The so-called bankruptcy reorganization means that when an enterprise is insolvent, the management can apply to the court for bankruptcy reorganization. Once the application is approved, the creditor cannot force the bankrupt enterprise to pay its debts. The law allows the management of the same enterprise to propose a reorganization plan to creditors, postpone the repayment of debts, stop paying dividends, suspend the payment of debt capital, only pay interest, and reduce unsecured claims.

Usually, creditors must agree to the reorganization plan of the managers. Because, once the enterprise goes bankrupt and is liquidated immediately, the property of the enterprise may be little left, and after reorganization, the enterprise may survive the recession and generate rich profits. Faced with these two options, it is difficult for creditors not to give in.

Bankruptcy reorganization in the broadest sense includes enterprise bankruptcy and liquidation. Liquidation refers to declaring the company completely disintegrated according to law, selling all assets and paying off debts. Therefore, there will be an asset reorganization in the way of enterprise elimination.

The significance of bankruptcy reorganization:

Bankruptcy is not only the closure and liquidation of enterprises, but also the reorganization and adjustment according to law. In a narrow sense, bankruptcy reorganization enables enterprises to survive after financial merger according to law. Adjustment is a settlement reached by creditors and debtors out of court. It can be seen that reorganization and adjustment are insolvent and bankrupt enterprises, which have been reborn after financial consolidation, capital reorganization, adjustment of leading bodies and changes in production and operation plans. The functions of this bankruptcy reorganization and adjustment are:

1 helps creditors avoid losses due to insolvency in bankruptcy liquidation;

2. It is helpful for employees to prevent a large number of unemployment caused by the dissolution of enterprises and the social shock it brings;

3. It is beneficial for enterprises to avoid reputation damage due to bankruptcy.

Nevertheless, the liquidation form of bankruptcy is still the main form of bankruptcy, which promotes the flow, redistribution and reorganization of assets and plays a role in structural adjustment and supporting the superior and eliminating the inferior. In western developed capitalist countries, bankruptcy is a normal phenomenon of market economy, and hundreds of thousands of enterprises go bankrupt every year. However, under the conditions of underdeveloped market economy, imperfect bankruptcy mechanism and imperfect bankruptcy legislation in China, it is quite difficult for enterprises to go bankrupt, even more difficult than implementing enterprise merger. Because of this, the national policy encourages "more mergers and less bankruptcy".