Since Hongyan Mechanical Engineering Co Ltd (Hongyan Co) could not settle the huge amount of debts due, its creditors applied for bankruptcy in the competent people’s court. The court accepted the application of the creditors and declared the bankruptcy of Hongyan Co. The court designated a bankruptcy administrator to be in charge of the bankruptcy liquidation. During the process of bankruptcy liquidation, the bankruptcy administrator formulated a list of bankruptcy assets, debts due and declared credits.(a) the appraised bankruptcy assets of Hongyan Co were as follows:(i) Office building – appraised value of RMB 2,400,000 yuan, mortgaged for a loan borrowed from the Communication Bank.(ii) Investment to a mutual fund – RMB 1,400,000 yuan.(iii) A rental receivable from Company A – RMB 1,900,000 yuan.(iv) Giving up a creditor’s right due 10 months before the bankruptcy of Hongyan Co – RMB 1,000,000 yuan.(b) the declared credits by Hongyan Co’s creditors were as follows:(i) Communication Bank’s loan – principal RMB 2,000,000 yuan with 10% of annual interest rate for two years.(ii) Company A’s credit due – RMB 7,000,000 yuan.(iii) Company B’s credit under a sales contract payable by Hongyan Co – RMB 1,500,000 yuan.(iv) Company C’s damages due to the termination of contract by the bankruptcy administrator – RMB 1,400,000 yuan.Required:Answer the following questions in accordance with the relevant provisions of the Enterprise Bankruptcy Law of China and give your reasons for your answer:
(a) state which creditor should be satisfied in the priority order in the allocation of the bankruptcy assets; (2 marks)
