Analysis of the Nature Determination of Six Types of Creditors' Rights Declared by Homebuyers When a Real Estate Enterprise Goes Bankrupt | hengtai Law Offices · Westlaw China

Based on the author's participation in relevant business, the types and nature of claims declared by home buyers or confirmed through litigation/arbitration applications in the bankruptcy process of real estate development enterprises can be summarized as follows (of course, most individual cases do not include all the following claims)：

1、Requesting continued performance of the contract, with the debtor delivering the property and cooperating with the handling of property rights registration procedures.；

2、Confirm that the principal amount of the house purchase payment is XXX yuan asPreferential claims；

3、Confirm that the loss of the price difference of the house involved in the case (calculated as the assessed value of the house after the debtor's bankruptcy ruling minus the principal amount of the purchase price) in the amount of XXX yuan shall be treated as a priority claim.

4、It is hereby confirmed that the loss arising from the price difference of the property between the appraisal reference date and the execution date of the mutual termination agreement, in the amount of XXX yuan, constitutes an ordinary creditor's claim；

5、It is hereby confirmed that the penalty for overdue housing delivery (XXX yuan) and the penalty for overdue property title registration (XXX yuan) shall be recognized as general unsecured claims；

6、It is confirmed that the litigation/arbitration expenses advanced by the creditor on behalf of the debtor (XXX yuan), as well as the portion of the litigation/arbitration costs in this case that should be borne by the debtor, constitute bankruptcy expenses.

Among the types of creditor's rights declared by the aforementioned creditors, Items 1, 2, and 3 undoubtedly constitute the most substantial portion of the claimed amounts. Creditors frequently assert separation rights or priority claims over these three items. However, whether a creditor qualifies as a "commercial housing consumer" will directly determine the validity of such claims. Therefore, determining whether the creditor's status meets the definition of a commercial housing consumer serves as a prerequisite for the review and recognition of these creditor's rights.

Pursuant to Article 29 of the Provisions of the Supreme People's Court on Several Issues Concerning the Handling of Enforcement Objection and Reconsideration Cases (2020 Amendment), in the enforcement of monetary claims, if a purchaser raises an objection regarding commercial housing registered under the name of the enforced real estate development enterprise, and the following circumstances are met such that the purchaser's rights can preclude enforcement, the people's court shall uphold the objection: (1) A legally valid written sales contract was executed before the court's seizure; (2) The purchased commercial housing is intended for residential purposes, and the purchaser does not own any other residential property under their name; (3) The payment made exceeds 50% of the total contract price.

Article 125 of the Minutes of the Ninth National Conference on Civil and Commercial Trials further clarifies the aforementioned provisions: "...The issue lies in how to interpret the phrase 'the purchased commercial housing is intended for residential purposes, and the purchaser does not own any other residential property under their name,' as judicial practice has shown inconsistent standards. 'No other residential property' may be interpreted as the commercial housing consumer not owning any residential property within the same prefecture-level city or county-level city where the subject property is located. Even if the commercial housing consumer already owns one residential property, the purchased property may still be deemed compliant with the spirit of this provision if its area meets basic living needs. Similarly, judicial practice has adopted varying standards in interpreting 'the payment made exceeds 50% of the total contract price.' If the commercial housing consumer has paid an amount approaching 50%, and has either remitted the balance to the enforcement applicant as contractually agreed or delivered it for enforcement as required by the people's court, such cases may be considered consistent with the spirit of this provision."

It should be noted that according to Article 2 of the Reply of the Supreme People's Court on Issues Concerning the Protection of Commercial Housing Consumers' Rights (Judicial Interpretation [2023] No. 1, hereinafter referred to as the "Reply"), commercial housing consumers entitled to super-priority rights must have "paid the full price" or "actually paid the remaining price before the conclusion of the court debate in the first instance." This means the judicial interpretation has raised the payment requirement from "the payment made exceeds 50% of the total contract price" under Article 29 of the Provisions of the Supreme People's Court on Several Issues Concerning the Handling of Enforcement Objection and Reconsideration Cases to "full payment."

