Creditors’ committees of banking institutions

The measure to set up creditors’ committees among banking institutions is a key initiative to prevent financial risk and resolve insolvency crises. In the national banking work conference, held in 2016, Shang Fulin, the former chairman of the China Banking Regulatory Commission (CBRC), proposed rolling out this measure across the whole country, after carrying out several pilot programmes. With the guiding documents issued by the CBRC in 2016 and 2017, gradually the creditors’ committees have become a common mechanism in coping with the debt of financial institutions.

Some problems

The creditors’ committees lack authority due to the lack of legislation. The creditors’ committees are run as per the Notices on the Administration of Creditors’ Committees of Banking Institutions (document No. 1196) and the Notices on Stepping Up the Administration of Creditors’ Committees of Banking Institutions (document No. 802) issued by the CBRC. There is, however, no higher-level law governing such committees.

A creditors’ committee is a temporary organisation based on negotiation and self-discipline. Hence, the operation of the committees hinge upon the instructions of the regulatory and government agencies. The co-ordination of the lead creditor and the negotiations between the creditor are not binding, resulting in low efficiency.

The creditors’ committee is limited to banking institutions, and does not adapt to situations where corporates’ creditors are diversified. Documents No. 1196 and 802 are not binding on the creditors, which are not banking institutions, which tend to take legal proceedings or other asset preservation actions against the companies in the case of insolvency, thus the corporate debt restructuring plans are foiled.

William Zhang and Zhao Jiajia are partners at Merits & Tree Law Offices