QIAN Ning
2025(5): 120-132.
The application of debt-to-equity swaps in corporate bankruptcy must rest on two foundational principles: legal doctrinal consistency and procedural due process.At the substantive law level, the doctrines of datio in solutum (payment in kind), limited liability, and the free transferability of shares must be harmonized with the overarching principle of collective creditor satisfaction embedded in insolvency law.Procedurally, debt-to-equity swaps may be integrated into various stages of insolvency proceedings, including pre-packaged plans, formal reorganization, and composition (schemes of arrangement).At the level of operational rules, debt-to-equity conversions should be implemented primarily within the frameworks of judicial reorganization and composition, with particular focus on voting procedures, court confirmation, and post-conversion equity exit mechanisms.First, where a debt-to-equity swap is incorporated into a reorganization plan or composition scheme, its adoption must comply with statutory voting thresholds under insolvency law.Dissenting creditors may elect a cash-out option, enabling them to exit the proceeding without undermining the overall effectiveness of the plan.Second, courts are required to conduct both procedural and substantive review of such proposals.Court-imposed confirmation (cram-down) is permissible only where statutory criteria are met, while compulsory confirmation is categorically precluded in the context of composition agreements.Third, the post-conversion exit of equity interests must be supported by robust corporate governance reforms.These include reconfiguration of the management structure, design of viable exit strategies, and institutionalization of coordinated government-judiciary mechanisms to integrate regulatory and judicial capacities, thereby ensuring the enforceability and viability of the exit process.
