Legal Issues Behind the Qvod Bankruptcy Case
After more than a decade in existence, the once-popular Kuaibo software (Shenzhen Kuaibo Technology Co., Ltd.) was recently ruled by the Shenzhen Intermediate People's Court in Guangdong Province to accept a bankruptcy liquidation petition filed by Shenzhen Jinyatai Technology Co., Ltd. The ruling states that the creditor's rights enjoyed by the applicant against the respondent have been confirmed by effective legal documents and have gone through enforcement proceedings, yet remain unsatisfied. The respondent, Kuaibo, is unable to repay its due debts and clearly lacks the capacity to do so; therefore, the applicant's petition meets the statutory conditions. In accordance with the provisions of the Enterprise Bankruptcy Law of the People's Republic of China, the ruling to accept the bankruptcy liquidation petition filed by the applicant, Shenzhen Jinyatai Technology Co., Ltd., against the respondent, Kuaibo, takes effect as of the date of this ruling. Zhang Longjun, former financial officer of Kuaibo, said in an interview, “A thousand people have a thousand Hamlets, and the same is true for Kuaibo. Some see it as their youth, their dream; others say Kuaibo is nothing but piracy and pornography.”
Back in 2014, Kuaibo faced a hefty fine of 260 million yuan imposed by the Shenzhen Municipal Market Supervision Administration for copyright infringement. In 2016, Kuaibo and its shareholder Wang Xin, among others, were sentenced by the Haidian District Court in Beijing for the crime of disseminating obscene materials for profit. The company’s entry into bankruptcy liquidation proceedings means it cannot pursue bankruptcy reorganization and is no longer “alive,” effectively closing its doors for good. Readers may then ask: who can file for bankruptcy against a company, and under what circumstances? Once a company enters bankruptcy proceedings, can it not be revived? Next, we will guide you through the relevant legal issues surrounding corporate bankruptcy.
I. Multiple applicants may apply for an enterprise to enter bankruptcy proceedings.
Life and death are inevitable for both individuals and businesses. When a company is unable to repay its debts as they fall due, and its assets are insufficient to cover all liabilities or it is clearly lacking the capacity to pay,The company's creditors and debtors themselves(the company itself)[1] Liquidator(Where an enterprise has been dissolved but not yet liquidated, or liquidation has not been completed) an application for bankruptcy may be filed with the people's court. The bankruptcy of Kuaibo Company in this case was initiated upon the application of its creditor, Shenzhen Jinyatai Technology Co., Ltd., because in 2014, the Nanshan District Court of Shenzhen issued a civil mediation statement confirming that Kuaibo Company owed Jinyatai Technology nearly one hundred million yuan in principal and interest for goods. Subsequently, Jinyatai Technology applied to the Nanshan District Court of Shenzhen for compulsory enforcement, but to date there is no property available for enforcement, so the court ruled to suspend enforcement of the case and transfer it to bankruptcy proceedings.
Second, once an enterprise enters bankruptcy proceedings, it does not immediately “die” but has the opportunity to be “rescued.”
[4] The Bankruptcy Law stipulates three types of bankruptcy proceedings, namely[5] reorganization, composition, and bankruptcy liquidation proceedingsThe first two are both aimed at "rescuing" enterprises on the brink of "death" so as to achieve a comeback. However, once a bankruptcy declaration procedure is completed and the enterprise enters bankruptcy liquidation proceedings, it can no longer return to reorganization or settlement proceedings, and the "death" of the enterprise becomes irreversible. In other words, the bankruptcy declaration procedure is an important milestone in a bankruptcy case: before this point, reorganization or settlement may be pursued; after it, the enterprise will undergo liquidation until bankruptcy and closure. Therefore, the fact that Kuaibo has now entered liquidation proceedings following a bankruptcy declaration means that it will completely exit the market.
3. How to Handle Corporate Debts After Bankruptcy
After an enterprise files for bankruptcy, the court may, in accordance with the provisions of the Enterprise Bankruptcy Law, initiate a creditor protection mechanism by appointing a designated administrator to recover and preserve the bankrupt estate, after which creditors will receive discounted repayment. It is impossible to obtain full repayment, but it is better than receiving nothing at all. On the other hand, this prevents the bankrupt enterprise from continuing to incur new debt burdens. According to the Enterprise Bankruptcy Law, after the bankrupt estate has been used to satisfy bankruptcy expenses and debts incurred for the common benefit of creditors in priority, it shall be distributed in the following order: (1) wages, medical expenses, disability subsidies, and pension expenses owed by the bankrupt to its employees, basic endowment insurance premiums and basic medical insurance premiums owed that should be credited to employees’ individual accounts, and compensation payable to employees as required by laws and administrative regulations; (2) social insurance premiums owed by the bankrupt other than those specified in the preceding paragraph and taxes owed by the bankrupt; (3) ordinary bankruptcy claims. If the bankrupt estate is insufficient to satisfy the claims of the same order, distribution shall be made pro rata. Bankruptcy serves two most important functions: one is that creditors obtain fair discounted repayment, and the other is that the debts of the debtor enterprise are extinguished in accordance with the law, so that it is no longer burdened by debts. Shareholders may make a comeback in the future, which is good for both debtors and creditors.
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