8 ALB CHINA INSOLVENCY & RESTRUCTURING GUIDE 2023 out-of-court procedure that cannot be confused with in-court procedures. As a special form of out-of-court restructuring, the relationship between prepackaged reorganization and in-court reorganization is one of chronical connection rather than one of substantive functional complement. 1. Differences between prepackaged reorganization and out-of-court restructuring 1.1. Out-of-court restructuring is not bound by a legal framework, and consultations between creditors and debtors are voluntary and not judicially mandatory, with the agreements reached having the effect of civil contracts and binding on the parties to the agreements to a certain extent, but not binding on other creditors who have not reached a consensus; Agreements reached through prepackaged reorganization, in particular the content of a prepackaged reorganization plan that becomes part of a reorganization plan in a subsequent reorganization proceeding and is approved by a court decision, are binding on the debtor, all creditors and contributors. In addition, similar to most debt instruments, out-of-court restructuring requires the consent of all creditors, whereas the prepackaged reorganization system, by linking up with judicial restructuring at a later stage, allows the majority to bind the minority by the terms of the restructuring plan, thus allieviating to a certain extent the problem of “veto power”. 1.2. Out-of-court restructuring is completely the independent behavior of the parties outside the court, without the participation of public authorities; The prepackaged reorganization system is more conducive to the rebirth of troubled enterprises through the participation of judicial organs, government organs and relevant functional departments. Therefore, prepackaged reorganization is the further development of out-of-court reorganization procedure, which enables it to connect more smoothly with bankruptcy reorganization procedure. 1.3. Out-of-court restructuring is a voluntary negotiation process of debtors, which is flexible and convenient in procedure, and in which the parties can fully negotiate without time limit; In practice, prepackaged reorganization generally has a time limit and requires the debtor to assume certain obligations. 2. Differences between prepackaged reorganization and bankruptcy reorganization 2.1. Prepackaged reorganization can save the cost and time of reorganization and improve the efficiency of reorganization. Prepackaged reorganization has reversible procedures and does not produce bankruptcy liquidation consequences. Bankruptcy reorganization often takes a long time from application to acceptance, from submission of the draft reorganization plan to implementation of the reorganization plan. As a legal procedure, the reorganization procedure should be carried out in strict accordance with the provisions of the Enterprise Bankruptcy Law. If the draft reorganization plan cannot be submitted as scheduled, the reorganization procedure should be transferred to bankruptcy liquidation procedure. 2.2. Prepackaged reorganization can respect the autonomy of debtors and creditors more than bankruptcy reorganization, and give full play to the initiative of all parties in reorganization; Bankruptcy reorganization is dominated by the court, is by nature the reorganization in the court and must therefore be bound by the legal framework. 2.3. In the prepackaged reorganization proceeding, the debtor retains control over its own management, and since it is not a judicial reorganization proceeding, it can effectively reduce the negative impact on the enterprise's own goodwill and creditworthiness brought about by the enterprise's bankruptcy reorganization; bankruptcy reorganization has clear provisions on the takeover of the debtor's property and business affairs, the exercise of creditors' rights, the assumption of obligations by the debtor, and disclosure of the debtor's negative information, and so on. 2.4. The content of the prepackaged reorganization plan reached in the prepackaged reorganization proceedings is effective only if it becomes the content of the reorganization plan in the subsequent reorganization proceedings and is approved by the court; bankruptcy reorganization is a statutory procedure, and once the reorganization plan has been approved by the court, it must be strictly implemented by all creditors, debtors, contributors and investors. III. Advantages and significances of the prepackaged reorganization system 1. Advantages of prepackaged reorganization system The advantages of the prepackaged reorganization system lie in improving the mechanism for hearing bankruptcy restructuring cases, accurately identifying the restructuring value of enterprises in distress, judging whether the enterprises have the feasibility of restructuring, and saving judicial resources, reducing the institutional costs of enterprise restructuring and effectively improving the success rate of enterprise restructuring by promoting the effective connection
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