In summary, a commercial housing consumer qualifying for super-priority rights must meet the following cumulative conditions: The subject property must be designated for residential purposes; The purchaser must have acquired the property for residential use; The purchaser must not own any other residential property within the same prefecture-level city or county-level city jurisdiction as the subject property, except where the purchaser already owns one residential property but the newly acquired unit's area still meets basic living requirements; The purchaser must have either (i) paid the full purchase price, or (ii) settled the outstanding balance before the conclusion of the court debate in the first instance.

The legislative rationale for granting commercial housing consumers such super-priority rights lies in safeguarding their fundamental right to housing. As emphasized in Article 126 of the Ninth Civil-Commercial Conference Minutes: "This exceptional provision was established specifically to protect consumers' housing rights in response to irregular practices in presale commercial housing transactions, and must be strictly construed to prevent over-expansion of its application scope."

Article 2 of the Reply stipulates:"Where a commercial housing consumer purchases a property for residential purposes and has paid the full price, and claims that their right to demand housing delivery shall take priority over construction project payment priority claims, mortgage rights, and other creditor's rights, the people's court shall uphold such claim. Commercial housing consumers who have only paid partial amounts may apply the preceding provision if they have actually paid the remaining balance before the conclusion of court debate in the first instance."Thus, commercial housing consumers meeting these conditions enjoy the right to claim property delivery.

Article 3 of the aforementioned Reply provides:"Where the property cannot be delivered and there exists no possibility of actual delivery, if a commercial housing consumer asserts that their claim for purchase price refund shall have priority over construction project payment priority claims, mortgage rights, and other creditor's rights, the people's court shall uphold such claim."Consequently, commercial housing consumers enjoy the right to claim price refund under circumstances where 'the property cannot be delivered and there exists no possibility of actual delivery'.

In summary, commercial housing consumers enjoy super-priority rights in real estate enterprise bankruptcy proceedings. These priority rights may be exercised either through:claims for property delivery, or prioritized purchase price refund demands.Non-consumer purchasers of commercial housing are expressly excluded from such priority protection.

Non-commercial housing consumers who file claims as property purchasers often also assert their right to reclaim the property in question or to have the purchase price classified as a priority claim. The basis for such claims is the argument that the property in question should be considered a specific asset and not part of the bankruptcy estate. They contend that if the commercial housing purchase contract is terminated or the property is disposed of by the administrator, it constitutes unjust enrichment, thereby creating a debt of common benefit, and thus the purchaser should enjoy priority rights. We believe that this line of reasoning is untenable, and the purchase price paid by such purchasers should be classified as an ordinary claim. The specific reasons are as follows:

Article 30 of the Enterprise Bankruptcy Law stipulates that all property belonging to the debtor at the time the bankruptcy application is accepted, as well as any property acquired by the debtor from the acceptance of the bankruptcy application until the conclusion of the bankruptcy proceedings, constitutes the debtor's property.When a real estate enterprise is adjudicated to undergo bankruptcy proceedings, if the property in question has not yet been delivered, the principal amount of the purchase price already received and the construction-in-progress registered under the debtor's name shall both be classified as part of the bankruptcy estate. Even if the property in question has undergone pre-sale registration, the legal effect of such registration is only to assert priority against third parties, preventing the real estate development enterprise from further selling or mortgaging the property to others. The purchaser does not thereby obtain ownership of the relevant property.

Article 71 of the Provisions of the Supreme People's Court on Several Issues Concerning the Trial of Enterprise Bankruptcy Cases (Judicial Interpretation No. 23 [2002] of the Supreme People's Court) stipulates:"The following properties shall not be classified as part of the bankruptcy estate: ... (5) specific objects in a sale of specific goods that have not yet been delivered but for which the counterparty has fully paid the consideration; ..."

