I. Introduction to the Problem

The intersection of civil and criminal issues has always been a difficult problem in judicial practice. When the 'civil' aspect of these issues involves bankruptcy proceedings, the problems often become more complex. Currently, Chinese legislation lacks clear provisions for the connection and coordination between criminal trials and bankruptcy proceedings. Judicial practice lacks a unified standard for handling such civil-criminal intersection cases. When bankruptcy proceedings and criminal proceedings intersect, inconsistent judgments in similar cases are common, and the interests of creditors/victims are often infringed upon. Therefore, this article aims to provide a simple discussion of some common issues, and specific analysis is still needed based on the actual situation when encountering such cases.

II. Legal Organization of Criminal Involvement of Bankrupt Enterprises

The 'Enterprise Bankruptcy Law' specifically regulating bankruptcy procedures and its three judicial interpretations do not have any handling instructions for the intersection of bankruptcy procedures and criminal procedures. Currently, the norms for the trial procedures of civil-criminal intersection cases in China's legislative system, in terms of civil norms, mainly include the 'Opinions of the Supreme People's Court, the Supreme People's Procuratorate, and the Ministry of Public Security on Several Issues Concerning the Application of Law in Handling Criminal Cases of Illegal Fundraising' (hereinafter referred to as the '2014 Opinions') implemented on March 25, 2014, the 'Provisions of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases' (hereinafter referred to as the '2015 Provisions') implemented on September 1, 2015, and the 'Minutes of the National Court Civil and Commercial Trial Work Conference' (hereinafter referred to as the '2019 Meeting Minutes') issued by the Supreme People's Court on November 14, 2019; in terms of criminal norms, they are mainly found in the 'Provisions of the Supreme People's Court on Several Issues Concerning Economic Crime Suspicions Involved in the Trial of Economic Dispute Cases' (hereinafter referred to as the '1998 Provisions') in 1998 and the judicial interpretations of various independent crimes.

Article 7 of the '2014 Opinions' stipulates: 'If the people's court discovers any suspicion of illegal fundraising crime during the trial of civil cases or during the execution process, it shall rule to reject the lawsuit or suspend the execution, and promptly transfer the relevant materials to the public security organ or the procuratorate. If the public security organ, the people's procuratorate, or the people's court discovers that the civil case being tried by the people's court belongs to the same fact, or that the property being applied for execution belongs to the property involved in the case, during the investigation, prosecution, or trial of illegal fundraising criminal cases, it shall promptly notify the relevant people's court. If the people's court, after review, believes that it is indeed suspected of a crime, it shall handle it in accordance with the provisions of the preceding paragraph.' The above provisions clearly recognize the handling method of 'first criminal then civil', that is, when a judicial case involves both criminal and civil procedures, the criminal procedure takes precedence. However, whether the above provisions apply to bankruptcy proceedings is still in question, because this provision limits civil proceedings to civil litigation proceedings or civil execution proceedings, while bankruptcy proceedings are conducted independently in accordance with the 'Bankruptcy Law'. Although it has some similarities with civil litigation, civil execution procedures, and non-litigation events, many systems in the 'Bankruptcy Law' are not available in other legislation, and its nature belongs to special procedures. Therefore, it is inappropriate to apply Article 7 of the '2014 Opinions' to cases involving the intersection of bankruptcy proceedings and criminal proceedings. Articles 5, 6, and 7 of the '2015 Provisions' determine the priority of civil and criminal procedures when private lending disputes meet both civil normative requirements and criminal constitutive requirements, which can be said to be an extension of the spirit of the '2014 Opinions'. Similarly, it should not apply to cases involving the intersection of bankruptcy proceedings and criminal proceedings.

