Circular of the Supreme Peoples Court on the Promulgation of the Guiding Opinions of the Supreme People's Court on the Issues of Properly Hearing Civil Cases involving the COVID-19 Pandemic in Accordance with the Law (II)

High peoples courts of all provinces, autonomous regions, and municipalities; the Military Court of the Peoples Liberation Army, and the Xinjiang Production and Construction Corps Branch of the High Peoples Court of Xinjiang Uygur Autonomous Region:

The Guiding Opinions of the Supreme People's Court on the Issues of Properly Hearing Civil Cases involving the COVID-19 Pandemic in Accordance with the Law (II) (the Opinions) are hereby promulgated for your conscientious compliance implementation.

Supreme Peoples Court

May 15, 2020

Guiding Opinions of the Supreme People's Court on the Issues of Properly Hearing Civil Cases involving the COVID-19 Pandemic in Accordance with the Law (II)

In order to further implement the CPC Central Committees overall plan for the promotion of prevention and control of COVID-19 epidemic and economic and social development, make a big push to ensure six priorities and stability in six areas for steady economic momentum, and to properly handle civil cases of contract, finance and bankruptcy related to COVID-19 epidemic in accordance with the law, the Supreme Peoples Court (SPC) promulgates the following guiding opinions.

I. Handling of contractual disputes

1. The partys request to terminate the sales contract shall not be supported by the peoples courts, if the failure to perform the sales contract within the agreed time limit or the increase in the cost of performance results from the epidemic or the epidemic prevention and control measures, and the purpose of the contract would not be affected by continuance of the performance.

The buyers request to terminate the contract and return advance payment or deposit shall be supported by the peoples courts, if the seller fails to complete the order or deliver the goods within the agreed time limit due to the epidemic or the epidemic prevention and control measures, and the purpose of the buyer cannot be realized by continuance of the performance; while the buyer request that the seller shall be liable for breach of contract, such request shall not be supported by the peoples courts.

2. The negatively affected partys request to adjust the price shall be supported by the peoples courts in accordance with the principle of fairness and the actual situation of each case, where the sales contract can be performed continuously but a significant increase in the costs of labor, raw materials, logistics and other performance or a significant price reduction results from the epidemic or the epidemic prevention and control measures and the continuance of the performance of the contract would be obviously unfair to one party. A partys request to change the performance period shall be supported by the peoples courts based on the principle of fairness and actual situation of each case, where the sellers failure to deliver the goods within the agreed time limit or the buyers failure to pay within the agreed time limit results from the epidemic or epidemic prevention and control measures.

If a party requests the other party to be liable for breach of contract where the contract has been modified by means of price adjustment or change of the performance period , such request shall not be supported by the peoples courts.

3. Where the buyer requests that the profits from the seller be taken as the amount of compensation for loss on grounds that the contract cannot be enforceable as the seller resells the epidemic prevention supplies to others at a high price after conclusion of a contract with the buyer for the sale of epidemic prevention supplies, such request shall be supported by the peoples courts. If the buyer requests that the profits from the seller be taken as the amount of compensation for loss on the grounds that the seller cannot perform the sales contract due to the governments redistribution or temporary appropriation of the epidemic prevention supplies, such request shall not be supported by the peoples courts.

4. If a partys request that the contract shall be terminated and the other party shall be liable for the breach of contract on the grounds that the seller fails to deliver the premise within the time limit agreed in the commodity premise sales contract, or the buyer fails to pay the purchase price within the agreed time limit due to the epidemic or the epidemic prevention and control measures, such request shall not be supported by the peoples courts. However, if the party requests to change the period for performance, the peoples courts shall make changes based on the principle of fairness and the actual situation of each case.

5. Where the lessor requests that the lease contract shall be terminated and the lessee shall be liable for the breach of contract on the grounds that the lessee fails to pay the rent within the agreed time limit as the leased premise is used for business and the lessee has difficulty in capital turnover or the income significantly decreases due to the epidemic or the epidemic prevention and control measures, such request shall be supported by the peoples courts.

The lessees request to terminate the contract and return the advance payment or deposit shall be supported by the peoples courts, if the temporary venue lease contract was signed for specific purposes such as exhibitions, conferences, and temple fairs, and the epidemic or the epidemic prevention and control measures results in the cancellation of the activity.

6. Where the small and micro enterprises in service industry, individual business and other tenants who lease premises of state-owned enterprises and premises of administrative entities and public institutions such as government departments, universities, research institutes, etc. for business request to be exempted from the rent within a certain period in accordance with relevant national policies, on the grounds that they have operating difficulties due to the epidemic or epidemic prevention and control measures, the peoples courts shall support such request.