However, this provision was promulgated prior to the implementation of the Enterprise Bankruptcy Law, and the Enterprise Bankruptcy Law does not exclude specific goods under the circumstances described in Article 71(5) from the bankruptcy estate. Moreover, Article 2 of the Provisions of the Supreme People's Court on Several Issues Concerning the Application of the Enterprise Bankruptcy Law of the People's Republic of China (II) (Judicial Interpretation No. X [20XX]) newly defines the circumstances under which property shall not be classified as part of the debtor's assets, and it does not include the scenario specified in Article 71(5).Therefore, in accordance with the legal principles that new laws prevail over old ones and higher-level laws take precedence over lower-level ones, the property in question should be classified as part of the bankruptcy estate under the Enterprise Bankruptcy Law.

Article 42 of the Enterprise Bankruptcy Law stipulates: "The following debts incurred after the people's court accepts the bankruptcy application shall be classified as common benefit debts:(1) Debts arising from the administrator or debtor requesting the counterparty to perform a contract that both parties have not yet fully performed;(2) Debts incurred due to the voluntary management of the debtor’s property;(3) Debts arising from the debtor’s unjust enrichment;(4) Wages, social insurance premiums, and other related debts payable for the continuation of the debtor’s business operations;(5) Debts arising from harm caused by the administrator or relevant personnel in the course of performing their duties;(6) Debts arising from harm caused by the debtor’s property."The "unjust enrichment" referred to in item (3) of this Article pertains to unjust enrichment obtained by the bankrupt enterprise after the commencement of the bankruptcy proceedings. Before the acceptance of the bankruptcy case, the debtor obtained the involved housing payments in accordance with the terms of the commercial housing sales contract. As the developer, the debtor’s possession of the properties before transferring ownership to the buyers was not without legal basis. Moreover, the administrator’s disposal of the bankruptcy assets, including the involved properties, would not result in an unjust increase in the bankruptcy estate.

At the time the debtor entered bankruptcy proceedings, the real estate project in question had not yet met the conditions for delivery. The initiation of bankruptcy liquidation proceedings rendered the properties part of the bankruptcy estate, making performance of the Commercial Housing Sales Contract de facto impossible. Under these circumstances, if the proceeds from the disposal of the properties were recognized as unjust enrichment of the debtor and consequently classified as common benefit debts, it would result in preferential repayment of these claims. This would violate the fundamental principles of the Bankruptcy Law, which require equitable distribution of assets and prohibit preferential repayments.

The current search has identified five similar court cases, none of which are included in the "People's Court Case Database."

Case 1: Civil Retrial Judgment on the Dispute over the Presale Contract of Commercial Housing between Jiang Tianwu and Yiyang Tianye Real Estate Investment and Development Co., Ltd. [(2018) Xiang Min Zai No. 401].The court ruled that "the properties in question should not be included in the bankruptcy estate of Tianye Real Estate Company." The judgment specifically noted that "when the first-instance court ruled on October 16, 2012, to place Tianye Real Estate Company into bankruptcy liquidation proceedings, and when the first creditors' meeting was convened on February 28, 2013, The Supreme People's Court's Judicial Interpretation (II) on Several Issues Concerning the Application of the Enterprise Bankruptcy Law of the People's Republic of China had not yet been promulgated or implemented."

Case 2: Wang Jun v. Shenyang Jiajian Real Estate Development Co., Ltd. on Dispute over Bankruptcy Claim Confirmation [(2021) Supreme People’s Court Min Zai No. 194].The judgment confirmed that, after the termination of the original lease agreement during bankruptcy proceedings, the prepaid rent by the lessee constitutes a priority claim.

Case 3: Company A v. Respondent Company B on Bankruptcy-Related Dispute [(2023) Supreme People’s Court Min Zai No. 270].The court held that the bankruptcy administrator's termination of the Asset Transfer Agreement and Supplementary Agreement pursuant to Article 18 of the Bankruptcy Law did not result in an increase of Company A's bankruptcy estate. Rather, it merely impaired Company B's contractual right to claim corresponding payments under said agreements. Consequently, while Company B retained a claim against Company A, such claim did not qualify as a common benefit debt under Article 42(3) of the Bankruptcy Law.The judgment expressly distinguished this case from (2021) Supreme People’s Court Min Zai No. 194, noting that the latter involved a commercial lease contract, whereas the present dispute arose from a sale-purchase relationship.

