STEPHEN FINN / ISTOCKPHOTO.COM
Bankruptcy law comes to China
For the first time in its history, China has a unified and
comprehensive bankruptcy system covering all types of enterprises, including foreign investment vehicles.
The new bankruptcy regime,
the Law of People’s Republic of
China on Enterprise Bankruptcy,
came into force on June 1, 2007.
The new bankruptcy law is a
major milestone for China, a
country that has spent the past
decade deliberating a workable
bankruptcy law that would apply
to all enterprises, including a
state-owned enterprise (SOE).
Prior to the new legislation taking effect, SOEs and non-SOEs
were governed by different laws,
made complicated by a range of
primary and subsidiary legislation, industry-specific rules and
procedures requiring separate
governmental approval.
MICHAEL
NOWINA
Under the new bankruptcy
law, bankruptcy proceedings are
commenced in and supervised by
the People’s Court in mainland
China. Many of the concepts will
be familiar to Canadian practitioners, including a stay of proceedings, an independent administrator who takes control of the
debtor’s property for the benefit
of creditors, the filing of claims
by creditors and oversight of the
administrator by elected creditor
representatives. However, there
are also some notable differences.
While an earlier draft of the
legislation included provisions
relating to the bankruptcy of
individuals, the final version
excluded partnerships and
owners of sole proprietorships,
so there is no law governing
individual bankruptcy in China.
Time will tell when this gap will
be filled.
