In an enterprise bankruptcy reorganization project, if the draft reorganization plan fails to pass the deliberation of the creditors' meeting, does it mean that the draft reorganization plan has ultimately not been approved and the enterprise has to enter the liquidation procedure? Actually, this is not the case. According to the relevant provisions of the Enterprise Bankruptcy Law of the People's Republic of China, the people's court may compulsorily rule to approve the draft reorganization plan if certain conditions are met.

I. Legal Provisions

Article 87 of the Enterprise Bankruptcy Law of the People's Republic of China stipulates:

If some voting groups fail to adopt the draft reorganization plan, the debtor or the administrator may consult with the voting groups that have not adopted the draft reorganization plan. Such voting groups may vote again after the consultation. The result of the consultation between the two parties shall not harm the interests of other voting groups.

If a voting group that has not adopted the draft reorganization plan refuses to vote again or still fails to adopt the draft reorganization plan after re-voting, but the draft reorganization plan meets the following conditions, the debtor or the administrator may apply to the people's court for approval of the draft reorganization plan:

1. In accordance with the draft reorganization plan, the claims listed in Item (1) of the first paragraph of Article 82 of this Law shall be fully repaid from the specific property, the losses suffered by the creditors due to the deferred repayment shall be fairly compensated, and their security rights shall not be substantially impaired; or the voting group has adopted the draft reorganization plan;
2. In accordance with the draft reorganization plan, the claims listed in Items (2) and (3) of the first paragraph of Article 82 of this Law shall be fully repaid; or the corresponding voting groups have adopted the draft reorganization plan;
3. In accordance with the draft reorganization plan, the repayment ratio of ordinary claims shall not be lower than the ratio that would be obtained in bankruptcy liquidation proceedings when the draft reorganization plan is submitted for approval; or the voting group has adopted the draft reorganization plan;
4. The adjustment of the rights and interests of contributors under the draft reorganization plan is fair and impartial; or the contributors' group has adopted the draft reorganization plan;
5. The draft reorganization plan treats the members of the same voting group fairly, and the order of claim repayment stipulated therein does not violate the provisions of Article 113 of this Law;
6. The business plan of the debtor is feasible.

II. Conditions for the People's Court to Compulsorily Approve the Draft Reorganization Plan

According to the above provisions, the people's court must meet the following conditions when compulsorily approving the draft reorganization plan:

1. At least one voting group has adopted the draft reorganization plan

Another implication of "If some voting groups fail to adopt the draft reorganization plan, the debtor or the administrator may consult with the voting groups that have not adopted the draft reorganization plan" is that there is no situation where "all voting groups have not adopted the draft". In addition, the word "may" in "may vote again after the consultation" indicates that: if the possibility of the group passing the vote again is low, the debtor or the administrator may skip the consultation and re-voting procedures and directly apply to the people's court for a ruling.

2. Protection of the Rights and Interests of Secured Creditors

The claims secured by the specific property of the debtor shall be fully repaid based on the value of the collateral, the losses suffered by the creditors due to the deferred repayment shall be fairly compensated, and their security rights shall not be substantially impaired; or the priority creditors' group has voted to adopt the draft reorganization plan.

It is worth noting that even in bankruptcy liquidation proceedings, priority creditors have the right to priority repayment from the specific property of the debtor. If the reorganization plan adjusts the priority claims such that the amount of repayment for priority claims is lower than that in liquidation proceedings, unless the priority creditors voluntarily waive their own interests, the basis for the people's court to compulsorily rule to approve the reorganization plan can only be: full repayment based on the value of the collateral, fair compensation for losses due to deferred repayment, and no substantial impairment of security rights.

3. Full Repayment of Employee Claims and Tax Arrears

The wages, medical expenses, disability subsidies, pension expenses owed by the debtor to its employees, the basic pension insurance and basic medical insurance expenses that should be credited to employees' personal accounts, as well as the compensation that should be paid to employees in accordance with the provisions of laws and administrative regulations, shall be fully repaid; the taxes owed by the debtor must be fully repaid.

4. Repayment Ratio of Ordinary Claims

The repayment ratio of ordinary claims in the reorganization shall be higher than that which would be obtained if the enterprise enters bankruptcy liquidation proceedings, or the ordinary creditors' group has voted to adopt the draft reorganization plan.

Generally speaking, the ordinary claim repayment rate = (debt repayment funds - bankruptcy expenses - community debts - secured claims - employee claims - taxes) ÷ total amount of ordinary claims × 100%. If this ratio is lower under the reorganization plan than in bankruptcy liquidation, that is, the reorganization is more unfavorable to the repayment of ordinary claims, then the reorganization plan has lost the value and significance of recovering creditors' losses and restoring the debtor's business capacity, and it will be difficult for the creditors' meeting to pass it.

5. Fair and Impartial Adjustment of Contributors' Rights and Interests

The adjustment of contributors' rights and interests shall be fair and impartial, or the contributors' group has adopted the draft reorganization plan. Fair and impartial does not mean that the interests of contributors are prioritized; on the contrary, the premise for the reasonable adjustment of contributors' interests is that creditors receive fair repayment.

6. Fair Treatment of Members of the Same Voting Group

Members of the same voting group must be treated fairly to prevent large creditors from using their voting rights to oppress small creditors.

7. Feasibility of the Business Plan

The feasibility of the business plan is the foundation and premise for the enterprise to carry out reorganization. If the business plan is not feasible at all, then the enterprise will have no possibility of repaying its debts and resuming operations, and the purpose of saving the enterprise through reorganization cannot be achieved.

Conclusion

In summary, in the process of enterprise bankruptcy reorganization, if the Draft Bankruptcy Reorganization Plan fails to pass the deliberation of the creditors' meeting, the people's court may compulsorily rule to approve the draft reorganization plan on the basis of meeting the above conditions, so as to realize the rebirth of the bankrupt enterprise.