Meaning
Statutory clawback rule authorizing insolvency administrators in China to revoke transactions executed by a debtor within one year prior to formal court acceptance of a bankruptcy petition. Fraudulent transfers and undervalued transactions subject to article 31 include gratuitous property transfers, trading at manifestly unreasonable prices, granting secondary security for unsecured debt, paying unexpired obligations, and waiving valid claims. Reclaimed property returns directly to the general insolvency estate to preserve equality among creditors.
Clawback Scope
Legal provisions target transactions that diminish asset pools during financial distress. Under article 31, administrators examine financial books covering the twelve months leading up to formal judicial filing. Transfers executed without consideration or below fair market value trigger automatic revocation claims before the competent court.
Early settlement of debt that has not matured similarly constitutes a voidable preference. Collateral created for existing debts without fresh consideration suffers immediate cancellation. Recovery actions reinstate original ownership titles for the benefit of all creditors.
Administrator Power
Court appointment grants insolvency managers authority to file revocation lawsuits against counterparties. Applying article 31 requires administrators to prove the timing and character of suspect transfers. Judicial decisions order buyers to return physical equipment or refund monetary differences.
Avoidance Limitation
Statutory limits restrict revocation claims strictly to transactions occurring within the statutory look-back window. Article 31 cannot invalidate arm-length contracts concluded prior to the one-year threshold. Ordinary commercial sales conducted at prevailing market prices remain protected from administrator interference.
Valid trade payments made for contemporaneous value resist court voidance actions. Judicial precedent protects standard supply chain deliveries that preserve operational enterprise value during reorganizations.
