1. Transferability of creditor's rights and equity.
article 84 of the general principles of the civil law stipulates: "debt is a specific relationship of rights and obligations between the parties in accordance with the provisions of the contract or the law. The obligee is the obligee, and the obligor is the debtor. The creditor has the right to require the debtor to perform its obligations in accordance with the contract or in accordance with the law. " Therefore, the creditor's right refers to the creditor's right to request others (debtors) to do or not to do certain acts according to law.
Article 4 of China's Company Law stipulates: "Shareholders of a company, as investors, enjoy the owner's right to benefit from assets, make major decisions and choose managers according to the amount of capital invested in the company." Therefore, equity is a kind of comprehensive right, including property right and non-property right, generated by shareholders' investment in the company. Equity includes two basic rights: self-interest right and * * * interest right. Self-interest right is the right that investors or shareholders can exercise by themselves, which mainly includes the right to claim dividend distribution and the right to claim the remaining property after the dissolution of the company. In addition, there are also the right to transfer the equity, the priority to transfer the equity transferred by other shareholders, and the priority to subscribe for new shares. * * * The beneficial right is the right to walk with other shareholders, which mainly includes the right to vote on major business decisions, the right to appoint and dismiss directors and other personnel, the right to inquire about directors and managers, and the right to know, such as consulting the company's accounting records and reports. Shareholders' * * rights are mainly exercised by attending shareholders' meetings.
although creditor's rights and equity belong to different legal concepts, the rights and obligations between the parties involved are different, but there is also a considerable relationship between creditor's rights and equity.
(1) The * * nature of creditor's rights and equity makes it possible to convert debt into equity.
1. The subject conditions of creditor's rights and equity rights are basically the same. Ordinary natural persons and legal persons can become creditors or shareholders.
2. Both the creditor's rights and the equity rights contain the property rights, and the rights in the equity, such as the right to distribute dividends, the right to distribute surplus property, the right to deliver shares, and the right to dissolve the company, belong to the category of claims, just like the creditor's right to request others to do certain acts.
3. Agreeability of creditor's rights and equity. Creditor's rights and equity are derived from a contractual relationship between the parties. Both creditor's rights and equity rights can occur or disappear for contractual reasons. According to the principle of freedom of civil contract, the parties can change the existing civil legal relationship by agreement.
(2) from the legal effect, the conversion of creditor's rights into equity is conducive to transaction security.
an important criterion to measure the feasibility of debt-to-equity swap should be whether this behavior will harm the interests of other creditors and whether it is conducive to transaction security.
1. Debt-to-equity swap only involves the change of the legal role of the creditor and the interest relationship between the creditor and the company (debtor), but does not change the rights and obligations relationship between the company and other creditors.
2. For other creditors of the company, the occurrence of debt-to-equity swap is more conducive to the realization of their creditor's rights and the security of market transactions. This is mainly reflected in: first, debt-to-equity swap directly leads to the increase of owners' equity and the decrease of liabilities, thus improving the company's solvency; Second, compared with shareholders, creditors have the priority to be compensated. When the company is dissolved, the shareholders' right to distribute the remaining property can only be realized after the company has paid off its debts. After the completion of the debt-to-equity swap, the creditor becomes a shareholder of the company, thus losing the right to be compensated in priority to the shareholders as a creditor, which is more conducive to the realization of other creditors' priority to be compensated to some extent. Of course, the amount of debt-to-equity swap here should be limited, otherwise it will "damage the realization of the purpose of company establishment".
second, the legitimacy of debt-to-equity swap.
(1) In addition to the legal basis specifically for "policy debt-to-equity swap" mentioned earlier in this paper, the legal basis for other general enterprise debt-to-equity swaps is scattered in relevant laws, regulations, rules and normative documents.
1. The practice of using creditor's rights as capital contribution is not prohibited by the Company Law.
Article 24, paragraph 1, and Article 8, paragraph 1, of China's Company Law clearly stipulate that shareholders (promoters) can "make capital contributions in cash or in kind, industrial property rights, non-patented technology and land use rights" when establishing limited liability companies and joint stock limited companies. This clause is an authorized provision, not restrictive or prohibitive, and does not exclude the practice of using creditor's rights as capital contribution.
