Abstract:
In the regulation of underperforming listed companies, effectively coordinating the two systems of bankruptcy reorganization and financial compulsory delisting so as to form a synergy is of particular importance. Prior to the registration-based reform, China's capital market suffered from the phenomenon of "delisting difficulty", whereby certain underperforming companies, when confronted with delisting pressure, resorted to bankruptcy reorganization to achieve "shell preservation". The registration-based reform has institutionally and substantially weakened the scarcity and notional value of listed companies' "shell" resources, significantly diminishing firms' incentive to preserve their listing status through bankruptcy reorganization, while the financial-indicator-based mandatory delisting regime has entered normalized operation. Nevertheless, certain problems persist between the bankruptcy reorganization and financial compulsory delisting systems, including the misapprehension of their institutional positioning, the overlap of applicable standards, and gaps in procedural articulation; phenomena such as "sham reorganization" and "delisting despite reorganization" continue to occur. In response to the foregoing problems, the two systems should be guided toward concrete and operable collaborative governance. First, the applicable standards should be refined to make clear that reorganization value must not encompass "shell" value, and that only companies possessing going-concern capacity, that is, those that are "honest but unfortunate", may be eligible for reorganization. Second, the initiation mechanism should be optimized by establishing a "pre-communication" system prior to the reorganization application and a tiered regulatory opinion-solicitation model, thereby lowering the threshold for procedural initiation. Third, the quality of reorganization should be enhanced through substantive judicial review of the reorganization plan by the courts. Fourth, a coordination and fault-tolerance mechanism should be constructed to eliminate the incentive for "shell preservation". The above measures can reduce institutional costs and achieve effective institutional coordination in clearing out underperforming listed companies.
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