Where the above-mentioned businesses lease non-state premises for business, and have no business income or suffer a significant decrease in business income due to the epidemic or epidemic prevention and control measures, it would be obviously unfair for the lessees to continue to pay rent in accordance with the original lease contract. Under such circumstances, if the lessee requests to reduce rent, extend the lease term or the payment term, the peoples courts may guide the parties to carry out mediation with reference to the policy on rent reduction and exemption; if the mediation fails, the contract shall be modified in accordance with the principle of fairness and the actual situation of each case.

7. Where the contractor fails to complete the construction within the agreed time limit due to the epidemic or the epidemic prevention and control measures, and the contractee requests the contractor to bear the liability for the breach of contract, such request shall not be supported by peoples courts; if the contractor requests the extension of the construction period, the peoples courts shall support such request in light of the impact of epidemic or the impact of epidemic prevention and control measures on the performance of the contract.

Where the epidemic or the epidemic prevention and control measures lead to a sharp increase in labor costs and building materials costs or losses in labor costs or equipment leasing costs suffered by the contractors, which makes it obviously unfair for the contractor to continue to perform the contract, and the contractor requests an adjustment of the price, the peoples courts shall adjust the price in accordance with the principle of fairness and the actual situation of each case.

8. Where the offline training cannot be provided in the manner stipulated in the contract entered into by the parties due to the epidemic or the epidemic prevention and control measures, but the purpose of the contract can be achieved through online training or by changing the training period, and the party who receives the training requests to terminate the contract, such request shall not be supported by the peoples courts. If the party requests to continue to perform the contract through online training, by changing the training period or adjusting the training cost, etc., the peoples courts shall modify the contract in accordance with the principle of fairness and the actual situation of each case.

Where affected by the epidemic or epidemic prevention and control measures, offline training cannot be conducted, and the contract purpose cannot be achieved through online training, or the actual situation of the case indicates that online training is not suitable, and the party who receives training requests to terminate the contract, the peoples courts shall support such request. For a training contract with time limit requirements, if the purpose of the contract cannot be realized by changing the training period, the party who receives the training requests to terminate the contract, the peoples courts shall support such request. After the training contract is terminated, the training fees already paid in advance shall be refunded in whole or in part according to the training hours and other circumstances.

9. Where a person with limited capacity for civil conduct, without the consent of the guardian, participates in an online paid game or contributes on a live streaming platform and such payment made is not commensurate with his or her age and intelligence, and the guardian requests the Internet service provider to return the money, the peoples courts shall support such requests.

II. Handling of financial disputes

10. For financial loan disputes encountered by industries largely affected by the epidemic or epidemic prevention and control measures, as well as enterprises, especially small, medium and micro enterprises, which have prospects for development but encounter difficulties temporarily due to the epidemic or the epidemic prevention and control measures, the peoples courts shall give full consideration to the series of financial support policies such as the Notice on Further Strengthening Financial Support for the Prevention and Control of the COVID-19 Epidemic issued by the Peoples Bank of China and other five departments: the claims made by financial institutions in violation of financial support policies, such as claims that loans become due in advance or unilateral termination of the contracts shall not be supported by the peoples courts; the excess part of the interests charged by financial institutions and disguised interests charged on the basis of consulting fees, insurance premiums and other fees shall not be supported by the peoples courts in accordance with special credit preferential rate policies such as the re-lending and re-discount policy; disputes over personal loan payments such as mortgage and credit card payments encountered by those hospitalized or quarantined for COVID-19 infection, those who need to be quarantined for epidemic prevention and control, those who are involved in epidemic prevention and control, and those who have temporarily lost their source of income due to the epidemic or the epidemic prevention and control measures, shall be conducted by the peoples courts by changing the repayment period in accordance with the principle of fairness and the actual situation of each case.

11. Where the epidemic prevention materials production enterprises set up floating mortgages with their production equipment, raw materials, semi-finished products, products and other movable property, and the mortgagee applies for the enforcement of the security rights in accordance with Article 196 of the Civil Procedure Law of the Peoples Republic of China, under such circumstances, after the peoples courts accept the application, the case will not be dealt with until the epidemic or the factors affecting epidemic prevention and control measures have been eliminated if the respondent or interested party can prove that the enforcement of the mortgage will threaten the production and operation of the enterprises epidemic prevention materials.

12. For stock pledge and margin trading and short selling disputes caused by stock market price fluctuations during epidemic prevention and control period shall be dealt with differently based on different situations: for the pledge of stock traded in securities exchanges and margin trading and short selling disputes where creditors are securities companies, the peoples courts may refer to relevant policies issued by China Securities Regulatory Commission (CSRC) and guide securities companies to negotiate and resolve disputes with different customer groups in accordance with the policies; if the negotiation fails, the clients claims of requesting the securities company to bear the liability for compensation for the part of the loss caused by the illegal forced liquidation shall be supported according to law. For OTC stock pledge disputes where creditors are other financial institutions, the peoples courts shall fully consider the impact of the enforcement of stock pledge on the normal operation of listed companies, strengthen policy guidance and coordination of interests of all parties, and strive to reduce the impact on the securities market.

