Bankruptcy Reorganization: Challenges and Hopes on the Road to Revival for Distressed Enterprises

On April 9, 2025, the Shanghai Bankruptcy Court released the "Shanghai Bankruptcy Court 2024 Annual Case Statistics". One set of data caught our attention: among all bankruptcy application cases throughout the year, the proportion of applications for bankruptcy reorganization was only 0.4%, and there were only 29 successful reorganization cases. This data not only reveals the predicament of the bankruptcy reorganization process in actual operation, but also prompts us to deeply reflect on the enterprise bankruptcy reorganization mechanism. The following is an analysis of the underlying reasons from multiple perspectives:

01.The company's own predicament: dual pressure from debt and operation.

1.The debt structure is complex, and the road to restructuring is full of thorns.

Corporate debts usually involve various types, including bank loans, supplier payments, private lending, etc. The scale of debts is huge and the structure is complex. Such a complex debt structure makes it extremely difficult to formulate and implement a reorganization plan. During the reorganization process, it is necessary to communicate and coordinate with numerous creditors and balance the interests of all parties. This not only takes a lot of time and effort but may also lead to difficulties in the smooth progress of the reorganization plan.

2.The business predicament is hard to reverse, and the effect of reorganization is limited.

Before many enterprises apply for bankruptcy reorganization, they have already fallen into a continuous loss predicament due to intensified market competition, lagging technological iteration or poor internal management. Even if these enterprises enter the reorganization process, it is difficult for them to restore their profitability in a short period of time. For instance, some traditional manufacturing enterprises, failing to keep up with market changes and technological upgrades in a timely manner, have seen their products unsold and market share shrinking. Even if they solve the debt problem through reorganization, it is still hard for them to regain a foothold in the fierce market competition.

02.Industry Characteristics Limitations: Dual Challenges of Cyclical Fluctuations and Qualification Barriers.

1.Industry cyclical fluctuations increase the difficulty of reorganization.

Some industries are significantly affected by the macroeconomic cycle, such as real estate and manufacturing. During economic downturns, enterprises in these industries face considerable operational pressure and debt risks, and the difficulty of restructuring also increases. Take the real estate industry as an example. In recent years, due to policy regulation and changes in market demand, many real estate enterprises have suffered from broken capital chains and fallen into difficulties. However, due to the particularity of the real estate market, these enterprises encounter numerous uncertainties during the restructuring process, such as adjustments in land policies and the continuous sluggishness of market demand, which leads to a relatively low probability of successful restructuring.

2.Industry-specific restrictions, qualification and market access difficulties.

For some enterprises with special qualifications or industry barriers, they may encounter issues such as qualification retention and market access during the reorganization process. For instance, some chemical enterprises possess special permits like hazardous waste treatment qualifications, which need to be recognized and retained by relevant departments during the reorganization process; otherwise, the enterprises will be unable to continue their operations. Additionally, some industries have relatively high market entry thresholds. After reorganization, the enterprises may need to regain market recognition, which poses higher requirements for the enterprises' reorganization plans.

03.Program Dilemmas and Mechanism Empowerment: The Role of Synergistic Mechanisms in Resolving Complex Processes Remains to Be Further Explored.

1.The reorganization process is complex and the coordination costs are high.

The bankruptcy reorganization process involves multiple stages, including creditor meetings, the formulation and voting on the reorganization plan draft, and the introduction of strategic investors. Each stage requires the coordination of multiple parties' interests, and the process is complex and time-consuming. For instance, during creditor meetings, communication with numerous creditors is necessary to secure their support and understanding; in the process of formulating the reorganization plan draft, the actual situation of the enterprise and the interest demands of creditors must be fully considered to ensure the feasibility and fairness of the plan; when introducing strategic investors, complex negotiations and evaluations are also required. The complexity of these stages increases the difficulty of advancing the reorganization process and raises the coordination costs.

2.Construction and Practical Exploration of the Linkage Mechanism between the Government and the Courts: A New Path for Cross-Departmental Collaboration.

Corporate bankruptcy reorganization involves cross-domain issues such as legal procedures, employee resettlement, and asset disposal, which require the collaborative support of government departments and courts. Currently, many regions are gradually improving the government-court linkage mechanism by establishing regular communication platforms and formulating joint work guidelines, with the aim of forming a more efficient collaboration model in terms of policy support and resource integration to help enterprises out of difficulties. In the future, efforts should be made to further promote the construction and full play of the positive role of the government-court linkage mechanism to effectively solve various bottlenecks and difficulties in reorganization.

04.Market and Social Factors: The Dual Test of Lack of Confidence and Stability Pressure.

1.Insufficient market confidence and difficulty in attracting investors.

The market's lack of confidence in enterprises undergoing bankruptcy reorganization makes it difficult to introduce investors. Most potential investors are cautious about the future development prospects of reorganization enterprises and are reluctant to invest large amounts of capital. On the one hand, the operating and financial conditions of reorganization enterprises are often poor, and investors have doubts about their future profitability. On the other hand, there are many uncertainties in the reorganization process, such as the implementation of the reorganization plan and changes in the market environment, which all increase the investment risks. Therefore, even if enterprises have the willingness and plans for reorganization, it is difficult to attract enough strategic investors, thereby affecting the success rate of reorganization.

2.Social impact and stability issues, pressure faced in the advancement of restructuring.

