9 ALB CHINA INSOLVENCY & RESTRUCTURING GUIDE 2023 [1] Minutes of the National Court Bankruptcy Trial Work Conference in 2018 and Minutes of the National Court Civil and Commercial Trial Work Conference in 2019. [2] As of July 2023, according to the author's statistics, there have been 6 provinces (including municipalities directly under the Central Government), 30 cities, and 8 districts in which the relevant courts have issued prepackaged reorganization normative guidelines. between out-of-court restructuring and in-court reorganization procedures. In practice, the advantages of the prepackaged reorganization system are also reflected in the strong dominance of the debtor in the prepackaged reorganization case, and the debtor's risk can be reduced to a reasonably controllable level; if the debtor and the creditors fail to reach a consensus, the debtor can also withdraw the application for prepackaged reorganization, which makes the procedure reversible with fewer negative effects. 2. Significances of the prepackaged reorganization system 2.1. Under the prepackaged reorganization system, the work of clearing claims and debts and voting on the draft reorganization plan precede the bankruptcy reorganization procedure, thereby greatly shortening the time of bankruptcy reorganization procedure and improving the efficiency of reorganization. 2.2. Prepackaged reorganization is condusive to presenting and protecting the value of enterprise reorganization. In practice, it often happens that when troubled enterprises directly enter the in-court reorganization, the outsiders will greatly reduce their business expectations and value judgments based on concerns about the bankruptcy trend of enterprises, so as to minimize acquisition price. As a result, the actual value of enterprises may be seriously underestimated. If the distressed enterprises choose prepackaged reorganization to get out of trouble, all parties will make a more rational judgment on the current and future potential commercial value of the debtor, and all parties can negotiate in a peaceful manner, so that the distressed enterprises have the opportunities to take more initiative at this stage, with a view to preserving more business interests. 2.3. Prepackaged reorganization can improve the quality of reorganization procedure. In many cases, when troubled enterprises enter the reorganization, their primary goal is to prevent the reorganization from failing and leading to bankruptcy liquidation, , and to a large extent, the reorganization has become a "Success only, not failure." battle. In the prepackaged reorganization, while the enterprise has no realistic liquidation pressure, there is the possibility of bankruptcy in the future. That gives all parties enough motivation to carry out many rounds of negotiation and bargains, thereby forming a benign interactive scenario for finally discovering the scheme that best meets Pareto optimal standards. 2.4. Prepackaged reorganization has become an important path that helps enterprises to solve and recover from difficulties For an enterprise in deep financial crisis, if the enterprise or its operator can timely apply to enter the prepackaged reorganization procedure and carry out enterprise rescue as early as possible, quick solutions may be found to curb the crisis and avoid expansion of the debt and business risks. IV. Existing problems of the prepackaged reorganization system and proposals for improving the prepackaged reorganization system 1. The existing problems of the prepackaged reorganization system. At present, the prepackaged reorganization system in China is in the exploratory development stage, there is no legislative provision for the prepackaged reorganization system in China, so there is no legal basis in practice, and it is basically explored without universally applicable rules. Although some local courts have issued relevant rules and guidelines, however, in view of the inconsistent understanding of the nature of prepackaged reorganization, improper operation mode and inconsistent and nonstandard implementation standards are prone to appear in practice, making the practice of prepackaged reorganization in various regions ineffective, affecting the protection of the basic rights of creditors and other stakeholders, and even adversely interfereing with and impacting the reorganization procedure. 2. The proposals for improving the prepackaged reorganization system Although all regions are actively exploring the prepackaged reorganization system in practice, and have continued to issue relevant guidelines applicable to the implementation of the prepackaged reorganization system, there are no clear provisions on the prepackaged reorganization system at the national legislative level. Due to the lack of legal norms, some major problems cannot be solved, such as how procedures are to be initiated and how prepackaged reorganization and reorganization procedures are to be connected. Therefore, the establishment of a prepackaged reorganization system
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