Relief issues of non-defaulting parties in bankruptcy cases

In the performance of a contract, a non-defaulting party can apply to the people’s court for insolvency liquidation, as per Article 7 of the Enterprise Bankruptcy Law, as the other side is not able to settle outstanding debt. If the people’s court accepts such an application and the administrator terminates the contract before both parties fulfil the acceptance in accordance with Article 18 of the Enterprise Bankruptcy Law, then how do we relieve the damage of the non-defaulting party arising out of the contract’s termination?

In accordance with Article 53 of the Enterprise Bankruptcy Law, the non-defaulting party may declare the claim of creditor’s rights to the administrator with regards to the damage stemming from the contract’s termination. However, the Enterprise Bankruptcy Law and the relevant judicial interpretations do not expressly specify the rules to use for such a right to claim damages. We would like to discuss issues on identifying and handling declarations of such creditor’s rights, based on our experience as bankruptcy administrator, so as to help the non-defaulting enterprise retrieve losses.

Scope of declaration of creditor’s rights to claim damages. We take the view that the scope of declaration of creditor’s rights to claim damages shall include, without limitation, liquidated damages, late fees, default interest and other payments in the nature of liquidated damages, based on the contract or the actual liability for damages arising out of the contract’s termination.

Wang Wei is a senior partner and Fu Chengrui is an associate at Co-effort Law Firm