27 ALB CHINA INSOLVENCY & RESTRUCTURING GUIDE 2023 statutory time limit to initiate liquidation, thus resulting in devaluation, loss, damage or destruction of company assets and any creditor claim for correspondent liability borne by such person(s) to compensate the debts of the company, the people's court shall support the claim according to law. (2) Obligation to File for Bankruptcy The Enterprise Bankruptcy Law Article 7(3) provides that where a dissolved legal entity has not started or completed liquidation and does not have adequate assets to pay off its debts, the person legally responsible for liquidation shall apply to the people’s court for liquidation bankruptcy. 3. Legal Liability for Failure to Fulfil Obligation to Cooperate in Liquidation Upon entering into bankruptcy proceedings, the relevant personnel of the company shall fulfil the obligation to cooperate during liquidation, and the relevant personnel of the company shall be liable for compensation if, as a result of their negligence in fulfilling that obligation, the main assets, books of account, important documents and the like of the company are lost to the detriment of the interests of the creditors or thus impeding the bankruptcy administrator from processing the liquidation. Article 15 of the Enterprise Bankruptcy Law stipulates that during the period from the date when the people’s court's decision to accept an application for bankruptcy is served on the company to the date when bankruptcy procedures are concluded, the company personnel (including the legal representative, financial managers and other business managers recognized by the People’s Court) shall fulfill the following obligations: (1) Properly preserving the assets, seals and account books as well as documents under their possession and management; (2) Working according to the requirements of the people's court and bankruptcy administrator and answering their inquiries in a faithful manner; (3) Attending the creditor's meeting and answering the creditors' inquiries; (4) Not leaving one's domicile in the absence of permission of the people's court; and (5) Not assuming any post of director, supervisor or senior manager in any other enterprise. Paragraph 3 of the Reply of the Supreme People’s Court on How Creditors Handle Bankruptcy Liquidation Cases Filed by Debtors whose Personnel Whereabouts are Unknown or property Status is Unclear (hereinafter referred to as “The Reply”) stipulates that the court may, in accordance with the law, hold noncompliant personnel liable; in the event that such noncompliant acts lead to failure of liquidation or damages, pertinent right holders may sue for civil liabilities. Meanwhile, Article 18(2) of Company Law Interpretation II stipulates that where shareholders of a limited liability company or directors and controlling shareholder of a joint stock company neglect the performance of their obligations, resulting in the destruction of the company’s primary property, accounts and important documents and rendering the liquidation impossible, creditors may claim that they are jointly and severally liable for the company’s debts. It should be noted that the Notice by the Supreme People's Court on Issuing the Minutes of the National Court Work Conference for Civil and Commercial Trials 2019 (2019 Ninth Conference Minutes) explains the applicability of Company Law Interpretation II Article 18(2), and makes it clear that when a court applies Paragraph 3 of The Reply to determine the liability of the company personnel, it should decide on the scope of obligation(s) and liability based on the bankruptcy law in place of Company Law Interpretation II Article 18(2)[1] . 4. Legal Liability for Improper Payment of Debt by a Bankrupt Enterprise Where a bankrupt enterprise acts to the detriment of creditors' interests including reducing the debtor's property, paying off to specific creditors, concealment or transfer of property and creating fraudulent debts, the legal representative and other personnel directly responsible shall be held liable for compensation according to law. Article 128 of the Enterprise Bankruptcy Law stipulates that where a bankrupt enterprise commits any of the acts provided for in Article 31 [2] (reducing the debtor's property), Article 32 [3] (paying off to specific creditors), Article 33 [4] concealment or transfer of property and creating fraudulent debts) of this Law, which harm the interests of its creditors, the legal representative of the bank enterprise and other personnel directly responsible shall be held liable for compensation according to law. The subjective test under this law requires intent or gross negligence. With regard to the concealment and transfer of property and fraudulent debts under Article 33 of the Enterprise Bankruptcy Law, the administrator has the right to sue and claim for the return of the said property from its actual possessor or to claim that the debtor's fraudulent debt or acknowledgement of false debt is invalid and thus the debtor's pertinent property should be returned. 5. Legal Liability for Obtaining Improper Income and Embezzlement of Corporate Assets Article 36 of the Enterprise Bankruptcy Law provides that the bankruptcy administrator shall recover any improper income procured or enterprise assets embezzled
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