13. When the peoples courts hear a civil compensation case of infringement caused by false statement of a listed company, when determining the amount of investors losses, it shall distinguish the loss from decline in market value of securities caused by factors of the epidemic or the epidemic prevention and control measures and the loss caused by factors of false statement in accordance with item (d), Article 19 of the Provisions of the Supreme Peoples Court on Trying Cases of Civil Compensation Arising from False Statement in Securities Market, and determine the scope of loss compensation fairly and reasonably according to law.

14. When dealing with the disputes arising out of the fulfillment of the Performance Valuation Adjustment Mechanism between investors and companies or their shareholders, actual controllers that have been severely affected by the epidemic or the epidemic prevention and control measures in industries such as wholesale and retail, accommodation and catering, logistics and transportation, cultural tourism, the peoples courts shall give full consideration to the actual situation of the impact of epidemic or epidemic prevention and control measures on the performance of the target company, and guide the parties to modify or terminate the contract through negotiation. If the parties fail to reach an agreement through negotiation and it is obviously unfair to one party to continue to perform according to the agreed performance indicators or the amount of compensation, the peoples courts shall, in light of the actual situation of each case, modify or terminate the contract in accordance with the principle of fairness. In case of termination of the contract, the losses caused by the termination shall be reasonably distributed according to law.

If the Performance Valuation Adjustment Mechanism does not clearly stipulate that the minority shareholder and the controlling shareholder or the actual controller of the company shall be jointly and severally liable for the compensation, the peoples courts shall not support the investors claim that the minority shareholder and the company, the controlling shareholder or the actual controller be jointly and severally liable for the compensation.

15. When hearing medical insurance contract disputes related to the epidemic or epidemic prevention and control measures, the peoples courts shall not support the defense raised by the insurer that the disease is not within the scope of major disease or insurance accident agreed in the commercial medical insurance contract. If the insured who was infected with COVID-19 fails to receive treatment at the medical service institution stipulated in the insurance contract due to the epidemic or the epidemic prevention and control measures, and the insured or the beneficiary requests the insurer to indemnify according to the insurance contract, the peoples courts shall support such request. The expenses incurred by the insured with other diseases receiving treatment at a medical service institution not within the list stipulated in the insurance contract are indeed caused by objective reasons such as epidemic or epidemic prevention and control measures, and the insured or the beneficiary requests indemnity, the request of indemnity made by the insured or the beneficiary shall be supported by the peoples courts. If the insured or the beneficiary requests indemnity according to the medical insurance contract presented by the insurance company during the epidemic prevention and control period, the peoples courts shall support such request.

16. In the trial of civil disputes arising out of the financial leasing of medical device between a financial leasing company and a medical service institution, the peoples courts shall not support the defense of the medical service institution that the financial leasing contract is invalid on the grounds that the financial leasing company has not obtained the administrative license for the sale of medical devices.

III. Handling of bankruptcy disputes

17. If affected by the epidemic or the epidemic prevention and control measures, the enterprise is unable to repay debts that are due, with the creditors submission of the bankruptcy application, the peoples courts shall actively guide the negotiation between the debtor and the creditor, by adopting installment, extending the debt maturity and adjusting the contract price to avoid the causes of the bankruptcy application, or guide the debtor through ways such as out-of-court mediation, out-of-court restructuring and reorganization to resolve the debt crisis, and save the enterprise as early as possible.

18. When examining whether an enterprise meets the conditions for bankruptcy, the peoples courts shall treat the enterprises differently based on whether they encounter difficulties due to the epidemic or the epidemic prevention and control measures. For enterprises that were in good business conditions before the epidemic, but unable to pay off due debts due to the difficulty of business operation and capital turnover caused by the impact of the epidemic or the epidemic prevention and control measures, the ability to repay the debts should be comprehensively determined based on factors such as the enterprises sustainable operating ability and the development prospects of the industry, and it is necessary to prevent the ruling of an enterprise that originally had the ability to survive into bankruptcy, simply based on the capital flow and assets and liabilities of the enterprise in a specific period. Enterprises that have fallen into a predicament before the outbreak of the epidemic, whose production and operation have been further deteriorated due to the epidemic or epidemic prevention and control measures, and who already have the cause of bankruptcy, should be accepted the bankruptcy application in a timely manner in accordance with the law to realize the survival of the fittest in the market and the reallocation of resources.

