14 ALB CHINA INSOLVENCY & RESTRUCTURING GUIDE 2023 Protection of creditors’ rights and interests has always been a focus in bankruptcy proceedings. The discharge sequence of claims of different types and the source of debt-paying funding, once determined, will directly affect the level of assurance of a creditor’s rights and interests. Rules on discharge of bankruptcy expenses, debts of common interest and claims secured by property are provided in current Chinese laws. As people understand such rules in different ways, however, combined with the complexity of bankruptcy proceedings, the discharge rules effectively adopted in some cases are not compliant with laws and regulations and may damage the creditors’ legitimate rights and interests. In view of the foregoing, this article attempts to summarize the aforesaid discharge rules based on the laws and regulations governing bankruptcy expenses, debts of common interest and claims secured by property, and to list typical examples of noncompliant practices that may damage creditors’ legal rights and interests for their reference when effectively safeguarding such rights and interests. I. General Rules of Discharge of Bankruptcy Expenses, Debts of Common Interest and Claims Secured by Property (I) Identification of Bankruptcy Expenses and Debts of Common Interest The types of bankruptcy expenses and debts of common interests are defined in Articles 41, 42 of the Enterprise Bankruptcy Law (the “Bankruptcy Law” hereinafter). According to Article 41, “The following expenses that may occur after a people’s court accepts an application for bankruptcy shall constitute bankruptcy expenses: (I) court costs of the bankruptcy proceedings; (II) expenses incurred for management, sale and distribution of the debtor’s property; (III) expenses incurred by the administrator for performance of his duties, remuneration to the administrator, and costs of staff he may recruit.” According to Article 42, “The following debts that may occur after a people’s court accepts the bankruptcy application shall be debts of common interest: (I) debts arising when the administrator or the debtor requests the counterpart of a contract to continue performance of the contract which the parties thereto have yet to perform in full; (II) debts arising from negotiorum gestio on the debtor’s property; (III) debts arising from the debtor’s unjust enrichment; (IV) salaries and social security contributions payable in order to enable the debtor’s continuity of business, plus other obligations that may arise therefrom; (V) obligations arising from damages that any person may suffer because of performance of duty by the administrator or otherwise; (VI) obligations arising from damages that any person may suffer because of the debtor’s property.” The above-cited provisions of the Bankruptcy Law enable clear identification of bankruptcy expenses and debts of common interest. Besides, the Supreme People’s Court, by publishing judicial interpretations of the Bankruptcy Law, further set forth the circumstances where the rules on discharge of bankruptcy expenses and debts of common interest may be considered for reference. According to Article 1 of the Regulations of the Supreme People’s Court on Applicability of the Law of PRC on Enterprise Bankruptcy (III) (“Interpretation No. 3” hereinafter), “where the people’s APPLICABILITY OF RULES ON DISCHARGE OF BANKRUPTCY EXPENSES, DEBTS OF COMMON INTEREST AND CLAIMS SECURED BY PROPERTY 2 CHAPTER
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