Bankruptcy reorganization may involve a large number of issues such as employee resettlement and protection of creditor interests, which attract high social attention. If not handled properly, it may trigger social conflicts and lead to some reluctance or unwillingness on the part of the administrator and the court to take on the risk of reorganization failure. For instance, in terms of employee resettlement, if the issues of employees' wages and social security cannot be properly addressed, it may cause dissatisfaction among employees and even lead to mass incidents; in terms of creditor interest protection, if the reorganization plan fails to adequately safeguard the interests of creditors, it may trigger their resistance. These problems not only increase the difficulty of reorganization but also pose potential risks to social stability.

05.Policy Support and Institutional Innovation: Challenges to the Resource Integration Capacity of Managers.

1.Strengthen resource integration and give full play to the synergy of policies.

At present, some enterprises may encounter the problem of insufficient resources during the reorganization process, which to a certain extent affects the success rate of reorganization. There are many obstacles for the administrator in the application of various tax preferences, financial subsidies and financial support policies, as well as in the integration of various resources. In particular, it is urgent to further smooth the financial channels and optimize the financing plans so that enterprises can obtain sufficient financing support.

2.The reorganization plans of small and medium-sized enterprises lack flexibility.

Small and medium-sized enterprises (SMEs) encounter numerous challenges during the reorganization process, mainly reflected in the protection of SMEs and the flexibility of the reorganization plan. The lack of flexibility in the reorganization plan requires enterprises to make adjustments based on actual circumstances when formulating the plan. Further improvements to the reorganization plan within the existing framework of the bankruptcy law are needed.

06.Future Outlook: Optimizing Mechanisms to Facilitate Corporate Revival.

Although the bankruptcy reorganization process faces many challenges in actual operation, reorganization remains an important way for troubled enterprises to achieve rebirth. In the future, we need to start from the following aspects to further improve the success rate of bankruptcy reorganization and help more troubled enterprises achieve rebirth.

1.Improve the mechanism of interaction between the government and the courts and enhance coordination and cooperation.

The government and courts should further improve the mechanism of interaction and enhance coordination and cooperation. The government should increase its support for bankruptcy reorganization efforts, providing policy guarantees and resource support; courts should strengthen communication and coordination with relevant government departments to jointly address issues encountered during the reorganization process. For instance, the government can establish a special fund for bankruptcy reorganization to support enterprises' reorganization work; courts can establish a regular consultation mechanism with relevant government departments to jointly study and solve major problems during the reorganization process.

2.Boost market confidence and attract strategic investors.

To enhance the market's confidence in enterprises undergoing bankruptcy reorganization and attract more strategic investors, on the one hand, it is necessary to strengthen information disclosure and increase the transparency of reorganizing enterprises, enabling investors to fully understand the actual situation of the enterprises and the reorganization plans. On the other hand, it is essential to enhance the protection of investors and improve the investment exit mechanism to reduce investment risks. For instance, an information disclosure platform for reorganizing enterprises can be established to regularly release the business conditions and reorganization progress of the enterprises; and the investment exit mechanism can be improved to provide investors with diversified exit channels.

3.Improve the policy and legal environment to provide strong guarantees.

The government should further improve the policy and legal environment for bankruptcy reorganization to provide strong guarantees for reorganization work. On the one hand, it is necessary to increase policy support, expand the coverage and intensity of tax incentives, financial subsidies, and financial support policies; on the other hand, it is necessary to improve the bankruptcy legal system, strengthen the protection of small and medium-sized enterprises, and enhance the flexibility of reorganization plans. For instance, it can issue special policy documents for the bankruptcy reorganization of small and medium-sized enterprises, providing more support and preferential measures; revise the current bankruptcy legal system, add provisions for the protection of small and medium-sized enterprises, and enhance the flexibility and adaptability of reorganization plans.

4.Leverage the role of professional institutions to enhance the professionalism and success rate of reorganization.

During the process of bankruptcy reorganization, professional institutions such as law firms, accounting firms and asset evaluation agencies play a crucial role. Relying on their professional knowledge and rich experience, these institutions can provide comprehensive legal, financial and asset evaluation services for enterprises, facilitating the smooth progress of the reorganization process.

Among them, law firms, as professional legal service institutions, play a core role in bankruptcy reorganization. They not only provide legal consultation and compliance advice to distressed enterprises but also assist enterprises in formulating and implementing reorganization plans, coordinating the interests of creditors, debtors, strategic investors and other parties, and providing full-process legal support from applying for bankruptcy reorganization to implementing the reorganization plan, ensuring the smooth progress of the reorganization process.

Conclusion: In the face of numerous challenges in bankruptcy reorganization, Dehehantong Law Firm is actively planning to establish the Dehehantong Enterprise Distress Relief and Reorganization Business Center. This center will integrate national resources and leverage the firm's integrated advantages to provide professional services to investors, distressed enterprises, their shareholders, and actual controllers, etc. Relying on its professional legal team and rich practical experience, Dehehantong will offer comprehensive legal support to distressed enterprises, helping them overcome difficulties and achieve rebirth.

This move by Dehe Hantong is not only an active exploration of bankruptcy reorganization business, but also a strong support for enterprises in difficulty. By integrating resources and leveraging its advantages, Dehe Hantong will inject new vitality into the bankruptcy reorganization work and bring new hope to enterprises in difficulty.