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Bankruptcy Law in China

Bankruptcy Law in China

When industrial sectors are struggling with weak demand and falling prices in China, as well as suffering from out of date production ability, the profitability is pushed down to low levels. Given these conditions, there are many bankruptcies, and the entrepreneurs who experience a bankruptcy must know the legal procedures.

Our Chinese attorneys can offer assistance on the matter. 

The Enterprise Bankruptcy Law on 1 June 2007 was the first piece of bankruptcy legislation that governs uniformly private companies, collectively owned enterprises, state-owned enterprises and non-SOEs and also Sino-foreign joint equity enterprises, Sino-foreign cooperative enterprises and wholly foreign owned enterprises. It does not apply for individuals or partnerships.

If you’re interested in more details about this piece of legislation, our lawyers in China will help you.

Main provisions of the Chinese Enterprise Bankruptcy Law 

This Chinese law permits a single creditor to initiate an involuntary bankruptcy proceeding. It also states that any creditor can initiate the proceeding against any legal entity, including WFOEs (Wholly Foreign Owned Enterprises) and JVs (Joint Ventures). This provision could give creditors huge leverage. 

Under the Enterprise Bankruptcy Law in China, as an alternative to liquidation, the debtor or shareholder that holds more than 10% of the capital/liability may apply to the court for restructuring. After the court has approved the restructuring, the debtor may continue to manage his assets under the supervision of an appointed administrator. Then he has between 6 to 9 months to submit a restructuring plan. If approved by the majority of creditors, the plan can be submitted for approval to the court. 

If you want to find out more about Chinese bankruptcy law‘s provisions and information about how to restructure a company in case of bankruptcy, our team of attorneys in China will provide their legal assistance.

Other important provisions of EBL

Creditors of a non-Chinese bankrupt company may enforce a foreign bankruptcy ruling or judgment against a debtor whose business assets are established in the PRC.

Three conditions that must be met are set out in Article 5:

1. Relevant treaties or reciprocal relations exist between that country and the PRC;

2. The bankruptcy proceeding outside China does not violate the state’snational security, sovereignty and social public interest of PRC;

3. The bankruptcy proceeding outside China does not harm the interests and lawful rights of the creditors in the PRC.

Consequently, there are two principal obstacles which need to be overcome by the creditor of a non-PRC bankrupt company:

• reciprocity – the creditor will need to establish that the bankrupt company’s origin country has a treaty with the PRC or it will reciprocate a Chinese ruling enforcement

• PRC court’s attitude – the creditor will have to convince the PRC court that the enforcement of the foreign ruling/judgment on bankruptcy will not harm the interests and rights of any resident of the PRC.

In order to find out complete information about the Bankruptcy Law in China, please contact our Chinese lawyers, who will offer you their assisted guidance.