China Securities Regulatory Commission issues guideline on listed company bankruptcy reorganisations capping share increases and setting a 50% investor pricing floor

The China Securities Regulatory Commission (CSRC) has issued a supervisory guideline on matters related to bankruptcy reorganisation of listed companies, effective on issuance, as a supporting measure to a joint Supreme People’s Court and CSRC meeting memorandum on handling such cases. The guideline allocates responsibilities by having the CSRC supervise securities market-related matters in reorganisations, while stock exchanges conduct self-regulatory oversight of information disclosure. Listed companies are required to conduct self-assessments and disclose whether they face delisting risk, whether there is misappropriation of funds or illegal guarantees, and whether there are major defects in information disclosure or corporate governance and compliance operations. For reorganisation plans, the guideline sets constraints on equity adjustments, including a cap on capital reserve-to-share capital conversions of no more than 15 new shares for every 10 existing shares, and a requirement that reorganisation investor entry prices must be no lower than 50% of a market reference price calculated using one of the 20, 60, or 120 trading-day average prices before the signing of the reorganisation investment agreement. It also imposes lock-up periods of 36 months where the reorganisation investor obtains control, and 12 months otherwise, and prohibits early recognition of debt restructuring gains until major uncertainties over plan implementation have been removed. The CSRC noted it had previously sought public feedback and has incorporated key comments into the final text, and it will follow up with further policy interpretation and implementation work.