Article 130 of the '2019 Meeting Minutes' points out: 'If the civil and commercial case must be based on the trial results of the relevant criminal case, and the criminal case has not yet been concluded, the people's court shall rule to suspend the litigation in accordance with the provisions of Article 150, Item 5 of the 'Civil Procedure Law'. The trial of the civil and commercial case shall be resumed after the criminal case is concluded. If the civil and commercial case does not have to be based on the trial results of the relevant criminal case, the civil and commercial case shall continue to be tried.' Comparing this article with the aforementioned '2014 Opinions' and '2015 Provisions', it can be clearly seen that the Supreme People's Court has changed its attitude towards civil and commercial cases in civil-criminal intersection cases. The handling method of civil-criminal intersection cases established by the '2019 Meeting Minutes' is that civil and commercial cases and criminal cases should be carried out synchronously as much as possible, and the trial should only be suspended when the civil and commercial case must be based on the trial results of the criminal case. Of course, Article 150 of the 'Civil Procedure Law' is a provision on litigation cases, which obviously does not apply to bankruptcy proceedings, but this does bring us new ideas for handling cases involving the intersection of bankruptcy proceedings and criminal proceedings.

Article 1 of the '1998 Provisions' stipulates: 'If the same citizen, legal person or other economic organization is involved in economic disputes and economic crime suspicions due to different legal facts, the economic dispute cases and economic crime suspicion cases shall be tried separately', that is to say, the court can take the approach of 'criminal and civil parallel'. However, in its Article 11, it still emphasizes that if the people's court finds any suspicion of economic crime in the trial of economic dispute cases, it shall transfer the relevant materials to the public security organ or the procuratorate.

III. Handling Methods for Criminal Involvement of Bankrupt Enterprises

The procedural conflicts of criminal-civil intersection in bankruptcy reorganization cases are divided into two situations:

First, the court accepts the bankruptcy case first, and then discovers that the bankrupt enterprise is suspected of criminal crime;

Second, the bankrupt enterprise is suspected of crime and is filed for criminal investigation first, and the court accepts the bankruptcy case later.

Regarding the first scenario, the author believes that the principle of 'criminal before civil' should be applied. While bankruptcy proceedings have their specific characteristics, they ultimately remain part of civil proceedings. Their specificity is based on their bankruptcy nature, but in principle, they should still follow the basic provisions of civil procedure. If a debtor company is involved in economic crimes, the recovery of illicit gains will inevitably be involved, affecting the determination and distribution of bankruptcy assets. Criminal proceedings may involve the legal freezing and seizure of illicit funds and goods. Criminal judgments may order the recovery of illicit funds and goods and their return to the victims, or impose fines and confiscate property. These actions will intersect with the determination of the debtor company's bankruptcy assets, making it impossible to directly proceed with the bankruptcy proceedings.

For the second case, the author believes that the handling method of 'criminal and civil parallel' can be applied. Since the bankrupt enterprise has been filed for criminal investigation, the public security organ or the procuratorate should have actually controlled the property of the bankrupt enterprise. At this time, if the judicial organ still believes that bankruptcy proceedings should be initiated, it is sufficient to prove that the enterprise urgently needs liquidation or reorganization, otherwise the interests of creditors or criminal victims cannot be guaranteed. At this time, 'criminal and civil parallel' is the best solution.

In practice, most courts, when discovering that a bankrupt enterprise is suspected of a crime during the trial of bankruptcy cases, generally rule to suspend the trial and then transfer it to the public security agency or the procuratorate, that is, adopt the practice of "criminal before civil". However, in some economically developed areas, there are also quite a few cases where "criminal and civil parallel" is adopted. The application of "criminal before civil" is based on the idea that criminal proceedings can more fairly and effectively protect the rights of victims, and the rights of victims can be timely and fully remedied in criminal proceedings. In most cases, the state prosecution of criminal proceedings, the power to restrict the defendant's personal freedom and the right to dispose of property, etc., are indeed conducive to the remedy of the victim's rights, but this is not necessarily the case, and it is also possible to protect the legitimate rights and interests of creditors/victims through civil proceedings more than criminal proceedings. Theoretically speaking, the standard of proof in criminal proceedings is higher than that in civil proceedings. If the victim cannot realize the remedy of rights through criminal proceedings, it is possible to realize it through civil proceedings. From the perspective of judicial practice, "criminal before civil" relies on criminal procedures for the handling of civil legal relations, and the possibility that the defendant will not be prosecuted actually exists. At this time, absolutely emphasizing "criminal before civil" will inevitably lead to the inability to advance civil procedures, and the legitimate rights and interests of victims will be difficult to protect. It is particularly important to note that bankruptcy proceedings are different from other civil proceedings, because my country's "Bankruptcy Law" has both public law and private law attributes. It is necessary to solve commercial and civil legal issues such as debt repayment, and also to solve the social fairness issues during corporate bankruptcy. Bankruptcy proceedings pursue efficiency and fairness, and the use of the "criminal before civil" principle may be contrary to the above-mentioned concepts.

