been delivered to the debtor and it may be differentiated from any other property of the debtor, and relevant obligee claims to take back such insurance benefit, compensation, and substitute indemnity, the people's court shall support the claim.
If the insurance benefit and compensation have been delivered to the debtor or the substitute indemnity has been delivered to the debtor but it cannot be differentiated from other property of the debtor, the people's court shall handle the case in accordance with the following requirements:
1. if the damage or loss to the property occurs prior to the acceptance of bankruptcy petition, the creditor's rights owned by the obligee due to property loss shall be liquidated in the form of general creditor's rights in bankruptcy; or
2. if the damage or loss to the property occurs after the acceptance of bankruptcy petition, the debts arising from the damage to the original obligee due to the performance of duty by the receiver or related personnel shall be liquidated in the form of common benefits debts.
If any other person's property suffers any damage or loss and no insurance benefit, compensation or substitute indemnity is obtained or the value thereof is not able to cover the loss, the people's court shall handle the case in accordance with the provisions of Paragraph Two of this Article.

Article 33 If the receiver or related personnel transfers any other person's property improperly or causes damage or loss to other person's property as a result of intention or gross negligence during the performance of duty, the debts arising from the damage to other person shall be common benefits debts and debtor's property shall be used to liquidate the loss at any time. If any obligee claims any additional compensation liabilities against the receiver or related personnel, the people's court shall provide support.
After the foregoing debts are liquidated in the form of common benefits debts at any time by debtor's property, if any creditor files any action on the grounds that the receiver or related personnel performs duty improperly which causes the reduction of debtor's assets and brings losses to the creditor to claim the receiver or related personnel to undertake corresponding compensation liabilities, the people's court shall provide support.

Article 34 If both parties to any sales contract have agreed to retain the ownership of related subject matter and a party has been bankrupt prior to the transfer of the ownership of subject matter to the purchaser, the contract shall be an incompletely performed contract and the receiver has the right to rescind or proceed with the performance of the contract in accordance with the provisions of Article 18 of the Enterprise Bankruptcy Law of the People's Republic of China.

Article 35 If the seller is bankrupt and its receiver decides to proceed with the performance of title retention sales contract, the purchaser shall pay the price or perform other obligations in accordance with the agreement of the original sales contract.
If the purchaser fails to pay the price or perform other obligations under the contract, or sells the subject matter or pledge or dispose of the same in other improper way, which causes damage to the seller, and the receiver of the seller claims according to law to take back the subject matter, the people's court shall provide support. Nevertheless, it will be an exception if the purchaser has paid no less than 75% of the total price of the subject matter or the third party has acquired the ownership or other title of the subject matter based on good faith.
With regard to the subject matter which is not taken back due to the provisions of Paragraph Two of this Article, if the receiver of the seller claims according to law that the purchaser shall continue to pay the price and perform other obligations and take corresponding compensation liabilities, the people's court shall provide support.

Article 36 If the seller is bankrupt and its receiver decides to rescind title retention sales contract and requires the purchaser to deliver to the seller relevant subject matter in accordance with the provisions of Article 17 of the Enterprise Bankruptcy Law of the People's Republic of China, the people's court shall provide support.
If the purchaser makes it a defense for making no failure to pay the price or perform other obligations under the contract, or did not sell the subject matter or pledge or dispose of the same in other improper way, the people's court shall not provide support for the defense.
After the purchaser performs its contractual obligations according to law and delivers the subject matter of the sales contract to the receiver of the seller according to Paragraph One of this Article, the creditor's rights arising from the loss to the price paid by the purchaser shall be liquidated in the form of common benefits debts. However, if the purchaser breaches the agreement made in the contract and the receiver of the seller claims that such creditor's rights shall be liquidated in the form of general creditor's rights in bankruptcy, the people's court shall support the claim.

Article 37 If the purchaser is bankrupt and its receiver decides to continue to perform its title retention sales contract, the time limit agreed in the original sales contract for the purchaser to make payment or perform other obligations shall be deemed to have been expired upon the acceptance of bankruptcy petition and the receiver of the purchaser shall timely pay to the seller the purchase price or perform other obligations.
If the purchaser fails to pay the price or perform other obligations without any justifiable reason, or sells the subject matter or pledges or disposes of the same in other improper way, which causes damage to the seller, and the receiver of the seller claims according to Article 134 of the Contract Law of the People's Republic of China to take back the subject matter, the people's court shall support the claim. Nevertheless, it will be an exception if the purchaser has paid no less than 75% of the total price of the subject matter or the third party has acquired the ownership or other title of the subject matter based on good faith.
With regard to the subject matter which is not taken back due to the provisions of Paragraph Two of this Article, if the seller claims according to law that the purchaser shall continue to pay the price and perform other obligations and take corresponding compensation liabilities, the people's court shall support the claim. If the purchaser fails to pay the price or perform other obligations, or sells the subject matter or pledges or disposes of the same in other improper way, which causes damage to the seller and forms debts, and the seller claims that the debts shall be liquidated in the form of common benefits debts, the people's court shall support the claim.

