Introduction: In accordance with the "Provisions of the Supreme People's Court on Determining the Remuneration of Administrators in the Adjudication of Enterprise Bankruptcy Cases," Article 2 states, "The people's court shall determine the administrator's remuneration in segments within the following percentage limits based on the total value of the debtor's property finally realized:

(1) Not exceeding one million yuan (inclusive), determined at less than 12%;

(2) Exceeding one million yuan up to five million yuan, determined at less than 10%;

(3) Exceeding five million yuan up to ten million yuan, determined at less than 8%;

(4) Exceeding ten million yuan up to fifty million yuan, determined at less than 6%;

(5) Exceeding fifty million yuan up to one hundred million yuan, determined at less than 3%;

(6) Exceeding one hundred million yuan up to five hundred million yuan, determined at less than 1%;

(7) Exceeding five hundred million yuan, determined at less than 0.5%.

The value of collateral property, prioritized for repayment to secured creditors, is not included in the total value of property as defined in the preceding provision.…"

According to the above regulations, the total value of the debtor's property finally realized does not include the value of collateral property. So, how is remuneration collected for secured property? What does the total value of the debtor's property finally realized include? This article primarily discusses the existing system and its associated issues concerning the remuneration of administrators for secured property.

Remuneration System for Secured Property According to Article 13 of the "Provisions of the Supreme People's Court on Determining the Remuneration of Administrators in the Adjudication of Enterprise Bankruptcy Cases," "If the administrator expends reasonable effort in the maintenance, realization, and delivery of collateral property, they have the right to collect appropriate remuneration from secured creditors. If the administrator and the secured creditors cannot agree on the amount of remuneration mentioned above, the people's court shall determine it in accordance with the method specified in Article 2 of these provisions, but the remuneration ratio shall not exceed the limit specified in that article, which is 10%."

Although the provision allows for negotiation between both parties, in practice, most mortgagees are banking creditors and are constrained by the system. Who would agree to a ratio exceeding 10% when the legal limit is already set at that level? Therefore, negotiation has little practical significance.

Practical Issues with the Current System In most bankruptcy cases, valuable assets of bankrupt enterprises, such as real estate, land, and machinery and equipment, are generally mortgaged, resulting in the primary assets of the enterprise being mostly excluded. Bankruptcies of enterprises with unencumbered assets are rare.

The ultimate result is that when the enterprise has few assets, the remuneration for the administrator is low. Even if the enterprise has many assets but they are mortgaged, the remuneration for the administrator remains low. Especially in recent years, there have been numerous asset-less bankruptcy cases. The enterprises have no assets, yet issues related to debts and liabilities need to be addressed, and the administrator has to invest a significant amount of work and time, incurring considerable labor costs, with only minimal assistance funds.

The bankruptcy procedure is a lengthy and complex process that demands high professional competence and comprehensive skills. Administrators need to invest a significant amount of work, and upfront substantial bankruptcy costs might be required. An unreasonable remuneration system can significantly dampen the enthusiasm of administrators.

According to Article 9 of the "Provisions of the Supreme People's Court on Determining the Remuneration of Administrators in the Adjudication of Enterprise Bankruptcy Cases," "When the people's court determines or adjusts the administrator's remuneration scheme, it shall consider the following factors: (1) The complexity of the bankruptcy case; (2) The diligence of the administrator; (3) The actual contributions of the administrator to restructuring and reconciliation work; (4) The risks and responsibilities borne by the administrator; (5) The disposable income and price levels of residents in the debtor's domicile; (6) Other factors affecting the administrator's remuneration."

Although the judicial interpretation allows the people's court to adjust the administrator's remuneration scheme based on specific circumstances, in practice, it often results in reductions, with hardly any instances of increases.

In recent years, there has been a growing call within the industry for rectifying the unreasonable remuneration of administrators. It is believed that the "Provisions of the Supreme People's Court on Determining the Remuneration of Administrators in the Adjudication of Enterprise Bankruptcy Cases" are to some extent outdated at this stage of industry development, particularly regarding the remuneration for secured property. The author believes that the remuneration for administrators should match their duties and efforts. Only then can it attract and retain high-quality professionals in the field of bankruptcy, stimulate the enthusiasm and initiative of administrators, improve the efficiency of bankruptcy cases, better leverage the value of bankruptcy law, and contribute to optimizing the market exit mechanism for enterprises and the business environment.