2. There are many provisions in China's Company Law to confirm the practice of debt-to-equity swap.
The way of enterprise restructuring into a joint stock limited company has been confirmed by the Company Law, relevant laws, administrative rules and other normative documents. Article 99 of the Company Law stipulates that "when a limited liability company is approved to be changed into a joint stock limited company according to law, the total amount of shares converted shall be equal to the company's net assets", which includes currency, physical objects, industrial property rights, land use rights, creditor's rights and debts.
article 137 of the company law stipulates that "the company distributes new shares with the profits of the current year". In fact, distributable profit is still a creditor's right (property distribution claim) enjoyed by shareholders to the company. It is actually a debt-to-equity swap for shareholders to convert their profit distribution right to shares held by the company.
3. With the approval of the State Council, on March 25th, 1997, the State Council Securities Commission issued the Interim Measures for the Administration of Convertible Corporate Bonds, which directly stipulated that qualified listed companies and key state-owned enterprises could issue corporate bonds convertible into shares in China. There is no essential difference between convertible corporate bonds and "debt-to-equity swap" as mentioned in this paper. This provision is a legislative embodiment of the company law.
4. according to article 3 and article 4 (2) of the accounting standards for business enterprises-debt restructuring (caihuizi [1998] No.24) promulgated by the Ministry of finance on June 12, 1998, the debt can be converted into capital if the creditor and the debtor voluntarily reach an agreement on the established creditor-debtor relationship. Article 2, point 3, of the Accounting Standards for Business Enterprises-Guide to Debt Restructuring: "Converting debt into capital means that the debtor converts debt into capital and the creditor converts creditor's rights into equity."
5. Article 2 of the Guiding Opinions on the Restructuring and Reorganization of Companies with Initial Public Offerings formulated by China Securities Regulatory Commission in 22 (19th draft after public consultation) stipulates: "If the promoters or shareholders contribute capital by equity or convert creditor's rights into equity, they shall complete the transfer procedures of equity and creditor's rights."
6. Confirmation of debt-to-equity swap in existing judicial interpretation.
For the debt-to-equity swap, the Supreme People's Court has made a special provision in its Provisions on Several Issues Concerning the Trial of Civil Dispute Cases Related to Enterprise Restructuring (effective from February 1, 23):
"V. Debt-to-equity swap of enterprises
Article 14 If the creditor and the debtor voluntarily reach an agreement on debt-to-equity swap, and it does not violate the mandatory provisions of laws and administrative regulations, the people's court shall, in the trial of relevant civil dispute cases, The conversion of policy creditor's rights into equity shall be handled in accordance with the provisions of relevant departments of the State Council.
article 15 the people's court shall support the debtor in defrauding the creditor to sign the debt-to-equity swap agreement by concealing the assets of the enterprise or falsely listing the assets of the enterprise, and the creditor exercises the cancellation right within the statutory period. After the debt-to-equity swap agreement is revoked, the creditor has the right to ask the debtor to pay off the debt. "
(2) The legal system of debt-to-equity swap needs to be improved.
1. Although the debt-to-equity swap has been widely appeared and recognized in practice, and there is also a certain legal basis, as a most basic commercial behavior, shareholders' capital contribution should first come from the direct provisions of the basic law, the Company Law. Therefore, China's "Company Law" should improve the provisions on the mode of capital contribution of promoters or shareholders, and make it clear that creditor's rights can be used as capital contribution. Of course, relevant rules should be formulated to define the behavior of false creditor's rights contribution, and clarify the responsibilities of creditor's rights contributors and relevant intermediaries.