4. Criminal Recovery and Compensation Issues of Criminal Bankruptcy Enterprises

Article 5 of the "Notice of the Supreme People's Court on the Trial and Execution of Cases Related to Securities Companies Subject to Risk Disposal in Accordance with the Law" promulgated in May 2009 stipulates that: "After a securities company enters bankruptcy proceedings, the people's court shall suspend the execution of criminal incidental civil compensation or judgments involving the recovery of illicit money and goods (赃款赃物), and the relevant rights holders shall exercise their rights in the bankruptcy proceedings by declaring claims, etc.; penalties such as fines and confiscation of property in criminal judgments shall be executed in the remaining property after the creditors in the bankruptcy proceedings have been fully compensated." This is the only provision of the Supreme People's Court in the form of judicial interpretation that stipulates the handling of issues involving the recovery of illicit money and goods (赃物) in the bankruptcy proceedings of specific enterprises. Although the scope of the above-mentioned "Notice" is quite limited and only applies to the bankruptcy proceedings of securities companies, and has not been widely promoted, the legal guidance contained therein still has positive reference significance. Through the above-mentioned clauses, two inspirations can be drawn: First, the recovery of illicit money and goods (赃款赃物) in criminal judgments can be included in the bankruptcy proceedings for compensation in the same way as other civil claims, and the relevant rights holders can declare claims in the bankruptcy proceedings as creditors; Second, in bankruptcy proceedings, property penalties in criminal cases must be subordinated to civil claims.

However, the above-mentioned "Notice" only stipulates the issue of recovery of criminal bankruptcy enterprises, and no regulations have been made on criminal compensation. The author believes that the property that should be ordered to be returned to the victims should not be excluded from general claims, that is, should not be regarded as subordinate claims in bankruptcy proceedings. First of all, the establishment purposes of the order to return and the criminal recovery system are different. The recovery system is a punishment method in which state organs force illegal actors to recover a certain amount of cash from the state or recover illegal gains within a certain period of time, which is a punishment for actors who commit illegal and criminal acts. After a debtor enterprise is declared bankrupt, its assets are not enough to repay all debts. At this time, if the property that should be returned to the victims is listed as subordinate claims, the actual punishment is not the bankrupt enterprise but the victims, which violates the purpose of establishing the recovery and compensation system. Secondly, the nature of the returned and recovered property is different. The return is to return or compensate the property that originally belonged to the victim, and the property ordered to be returned ultimately belongs to the victim; while the recovery by the judicial organ is a compulsory measure taken by the state organ against the illegal and criminal acts of the debtor enterprise, which is a manifestation of the state's exercise of its powers, and the recovered property ultimately belongs to the state. It can be said that the returned property actually has the nature of debt in civil law, which is not possessed by the recovered property, so it can be listed as an ordinary claim in bankruptcy proceedings. Finally, the principle of fair repayment of claims requires granting criminal victims the right to equal compensation. In the case of clear and specific victims, since the order to return is actually a kind of civil compensation to the victims, and enterprises entering bankruptcy proceedings are generally unable to repay due debts, their assets are insufficient to repay all debts, and they obviously lack the ability to repay. At this time, if the property that should be returned to the victims can only be repaid after general claims, the realization of their claims is almost impossible.

V. Conclusion

As a special civil procedure, bankruptcy proceedings should implement the concept and system of party autonomy, but its essence is still a general public power relief procedure. The essence of bankruptcy proceedings is the joint repayment of creditors, and fairness and efficiency are the basic principles that must be implemented in bankruptcy proceedings. Since the laws and regulations on how to effectively resolve the conflict between criminal and civil procedures in the context of bankruptcy and fairly review claims in criminal bankruptcy cases are not clear, the author hereby suggests that the legislative body can introduce judicial interpretations or implementation rules with strong operability, so as to achieve fair and orderly competition, survival of the fittest, and more fully utilize the bankruptcy reorganization system to promote corporate restructuring and rebirth, and to legally regulate the bankruptcy reorganization of market entities in the future, and fully exert judicial authority and momentum.