19. It is necessary to further promote the coordination between enforcement and bankruptcy proceedings. If it is found in the enforcement procedure that the enterprise subject to enforcement has the cause of bankruptcy due to the epidemic but has residual value, the creditor or the enterprise subject to enforcement shall be guided to transfer to the bankruptcy review procedure by means of interpretation. The enforcement suspension mechanism, preservation discharge system and the payment and interest discharge system prescribed by the Enterprise Bankruptcy Law shall be used reasonably to effectively preserve the operating value of the enterprise and wins space for the regeneration of the enterprise. At the same time, it is necessary to actively guide enterprises to apply bankruptcy reorganization and reconciliation procedures, comprehensively solve the corporate debt crisis, fair and orderly repay all creditors, and realize the protection and rescue of the enterprises which encounter difficulties.

The judicial auction procedure initiated before the relevant court of enforcement makes the decision on the transfer may continue after the decision has been made. If an auction is completed, the auction target will no longer be included in the debtors property in the bankruptcy proceedings, but the proceeds from the auction shall be distributed in accordance with the bankruptcy proceedings. If an asset appraisal report or audit report has been made in the enforcement procedure, and the appraisal conclusion is valid within the period of validity or the audit conclusion meets the needs of the bankruptcy case, it may continue to be used in the bankruptcy procedure.

20. In bankruptcy reorganization process, for those who fail to submit the draft reorganization plan in time due to the inability to recruit investors, conduct due diligence and negotiation caused by the impact of the epidemic or the epidemic prevention and control measures, the peoples courts may, in accordance with the debtors or the administrators application, reasonably determine the term not to be included as prescribed in Article 79 of the Enterprise Bankruptcy Law according to the actual impact of the epidemic or the epidemic prevention and control measures on the reorganization work. Generally, the term should not exceed six months.

If the reorganization plan or the settlement agreement has been implemented in the enforcement stage, but the debtor is unable to carry it out due to the impact of the epidemic or the epidemic prevention and control measures, the peoples courts shall actively guide the parties to make changes through full consultation. If the reorganization plan or the settlement agreement is altered through negotiation, a vote shall be taken in accordance with the Articles 19 and 20 of the Minutes of the National Court Work Conference on Bankruptcy Trials and submitted to the court for approval. However, if only the time limit for enforcement is changed, the peoples courts may make a ruling directly upon the application of the debtor or the creditor, and the extended time limit shall generally not exceed six months.

21. Creditors substantive and procedural rights shall be effectively protected, and it is necessary to reduce the adverse impact of the epidemic or epidemic prevention and control measures on the exercise of creditors rights. The time limit for the declaration of creditors rights in cases affected by the epidemic or the epidemic prevention and control measures may be set as the statutory maximum time limit according to the specific circumstances. Creditors who are unable to declare their rights or provide relevant evidence on time due to the impact of the epidemic or the impact of epidemic prevention and control measures shall make supplementary declarations within 10 days after the obstacle has been removed. Supplementary applicants may not bear the costs of reviewing and confirming the supplementary declarations. If it is really necessary to postpone the hearing or the creditors meeting due to the epidemic or the epidemic prevention and control measures, relevant extension procedures shall be gone through in accordance with the law, and the administrator shall inform the creditors and other relevant parties 15 days in advance and make explanations.

22. It is necessary to maximize the maintenance of the debtors ability to continue business and give full play to the system function of debt financing of common liability to provide financial supports for continuing business. If the debtor is capable of continuing to operate or is capable of producing and marketing epidemic prevention supplies, the peoples courts shall actively guide and support the administrator or the debtor to continue the business of the debtor in accordance with the Articles 26 and 61 of the Enterprise Bankruptcy Law. On the basis of protecting the interests of creditors, it is necessary to choose an appropriate operation and management model and make full use of the coordination mechanism between the government and the people's courts to explore and release the capacity of enterprises.

It is necessary to adhere to the principle of maximizing the value of property disposal, actively guide the administrator to fully evaluate the impact of the epidemic or  epidemic prevention and control measures on the asset disposal price, accurately grasp the timing and method for disposal, and avoid affecting the interests of creditors due to improper derogation of the asset value.

23. During the period of epidemic prevention and control, according to the Opinions of the Supreme Peoples Court on Promoting Efficient Hearing of Bankruptcy Cases in Accordance with the Law, it is necessary to further promote the application of information means in bankruptcy notice, creditors right declaration, creditors meeting, debtors property inquiry and disposal, introduction of investors. On the basis of increasing the intensity of information disclosure and protecting the creditors right to know and right to participate in accordance with the law, the peoples courts shall help prevent and control the epidemic, further reduce the cost of bankruptcy proceedings, and increase the efficiency.

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*The original text is Chinese and has been translated into English for reference only. If there is any inconsistency or ambiguity between the Chinese version and the English version, the Chinese version shall prevail.