2. formulate relevant supporting laws and regulations, establish a "creditor's rights trading market" system, and form a debt-to-equity swap mechanism to solve the corporate debt crisis.
under the condition of market economy, the biggest effect of debt-to-equity swap should be to solve the debt crisis of enterprises, and should not stay at the operational level of debt-to-equity swap of general enterprises. Therefore, we should deepen the reform of debt-to-equity swap system and form a benign mechanism to solve the debt crisis of enterprises.
for enterprises caught in debt crisis, although the law of our country stipulates that creditors have the right to apply to the court for bankruptcy when the debtor fails to repay the due debts, the bankruptcy procedure should be suspended when the debtor's competent department applies for rectification and a settlement agreement is reached by the debtor and creditors. In addition, even if the debtor enters bankruptcy proceedings, it may be because the relevant process lasts for a long time, which is time-consuming and laborious, and as a result, it may be difficult to ensure that the creditor's rights can be recovered in full.
If the relevant legal system is formulated to match with the bankruptcy law, the market pricing and circulation mechanism of creditor's rights is formed, and the allocation of social resources is optimized in this way, and the possible scope of strategic investors is expanded to all investors except the original creditors, making debt-to-equity swap more possible and convenient. This mechanism will attract all investors to take debt-to-equity swap as an investment activity, and make outstanding strategic investors or people with special resources stand out, and obtain the right to operate enterprises by purchasing creditor's rights and converting them into equity, so as to achieve a win-win effect of not only solving the debt crisis of enterprises, saving enterprises, but also realizing the creditor's rights.
third, the mode of debt-to-equity swap.
(a) "participation in the transformation". That is, when the debtor is an unincorporated enterprise legal person, take advantage of the opportunity of its transformation into a company, the creditor as the investor, regard the creditor's rights as the investment in the proposed company, and obtain the corresponding equity after the company is established.
(2) "shareholder's capital increase". That is, the debtor belongs to a company established in accordance with the Company Law, and the debtor's shareholders have creditor's rights to the debtor, and the shareholders convert the creditor's rights into equity as their increased investment, thus corresponding to the registered capital of the debtor company.
(3) "absorbing new shares". That is, the debtor itself belongs to a company established in accordance with the Company Law, and creditors other than the debtor's shareholders convert their creditor's rights into investments in the debtor's company, thus becoming a new shareholder of the debtor's company and correspondingly increasing the registered capital of the debtor's company.
iv. lawyers' due diligence on debt-to-equity swaps.
lawyers are often required to review the legality and effectiveness of the debt-to-equity swap and issue legal opinions in the restructuring and reorganization of companies. In this regard, lawyers should pay attention to the following issues in due diligence:
First, when reviewing the legality of debt-to-equity swap, they should pay attention to the legal restrictions on the conditions for joint-stock enterprises to convert shares. For example, according to China's Company Law, a company must meet certain conditions for issuing new shares. Therefore, only when the company meets the prescribed conditions can it restructure its debts by converting debts into capital.
second, we should investigate the formation process of creditor's rights. If the creditor's rights are generated by both parties in economic exchanges, the authenticity, legality and effectiveness of the transaction should be paid attention to and verified.
thirdly, we should check whether the relevant agreements, contracts, resolutions and other documents of capital increase and share expansion are complete and true, whether the shareholders of the company agree to the conversion of creditor's rights into equity, whether the capital increase and share expansion has been verified by an accounting firm and issued with a capital verification report, and whether it has been approved by the company registration authority.
fourthly, lawyers should not make judgments only on the capital verification reports of intermediaries. Lawyers should also pay attention to the continuity of the company's financial statements and check whether the annual financial statements can truly reflect the existence of the foreign debt.
fifthly, the legality of the conversion price should be examined. For the registered capital of a company, China adopts the paid-in capital system. Article 23 of the Company Law stipulates that "the registered capital of a limited liability company is the paid-in capital of all shareholders registered in the company registration authority". Therefore, as long as the actual amount of creditor's rights is not less than the net assets of the company corresponding to the converted equity, it is in line with the provisions of the Company Law.
Sixth, in the process of due diligence, lawyers should obtain the promises and statements issued by the parties on the authenticity and legality of their creditor's rights, so as to strengthen the responsibilities of investors.