What Is Distressed Debt?

Distressed Debt refers to the phenomenon that a company's funds, goods, technology, etc. are borrowed or leased to other companies and enterprises but cannot be recovered or a small amount is recovered. There are many reasons for the formation of bad debts. The most fundamental factor is the insufficient degree of rule of law in our country. Objectively speaking, no matter from the formulation of laws, the enforcement of laws, and the construction of supporting systems (such as financial supervision, credit systems ) And other issues are serious. From the enterprise's own perspective, the emergence of bad debts is due to insufficient supervision and management of the debts.

Bad debt

Debtor is able to pay

This is a requirement for the debtor. For a debt that has sufficient evidence to show that the debtor is unable to pay or the debtor disappears (such as the death of a natural person or the bankruptcy of a company), it is undoubtedly unwise to invest energy and financial resources. This debt should be included The scope of bad debt losses shall be written off.

Debtor default

This is a requirement on the state of the debt itself. There are many reasons for non-performance, which can be divided into two categories: subjective reluctance to return and objective non-return. The former mainly includes malicious default, other related disputes, and the latter is mainly due to the debtor's financial constraints. Regardless of the reasons for the debtor's non-performance, as long as the debtor's non-performance, the impact will be the same for the enterprise.

Claims must be legal

This is a legal requirement for claims, and only legal claims can be protected by law. Many companies have misunderstandings about this. Often, corporate managers think that legal claims are not the same in the eyes of lawyers. The main reason is that there are differences in legal understanding. Enterprise managers often follow the usual rules. Think about the problem rather than the legal one.

Cause analysis

There are many reasons for the formation of bad debts. The most fundamental factor is the insufficient degree of rule of law in our country. Objectively speaking, no matter from the formulation of laws, the enforcement of laws, and the construction of supporting systems (such as financial supervision and credit systems) ) And other issues are serious. For example, for the establishment of a limited company system, it must be accompanied by a strict financial supervision mechanism, otherwise it will be difficult to prevent shareholders from hiding and transferring company assets and using limited liability to maliciously evade debt. The situation we can often encounter in practice is that the business is booming, but there is no penny in the bank account, and all the funds are hidden in the account opened in the name of the individual. It can be said that the insufficient degree of rule of law provides a good living environment for the existence of bad debts and greatly reduces the security of transactions.

From the enterprise's own perspective, the emergence of bad debts is due to the insufficient supervision and management of debts, which usually manifests in several common aspects.

Choice of collaborators

The choice of collaborators is not careful enough, which has caused some companies with relatively low credit levels to become corporate debtors. Some business managers are greedy for strength and ignore the right

The importance of strengthening management

Management of bad debts is actually an important aspect of corporate management. The level of debt management reflects the degree of corporate standardization. Good debt management requires the cooperation of the company's financial department, marketing department and legal affairs department. In theory, bad debts The management of creditor's rights should be based on the legal affairs department, supplemented by the financial department, marketing department and other departments. Only by cooperating with various departments can we effectively reduce bad debts. The financial department and marketing department of many enterprises are strong, but only The lack of a legal affairs department to coordinate and resolve this issue has led to a low level of management of bad debts.

Management principles

The management of bad debts needs to implement the principles of "prevention-oriented, standardized procedures, and full-process control." The principle of prevention is in line with the fundamental purpose of the enterprise. The enterprise always pursues the maximization of profits as the fundamental purpose. To meet the requirements of this fundamental purpose, the enterprise should minimize the occurrence of various risks. Therefore, it is necessary to implement the precautionary principle. Lord's principle. Secondly, we must establish a relatively standardized procedure, which can ensure the orderly supervision of bad debts. Full-process control is to require the management of non-performing claims to run through the whole process, from the source of the occurrence of non-performing claims to the disappearance of non-performing claims (debt realization or write-off) to ensure the quality of supervision.

Enterprises need to establish a set of supervision mechanisms to ensure the supervision of bad debts, and each enterprise can determine the appropriate supervision method according to its own specific situation. Generally, management should be strengthened from the following aspects.

Strengthen risk prevention work and establish risk prevention mechanism

The risk prevention mechanism includes the following two main contents:

1. Conduct a credit evaluation and select customers with good credit standing.

Credit evaluation is an effective control abroad

Notice of the Supreme People's Court on Printing and Distributing the Minutes of the Symposium on the Trial of Cases involving the Transfer of Non-performing Financial Debts

The provinces, autonomous regions, and municipalities' high people's courts, the People's Liberation Army military courts, and the Xinjiang Uygur Autonomous Region's High People's Court Production and Construction Corps Branch: To conscientiously implement the central government's spirit of studying and resolving the problem of the transfer of financial non-performing debts in China, the unified thinking and clear tasks, Hear fair and proper trials of cases involving the transfer of bad financial claims in accordance with the law, prevent the loss of state-owned assets, ensure the smooth progress of the disposal of bad financial claims, maintain and promote social harmony and stability, safeguard the public interest and the legitimate rights and interests of relevant parties. The department has formed the "Minutes of the Symposium on the Trial of Cases Involving the Transfer of Non-performing Financial Debts", which is now being issued to you. Please combine them with the actual situation of the trial and follow them. The various high people's courts, especially the high people's courts that have a large number of disputes over bad debt transfer disputes, have large targets, and have a large impact on areas, should strengthen their investigation and guidance on the trial and enforcement of related cases, and discover new situations and problems. Shall be reported to the Supreme People's Court in a timely manner. ^[1]