Article 38 If the seller is bankrupt and its receiver decides to rescind title retention sales contract and the seller claims in accordance with the provisions of Article 38 of the Enterprise Bankruptcy Law of the People's Republic of China to take back the subject matter of the sale transaction, the people's court shall support the claim.
If the seller takes back the subject matter and the receiver of the purchaser claims that the seller shall refund the price paid by the purchaser, the people's court shall support the claim. If the seller suffers any loss due to the evident decrease of the value of the subject matter it takes back, the seller may have the priority to deduct the decreased amount from the price paid by the seller and refund the remaining portion to the purchaser. If the price paid by the purchaser is inadequate to cover the debts arising from the loss due to the decrease of the value of the subject matter of the seller and the seller claims that such debts shall be common benefits debts, the people's court shall support the claim.

Article 39 If the seller claims recall rights against any subject matter in transit in accordance with the provisions of Article 39 of the Enterprise Bankruptcy Law of the People's Republic of China by notifying relevant carrier or actual holder to suspend transit, return goods, change place of arrival or deliver the goods to other consignees without the realization of the recall rights, or claims recall rights with regard to the goods in transit against the receiver prior to the delivery of the goods to the receiver and the seller claims to the receiver for taking back the subject matter after it is delivered to the receiver, the receiver shall grant a permit.
If the seller fails to exercise its recall rights against the subject matter in transit in time and exercises the recall rights after the subject matter is delivered to the receiver, the receiver shall not grant a permit.

Article 40 If any obligee requires to take back any of its property legally held by a debtor during the reorganization of the debtor but the conditions the two parties agreed in advance are not satisfied, the people's court shall not provide support. Nevertheless, it will be an exception if the receiver or the debtor managing the subject matter for its own violates the agreement, which may result in the transfer, damage, loss or evident decrease of the value of the subject matter to be taken back.

Article 41 Where a creditor exercises the right of offset in accordance with the provisions of Article 40 of the Enterprise Bankruptcy Law of the People's Republic of China, the creditor shall lodge a claim with regard to the offset against the relevant receiver.
The receiver shall not take the initiative to offset the reciprocal debts between the debtor and creditor, except that the offset may be beneficial to the debtor's property.

Article 42 After the receiver receives the notice issued by the creditor with regard to offset of debts and there will be no objection after examination, the offset will take effect as of the date the receiver receives the notice.
If the receiver has any objection against the offset, it shall file an action before the people's court within the agreed time limit or three months of its receipt of the notice for offset of debts. If the objection is not lodged within the foregoing term without any justifiable reasons, the people's court shall not provide support.
If the people's court rules to dismiss the receiver's claim in respect of the invalidity of offset, the offset shall take effect as of the date the receiver receives the notice in respect of offset of debts.

Article 43 If the creditor claims offset and the receiver lodges any objection on the following grounds, the people's court will not provide support:
1. at the acceptance of bankruptcy petition, the debts to be paid by the debtor to the creditor are not due;
2. at the acceptance of bankruptcy petition, the debts to be paid by the creditor to the debtor are not due; or
3. difference in type and quality of the subject matter of the reciprocal debts between the two parties.

Article 44 Within the first six months prior to the acceptance of bankruptcy petition, if a debtor is under any circumstances specified in Paragraph One of Article 2 of the Enterprise Bankruptcy Law of the People's Republic of China, the debtor and individual creditor liquidate individual creditor's rights by offset, the offset creditor's rights and debts is under any of the circumstances under Items 2 and 3 of Article 40 and Article 40 of the Enterprise Bankruptcy Law of the People's Republic of China, the relevant receiver files an action before the people's court within three months after the acceptance of the bankruptcy petition and claims the invalidity of the offset, the people's court shall support the claim.

Article 45 If the creditor under the circumstances of no-offset as specified in Article 40 of the Enterprise Bankruptcy Law of the People's Republic of China claims to offset the debts for which the creditor enjoys priority of compensation against the specific property of a debtor with the debts for which the debtor does not enjoy the priority of compensation against the creditor, and the receiver of the debtor lodges any objection on the grounds that the offset is under any of the circumstances of Article 40 of the Enterprise Bankruptcy Law of the People's Republic of China, the people's court shall not provide support. Nevertheless, it will be an exception if the creditor's rights used for offset are greater than the value of the property for which the creditor enjoys priority of compensation.

Article 46 If any of debtor's shareholders claim to use the following debts to offset the debts the debtor shall pay, and the receiver of the debtor lodges any objection, the people's court shall provide support:
1. the debts arising from the debtor's default in paying contributions or drawing out of contribution; or
2. the debts arising from the abuse of shareholder's rights or related party relationship by debtor's shareholder which damages the interests of the debtor's company.

Article 47 With regard to any civil action filed by any party concerned against related debtor after the acceptance of bankruptcy petition by the people's court, the people's court accepting the bankruptcy petition shall have jurisdiction over the action in accordance with the provisions of Article 21 of the Enterprise Bankruptcy Law of the People's Republic of China.
The civil action of first instance in respect of related debtor under the jurisdiction of the people's court accepting bankruptcy petition may be brought to trial by the people's court at higher level or referred to the people's court at lower level for trial with the approval of the people's court at higher level in accordance with the provisions of Article 38 of the Civil Procedure Law of the People's Republic of China.
If the people's court accepting the bankruptcy petition does not have the jurisdiction over maritime dispute, patent dispute, civil compensation dispute due to misrepresentation on securities market in respect of related debtor, the people's court at higher level shall designate the jurisdiction in accordance with the provisions of Article 37 of the Civil Procedure Law of the People's Republic of China.

Article 48 If any judicial interpretation in respect of enterprise bankruptcy issued by the Court prior to the implementation of these Provisions conflicts with these Provisions, the judicial interpretation shall no longer apply as of the implementation of these Provisions.