Case 4: Lu et al. v. Lin et al. on Bankruptcy Claim Confirmation Dispute [(2023) Supreme People’s Court Min Shen No. 964].The court ruled that the prepaid housing purchase funds constituted an ordinary bankruptcy claim after the termination of the previously signed housing sales contract during bankruptcy proceedings. The reasoning mirrored prior jurisprudence, emphasizing that while the buyer retained a claim for contractual performance, they held no right to restitution based on unjust enrichment. The judgment explicitly rejected the argument that such debts should be classified as unjust enrichment debts under Article 42(3) of the Bankruptcy Law, stating:"The buyers possess a right to claim contractual performance, but not a right to restitution for unjust enrichment. Their assertion that the debts constitute unjust enrichment liabilities and thus qualify as common benefit debts is untenable."

Case 5: Cui Junsheng v. Shandong Xinheng Real Estate Co., Ltd. on Ordinary Bankruptcy Claim Confirmation Dispute [(2023) Lu Min Shen No. 2638].In this case, the buyer had paid the full purchase price. The Shandong High People's Court held that while the Commercial Housing Sales Contract was legally valid, the buyer neither obtained ownership of the property nor acquired any priority rights superior to other creditors.The court further ruled that the debtor's entry into bankruptcy proceedings constituted a statutory impediment preventing ordinary creditors from demanding continued individual performance of the contract. Pursuant to Article 580(1) of the Civil Code, the contract was deemed legally or factually unperformable. Consequently, the creditor was permitted to file a corresponding claim with Xinheng Real Estate's bankruptcy administrator.

We maintain that:(1) Case 1 was adjudicated at an earlier date when SPC Judicial Interpretation (II) on the Enterprise Bankruptcy Law had not yet been promulgated at the time of bankruptcy acceptance, thus presenting no apparent legislative conflict;(2) Case 2 concerned a lease contract, and its recognition of priority claims has been questioned by both academia and legal practitioners;(3) While Case 2 was decided in 2021, Cases 3-5 (all decided post-2023) involved either asset transfer agreements or commercial housing sales contracts, making them more authoritative references for the present matter.

In conclusion, we hold that the principal claim for housing purchase payments by non-consumer buyers of commercial housing shall be classified as an ordinary bankruptcy claim.

We maintain that the price differential between the appraised value of the property post-bankruptcy acceptance and the principal housing payment constitutes a compensable loss for the buyer, which shall be recognized as a bankruptcy claim. Furthermore, such claims shall uniformly be classified as ordinary bankruptcy claims regardless of the buyer's status (i.e., consumer or non-consumer).

Article 53 of the Enterprise Bankruptcy Law stipulates: "Where the administrator or the debtor terminates a contract in accordance with the provisions of this Law, the other party may declare a creditor's right for the claim for damages arising from the termination of the contract." In the bankruptcy proceedings of real estate development enterprises, the "claim for damages" herein shall naturally include the principal amount of the purchase price and the appreciation of the property.

When applying this provision, disputes or challenges often arise regarding "whether the contract is terminated." In this regard, we believe that, according to the provisions of the Enterprise Bankruptcy Law, after the people's court accepts the bankruptcy application, the property intended to be purchased by the buyer becomes part of the bankruptcy estate, and any debt repayment by the debtor to individual creditors is invalid. Therefore, after an enterprise is adjudicated bankrupt, contracts that have not been fully performed are generally incapable of further performance, as doing so would constitute invalid preferential repayment. The continuation of a contract is an exception, which broadly includes three scenarios:The right to request delivery of the property enjoyed by commercial housing consumers as stipulated in the aforementioned Official Reply; Pursuant to Article 18 of the Enterprise Bankruptcy Law, for contracts where neither the debtor nor the counterparty has fully performed their obligations, the administrator has the authority to decide whether to terminate or continue performance; Contracts that the administrator decides to continue based on the principle of maximizing the value of the bankruptcy estate.

