It seems strange to be talking about the enactment of a new bankruptcy law in a country where in theory there should be no bankruptcy, but as Bob Dylan said, “The Times they are a Changin”. Indeed there continue to be tensions between, on the one hand the communist system of government, and on the [...]

The 1986 PRC Enterprise Bankruptcy Law was supposed to deal only with the affairs of insolvent State Owned Enterprises (“SoE’s”). This was quite simply because when it was enacted the concept of capitalism in China was anathema to the political hierarchy. At the time the government controlled everything and consequently all business were owned by [...]

The new legislation will be applicable to private entities including Equity Joint Ventures (“JVs”) and Wholly Foreign Owned Enterprises (“WOFEs”) as well as State Owned Enterprises (“SoEs”). There remain in the PRC some 2000 or so SoEs many of which are in sunset industries but which are either strategic in nature or whose closure would [...]

Under the new law, it is possible for both the debtor company or one of its creditors to petition for bankruptcy. To satisfy the requirements it will be necessary to show that the company is insolvent in that it is unable to repay its debts as and when they fall due. This is otherwise known [...]

The concept of the independent administrator represents something of a significant change in the dealing of administrations of insolvent companies in PRC. Historically, liquidations have been dealt with by liquidation committees comprising government officers and Court officials but not judges. The new system envisages private sector involvement for effectively the first time in dealing with [...]

Each separate People’s Court will have its own panel of administrators. These will usually be accounting firms, law firms or firms specialising in bankruptcy proceedings. Admission to these panels will be dependent upon the provision of information to the local People’s Court. It appears, based on current experience, that there are some discrepancies in the [...]

The introduction of the concept of a creditors committee, for the first time in PRC give the creditors the right to become directly involved in the bankruptcy and/or restructuring process.
The committee, which can comprise a maximum of nine members (but with no minimum which may create issues) is appointed at the first meeting by the [...]

One of the key issues which it appears delayed the implementation of the legislation, was the treatment of the rights of the secured creditors and employees. For future bankruptcies, it has been established that secured creditors will retain their priority rights over the proceeds of sale of the assets over which they hold security.
The claims [...]

The anti avoidance provisions purport to allow the Administrator to go back as far as six months in efforts to unravel transactions which have been entered into to the disadvantage of creditors. However, as with much of the wording of the new legislation, it’s going to be a case of “suck it and see” as [...]

For the first time, bankruptcy legislation in PRC envisages the prospect of a business or company being rescued. This is a significant move forward particularly given the recent growth of the Chinese economy and its likely future expansion.
It seems that these provisions will be aimed at rescuing either companies or their underlying business, subject to [...]