Fixing bankruptcy woes of listed firms to help capital markets

The latest efforts by top authorities to further streamline the bankruptcy reorganization process of listed companies will help optimize resource allocation, which is conducive to the sustainable and high-quality development of the Chinese capital market, said experts.

The comments came in response to the minutes of a recently held symposium on effectively handling the bankruptcy reorganization cases of listed companies.

The minutes were jointly released by the Supreme People's Court and China Securities Regulatory Commission on Tuesday.

Companies that are delisted due to major violations of law, as well as listed companies that have major deficiencies in information disclosure or standardized operation and refuse to make rectifications, are not qualified for such reorganization, according to the minutes.

The reorganization of companies should focus on recovering their operational capabilities. By deeply analyzing the troubled situation, companies should come up with reorganization plans that address the problems, according to the minutes.

By adjusting their equity structure, businesses and governance model, companies should substantially improve their operational capabilities, optimize prime businesses and asset structure and aim for high-quality development, the minutes noted.

Compared to bankruptcy liquidation and bankruptcy reconciliation, bankruptcy reorganization allows companies to repay their debts in diverse ways.

Companies are allowed to retain market entity qualification and continue their operations under bankruptcy reorganization, said Chen Li, chief economist at Chuancai Securities.

For creditors, the repayment rate can be increased and losses can be reduced under the bankruptcy reorganization process, he added.

Tian Xuan, associate dean of the PBC School of Finance of Tsinghua University, said bankruptcy reorganization can help companies reshape themselves in a timely manner. The latest minutes have provided a clearer basis for such actions, he said.

Major financial documents and evaluation reports related to the bankruptcy reorganization of companies, as well as those that may exert significant influence on companies' share prices, should be disclosed on time, according to the minutes.

Judicial and regulatory cooperation should be strengthened to prevent risks from spilling over and safeguard market order, said the latest minutes.

A new trial principle of promoting the sound development of the capital market has been added. A notification mechanism has been set up regarding the violations of laws and regulations by listed companies, intermediaries and other related parties.

There will be stricter crackdown on acts infringing on the interests of creditors and individual investors, including administrative penalties and civil compensation, according to the minutes.

The CSRC, the country's top securities watchdog, started on Tuesday to solicit public opinion for a guidance on bankruptcy reorganization. By improving the quality and efficiency of such activities, resources allocation in the Chinese capital market will be optimized, said the CSRC.

In the three-year action plan to improve listed companies' quality, which was released in late 2022, the CSRC said that only qualified and valuable companies will be supported and saved via bankruptcy reorganization.

According to data from market tracker Wind Info, at least 44 A-share companies applied for bankruptcy reorganization or pre-reorganization by the end of November, up 40 percent from a year earlier.

While the number of such cases has been on the rise, more problems and violations have also surfaced, including insider trading. The number of regulations will help to enhance information disclosure and protect the interests of retail investors, as the whole process will be more transparent, said Yang Delong, chief economist at First Seafront Fund.

According to experts from CITIC Securities, public companies' bankruptcy reorganization will become more market-based and normalized in China amid concerted efforts by local governments, supervisory bodies and courts. This will also help in mitigating major financial risks, they said.