The above viewpoint represents a consensus in legal academia and has been recognized in judicial practice. Article 36 of the Guidelines of the Guangdong High People's Court on Several Issues Concerning the Adjudication of Enterprise Bankruptcy Cases clearly stipulates:"For contracts concluded before the acceptance of the bankruptcy application, if the debtor has not fully performed but the counterparty has, the contract shall be deemed terminated as of the date of bankruptcy acceptance. If the debtor has fully performed but the counterparty has not, the administrator may demand the counterparty to continue performance."

According to Article 3 of the aforementioned Official Reply, "where the delivery of the house is impossible and there is no realistic possibility of delivery," the "claim for refund of the purchase price" enjoyed by commercial housing consumers takes priority over construction project payment claims, mortgage rights, and other debts. Here, the term "purchase price" in the "claim for refund of the purchase price" shall be limited to the principal amount of the purchase payment and shall not include any appreciation in the value of the house. Therefore, regardless of whether the buyer qualifies as a commercial housing consumer, any loss arising from the price difference of the property shall not enjoy special priority. Such loss shall be recognized as an ordinary claim.

The Guidelines of Kunming Intermediate People's Court on Regulating Issues Related to the Adjudication of Real Estate Enterprise Bankruptcy Cases (Trial Implementation) also explicitly stipulates in Article 21 under "VI. Debt Declaration and Verification Issues":"Compensation for breach of contract, damages, losses from overdue interest, price differences of houses, losses from house decoration, etc., arising from the termination of house purchase contracts by creditors or administrators, as well as overdue delivery penalties and overdue certificate penalties incurred when creditors demand continued contract performance and house delivery, shall all be recognized as ordinary claims."

Here, we may also discuss the determination of the valuation reference date for assessing losses arising from contract termination. Given that the real estate developer's entry into bankruptcy proceedings renders the home purchase contract unperformable for the buyer, the termination date of the contract should be deemed as the date of bankruptcy acceptance. Therefore, the bankruptcy acceptance date should serve as the valuation reference date when assessing the buyer's losses. However, in practice, administrators often require time to take over and manage the debtor's assets. For contracts where neither party has fully performed their obligations (i.e., the buyer has not paid the full purchase price), the administrator has a two-month window from the bankruptcy acceptance date to decide whether to terminate the contract. As a result, some administrators commission valuations using the end of this two-month period as the reference date and apply this uniformly to both fully paid and partially paid buyers. We consider the following: If the valuation results are consistent between the two dates, the choice of reference date is immaterial since it does not affect the recognized claim amount. If the valuation results differ, the legally correct approach is to use the bankruptcy acceptance date as the reference date—unless the administrator, within the two-month period, explicitly notifies individual buyers (who have not paid in full) that the contract is terminated on a specified later date.

Claims for Late Delivery and Late Certification Penalties in Real Estate Bankruptcy Cases Most real estate developers entering bankruptcy proceedings have long suffered from capital shortages during project development, resulting in frequent construction delays. Consequently, they fail to deliver properties and process property ownership certificates within the contractually stipulated timeframe. Homebuyers often initiate litigation or arbitration proceedings against developers for such delays, with legally effective judgments typically upholding their claims for both late delivery penalties and late certification penalties. When the developer subsequently enters bankruptcy proceedings, these homebuyers routinely declare such penalty claims as ordinary debts in the bankruptcy estate.

