Bankruptcy trustees reveal their real value

A lion sculpture in front of a bank, a common scene in China. Many bankers believe the animal is a "patron saint" of their business and customers. But many in Wenzhou, if their business goes awry or is on the verge of bankruptcy, may turn to special trustees for help because they believe trustees provide a butler-like service, helping them to work out all kinds of detailed restructuring measures to reorganize daily operations and sketch out long-term future plans step by step. [Photo/Provided to China Daily]

The role of bankruptcy trustees turned out to be essential in saving companies struggling with financial problems in Wenzhou, Zhejiang province, as the number of business failures reached a historical peak in the first quarter.

Seven organizations became the first group to qualify to restructure bankrupt enterprises in September 2007. Now, at least 26 agencies and three individuals have been approved to manage bankrupt companies.

As one of the three individuals appointed by the Zhejiang provincial court to be a bankruptcy trustee, Liu Xuhai, a certified public accountant with Wenzhou Zhongyuan Certified Public Accountants Co, was put in charge of the case of Zhejiang Xingqiu Packing Co in Wenzhou.

It was the first bankruptcy case in which a company received a judicial restructure after the financial crisis in Wenzhou erupted in September 2010.

Zhejiang Xingqiu Packing, an exporter of paper packing materials, submitted an application for bankruptcy reorganization to the Ouhai district court in Wenzhou on May 2012 as it failed to handle heavy losses and pay back increasing debts.

After six months of negotiation and preparation led by Liu's team, Xingqiu received an investment of 38 million yuan ($6.17 million) from shareholders and successfully resumed production in November 2012.

"We've held five meetings with the creditors of Xingqiu and negotiations with tax-related departments more than 10 times to minimize the tax since the case was sent by the court to us," said Liu Xuhai.

Liu added that the bankruptcy trustee can be regarded as a sort of butler, working on all kinds of detailed restructuring measures to reorganize daily business operations and sketch out long-term future plans step by step.

As the third-party organization, the bankruptcy trustee and his team aim to solve cases they handle efficiently to protect the interests of both creditors and debtors by acting as an independent, fair and objective assistant to the struggling company.

"The bankruptcy trustee worked as an important intermediary, coordinating with creditors, investors, court and related governmental administration departments in the restructuring of my company," said Weng Qifang, the chairman of Zhejiang Xingqiu Packing Co.

The business model of Xingqiu has been transformed from being a traditional original equipment manufacturer of paper packing to a modern company trying to expand research and development of products.

"We've moved the focus to creating more high-quality and innovative products to attract more clients with higher prices instead of working on the limited amount of orders received from overseas," said Weng.

He added that Xingqiu turned out to be more energetic and open-minded after working with new shareholders, modern business concepts and operational methods guided by the bankruptcy trustee team.

The restructuring of Xingqiu is expected to be completed in June. Then the company will be allowed to operate without any further assistance from the bankruptcy trustee and the court.

Over the past year, Liu has received many more cases related to the bankruptcy of small and medium-sized enterprises in the city than before.

"I am still working on six bankruptcy cases at the moment while I received just three cases between 2007 and 2011, which signifies that more companies have been affected by the obviously worsened economy," said Liu.

He added that more local enterprises realize they need to ask for help from the authorities to save their companies if they suffer financial difficulties and profits start drying up.

Wenzhou suffered the outbreak of a financial crisis arising from widespread loan defaults by many hard-pressed factory owners and investors from the end of 2010.

There were numerous reports about local entrepreneurs having fled abroad, leaving behind not only piles of debts but also abandoned factories and many unpaid workers.

A total of 19,511 cases related to private financing were solved with more than 22 billion yuan getting spent in 2012. As many as 5,393 cases related to disputes over financial lending agreements involving more than 24 billion yuan were heard in the Wenzhou Supreme People's Court and the Wenzhou Intermediate People's Court.

The total amount of debts involved in all the cases of private financing filed by the intermediate court exceeded 50 billion yuan.

Apart from disputes caused by financial problems, the number of bankruptcy cases reached a peak of 27 awaiting completion and 11 dealt with in 2012. Twenty-four cases were completed between 2007 and 2011, according to the latest statistics released by the Wenzhou Intermediate People's Court.

By the end of April, there were still eight bankruptcy cases still being dealt with.

"Quite a few owners of local private enterprises made requests to the court on how to proceed under the bankruptcy system and restructure their companies after the crisis occurred in late 2010," said Ju Haiting, a civil court judge of the Wenzhou Intermediate People's Court.

Ju added that the bankruptcy trustee has played a key role in protecting the benefits of both sides by dividing the properties of debtors reasonably and avoiding further damage to the bankrupt company by ensuring its restructuring work can be carried out.