Chinese companies that are struggling with their business and can no longer adapt to the market changes can file for bankruptcy. If you need help dealing with a company bankruptcy case in China, please discuss further legal details with our lawyers in China. Plus, we invite you to read this article and see what bankruptcy entails.
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The bankruptcy law in China
The Enterprise Bankruptcy Law of the People’s Republic of China is the main document that provides guidance on the country’s bankruptcy process. Its articles contain provisions for the bankruptcy proceedings and the generally associated costs, the debtor and the creditor rights, the declaration of bankruptcy, and the final processes for the bankruptcy proceedings. The law also contains several provisions regarding liquidation. This law only applies to companies incorporated in Mainland China and not to those that are Hong Kong or Macau resident companies.
Bankruptcy process in China
The bankruptcy process in China is governed by the competent Chinese court located in the area where the company is incorporated. The procedure aims to satisfy the claims of the creditors in case the debtor is no longer able to pay his debts. Let’s review what this process entails from a legal point of view:
- the creditors can legally request that all the assets of the bankrupt Chinese company be seized and distributed accordingly. This can also apply to the assets of the debtor that are not located in China;
- the application for bankruptcy can be filed by the debtor himself/herself (in this case, it is voluntary) or by the creditors;
- when the bankruptcy proceedings are filed against a debtor, he/she is entitled to be informed that the procedure was commenced, within approximately 5 days.
The most common expenses associated with the bankruptcy proceedings in China will include the court costs, the expenses associated with the distribution of assets, and the expenses for the bankruptcy administrator, the appointed individual who will oversee the development of the process. For a proper understanding of how companies can file for bankruptcy, please watch the video below:
Changes to the Company Law and the connection with the Enterprise Bankruptcy Law in China
Starting in 2024, the Company Law in China has undergone several changes. Thus, before a company files for bankruptcy in China, the firm’s labor union and the proposals of employees must be taken into account with the help of a representative. Here are other changes brought to the Company Law regarding bankruptcy in China:
- Companies found on the edge of bankruptcy can benefit from the principle of social responsibility. Creditors can receive priority in repayment of debts in bankruptcy proceedings.
- Capital contributions paid in advance can be requested by company creditors in a bankruptcy case.
- Shareholders can be responsible for the company’s debts if involved in controlling two or more enterprises to abuse the company’s independent status or damage the interests.
Given these changes to the legislation related to the formation and management of a company in China, bankruptcy can be a prolonged process, but slightly simplified. In any case, to understand the new provisions of the Company Law and Bankruptcy Law in China, we recommend the services of our Chinese lawyers.
Bankruptcy in China in numbers
Data for 2023 provided by the Supreme People’s Court indicates that around 29,000 bankruptcy cases were registered nationwide in China. Here are some other interesting figures:
- Bankruptcy claims worth around CNY 2.3 trillion were registered.
Around 1,485 bankruptcy cases were the subject of reorganization, of which almost 762 companies were restructured.
Also in 2023, around 11 financial companies were looking for liquidation and filing for bankruptcy in China. - There are around 230 bankruptcy administrator associations in China, and over 3,728 active administrators involved in bankruptcy cases.
If you want other legal services, you can choose our law firm in China. For example, in addition to support in bankruptcy-related aspects, you can work with our divorce lawyers in China. We also provide the necessary support for trademark registration in China. We help foreign citizens with immigration to China. We can also provide legal assistance when applying for residency in China. In addition, those already living here can apply for citizenship in China and benefit from our support. Please explore our legal services and contact us for extra information and assistance.