We believe that according to Article 584 of the Civil Code of the People's Republic of China, if one party fails to perform its contractual obligations or breaches the contract, causing losses to the other party, the amount of compensation for such losses shall be equivalent to the losses incurred due to the breach, including any anticipated benefits obtainable upon performance of the contract. However, the compensation shall not exceed the losses that the breaching party foresaw or ought to have foreseen at the time of contract formation. Claims for delay in delivering the property and delay in processing the property certificate should be premised on the continued performance of the contract. If the real estate development enterprise is adjudged bankrupt, rendering the commercial housing sales contract de facto impossible to perform—particularly where the debtor's administrator has already recognized the loss from contract termination (i.e., the assessed value of the property minus the agreed purchase price) as a bankruptcy claim, and this claim amount sufficiently covers the applicant's losses from the breach—then the applicant's separate claims for delay in delivery and delay in processing the certificate lack legal basis. However, if the loss from contract termination is lower than the agreed breach penalties, then in accordance with relevant judicial interpretations and practices of the Supreme People's Court, reference should be made to Article 46 of the Bankruptcy Law, under which the penalty claim shall be calculated only up to the date of the bankruptcy petition's acceptance, without duplicating the compensation for the contract termination loss.

According to Article 41 of the Enterprise Bankruptcy Law, the following expenses incurred after the people's court accepts a bankruptcy application shall be classified as bankruptcy costs:(1) Litigation fees of the bankruptcy case;(2) Expenses for managing, disposing of, and distributing the debtor's property;(3) Expenses for the administrator's performance of duties, remuneration, and costs of hiring staff.

After conducting a search, the relevant provisions are as follows: "Shanghai High Court Guidance on Bankruptcy Trial Work" (2021), Chapter 5 (Bankruptcy Expenses and Common Benefit Debts), Article 106: "Expenses for managing, realizing, and distributing the debtor's property" specifically include: "...(4) litigation and arbitration costs that should be borne by the debtor in bankruptcy-related lawsuits and arbitrations..." "Dalian Bankruptcy Administrator Business Work Guidelines" (August 2023), Article 73: "If the litigation or arbitration case filing fees and enforcement application fees have not been paid by the debtor at the time the bankruptcy petition is accepted, they may be repaid as bankruptcy claims. After the bankruptcy petition is accepted, litigation or arbitration case filing fees that should be borne by the debtor—including those arising from lawsuits or arbitrations involving the debtor prior to the bankruptcy petition but for which a final judgment or ruling is issued after the bankruptcy petition is accepted—shall be repaid at any time from the debtor's property in accordance with the provisions of the Enterprise Bankruptcy Law regarding bankruptcy expenses."

We believe that after the debtor is adjudicated to undergo bankruptcy liquidation, litigation/arbitration fees imposed on the debtor by court judgments or arbitral awards should be classified as expenses incurred after the commencement of the bankruptcy proceedings for the management, realization, or distribution of the bankruptcy estate, and thus should be recognized as bankruptcy expenses.

After taking over the debtor's enterprise, the administrator, in order to facilitate asset management and liquidation, often seeks to cancel the online signing and filing procedures as soon as possible. However, the real estate registration authority requires the buyer's consent to revoke the online filing. In this context, the administrator typically negotiates with the buyer and signs a "Contract Cancellation Agreement for Commercial Housing Sales" or a "Property Return Agreement" to submit to the real estate registration authority for prompt cancellation of the online filing. In cases where real estate market prices are rising, the buyer may use the cancellation agreement as grounds to claim that the date of the agreement's signing should serve as the benchmark for determining their losses resulting from the contract termination.

We maintain that the alleged appreciation loss claimed by the creditor is, in essence, a natural market-driven increase in the property's value after the debtor was adjudicated bankrupt. As previously stated, under the Enterprise Bankruptcy Law, the property in question constitutes part of the bankruptcy estate, and any appreciation or depreciation thereof inherently belongs to the estate. The administrator's approach—uniformly assessing the property's value as of the date of the bankruptcy acceptance ruling (or the expiration of the two-month period thereafter) to determine the buyer's claim for price differential losses—is legally justified. Conversely, the buyer's claim for post-valuation appreciation as a compensable loss lacks legal basis and should not be upheld.