7 ALB CHINA INSOLVENCY & RESTRUCTURING GUIDE 2023 I. Prepackaged reorganization and related systems Prepackaged reorganization system refers to a rescue system for enterprises in distress whereby creditors, debtors, contributors and other stakeholders negotiate and reach a proposal on debt and other matters in a market-oriented manner before the enterprise enters into judicial restructuring procedures. The prepackaged reorganization system grew spontaneously in the United States in the late 1980s and early 1990s. In the U.S., companies in financial crisis have four viable options to continue to operate independently: traditional Chapter 11 bankruptcy, outof-court restructuring, prenegotiated or prearranged bankruptcy, and prepackaged reorganization. Prepackaged reorganization has now become an important legal system in the commercial field worldwide. For example, in order to promote the Capital Markets Union (CMU), the European Union has proposed a legislative package to comprehensively improve the legal system including the insolvency law from the perspective of the capital market, which involves the prepackaged reorganization directive. When the Netherlands and Belgium overhauled their insolvency laws, they added the prepackaged reorganization and its related rules. There is currently no prepackaged reorganization system in China's Enterprise Bankruptcy Law, but the Supreme People's Court has constantly emphasized the connection between out-of-court restructuring and in-court reorganization in various judicial documents, and local courts have been exploring the prepackaged reorganization and issuing local rules or guidelines STUDY ON PREPACKAGED REORGANIZATION RELATED SYSTEMS one after another. It can be said that the prepackaged reorganization system in China has achieved a topdown "top-level design" and bottom-up "grass-roots needs" model. It can be seen that the prepackaged reorganization system is a kind of out-of-court restructuring and in-court reorganization system which has been gradually formed and developed in China's judicial practice with reference to foreign experience. In practice, the prepackaged reorganization system applies mainly to enterprises in distress with reasons for insolvency, in line with national policies, with better industry prospects and with restructuring value and salvage possibilities. The purpose of the prepackaged reorganization system is to reach a consensus through voluntary reorganization negotiations among the parties concerned and to make the draft reorganization plan effective with the help of the reorganization procedure, so as to avoid some of the costs, delays and procedural and legal requirements usually brought about by formal reorganization procedures. The prepackaged reorganization system applies before the court accepts an application for enterprise reorganization, and there is no more prepackaged reorganization after the court accepts an application for enterprise reorganization or after reorganization proceedings have commenced. II. Relationship between prepackaged reorganization, out-of-court restructuring and incourt reorganization Prepackaged reorganization is a link between, rather than a mixture of, out-of-court restructuring and incourt reorganization. Prepackaged reorganization is an 1 CHAPTER
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