Question:
What does “the state of insolvency of an enterprise or cooperative” as stipulated in Article 4, Clause 1 of the Bankruptcy Law mean?
Answer:
According to the provisions in Article 4, Clause 1 of the Bankruptcy Law, “An enterprise or cooperative is considered insolvent when it does not fulfill the obligation to pay a specific, clear debt within a period of 3 months from the due date.”
Based on the above regulations, an enterprise or cooperative is considered insolvent if it meets the following conditions:
- It has a specific, clear debt that is acknowledged by the parties, agreed upon, or determined through a legally effective court judgment, a commercial arbitration award, or specified in a decision by an authorized agency, and there is no dispute regarding this debt among the parties.
- The debt is due for payment.
A due debt is a debt that has a clearly defined payment deadline, and the enterprise or cooperative has an obligation to repay the debt when it reaches that deadline. This payment deadline is acknowledged by the parties, agreed upon, or determined through a legally effective court judgment, a commercial arbitration award, or specified in a decision by an authorized agency.
- The enterprise or cooperative does not fulfill the obligation to pay the debt within a 3-month period from the due date. This includes two scenarios:
- The enterprise or cooperative has no assets to pay the debts.
- The enterprise or cooperative has assets but does not make the required debt payments.
Therefore, “insolvency” does not necessarily mean that the enterprise or cooperative has no assets left to repay the debt. Even if the enterprise or cooperative has assets but fails to fulfill the obligation to repay the debt to the creditor on time, it is still considered “insolvent.”
It’s important to note that current legislation does not specify a particular threshold of debt to determine insolvency; rather, the presence of the mentioned conditions is the key factor.
