China’s First Self-Rescue Out-of-Court Restructuring For Commercial Real Estate: A Breakthrough Before The Auction Hammer Falls

For a distressed company on the verge of enforcement proceedings, bankruptcy restructuring is often seen as a “lifeboat” to help the company preserve its core assets and survive as a going concern. For creditors, bankruptcy restructuring offers an uncertain path to asset realization, which is a primary interest of theirs. Therefore, creditors may be reluctant to agree to bankruptcy proceedings because it prevents the most direct path to asset realization, which is through enforcement proceedings. Instead, creditors prefer to preserve the possibility of enforcement proceedings as a bargaining chip to encourage the company to satisfy outstanding debts.

The J Company case offers a third path between bankruptcy restructuring and enforcement proceedings.

The J Company, whose core assets were commercial real estate, became financially stressed due to debt-financed acquisitions, high leverage, and market pressures. The company wanted to preserve its core commercial building; whereas creditors hoped for a better recovery than possible in an immediate auction. Both sides were willing to negotiate, but they lacked a credible platform for that negotiation.

In July 2025, the parties found that platform when the Shanghai Out-of-Court Restructuring Center accepted J Company’s case and appointed Fangda Partners as the independent out-of-court restructuring advisor. Fangda assisted with creditor notification, claim filing, claim review, asset investigation, repayment discussions, restructuring design, and execution of the restructuring agreement. The project then transitioned smoothly into pre-reorganization and judicial reorganization. To date, J Company's reorganization plan has been court-approved and is now being implemented.

While the exact form of the “out-of-court negotiation” is unimportant, what is important is that the negotiation can allow the parties space to sit down, rationally discuss issues, and potentially reach a consensus leading to an out-of-court restructuring to avoid enforcement proceedings that would lead to a court-ordered auction of the debtor's assets.

From a broader institutional context, out-of-court restructuring is a key component in early-stage rescue mechanisms for distressed companies. Instead of waiting until enforcement runs its course and assets are passively liquidated, the out-of-court restructuring can be used to complete, at an early stage, the verification of assets and liabilities, creditor communication, plan design and procedural linkage while the enterprise still has a viable operating basis and room for negotiation. For distressed enterprises that still possess viable operating value, this milder, less confrontational, and more controllable front-end rescue mechanism represents a direction well worth exploring.

The out-of-court independent restructuring advisor team was led by partner JI Nuo, with partners LI Kai and Vivian HE taking primary responsibility. The team included counsel KANG Wen and associates SUN Dehui and ZHOU Yangmei.