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Article: The Reorganisation Process Under China's Corporate Bankruptcy System

TitleThe Reorganisation Process Under China's Corporate Bankruptcy System
Authors
KeywordsBankruptcy reorganization
Court decisions
Bankruptcy laws
Corporate reorganization
Investments
Issue Date2011
PublisherAmerican Bar Association, International Law and Practice Section.
Citation
The International Lawyer, 2011, v. 45 n. 4, p. 939-974 How to Cite?
AbstractThe number of enterprises plunging into bankruptcy starting in 2008,1 during which time China was affected by the global financial crisis, tested the efficacy of the Enterprise Bankruptcy Law (EBL), which established a statutory-based reorganization process to be followed and which was seemingly designed for the resurrection of corporate entities caught in financial malaises. During the global financial crisis, the EBL served its intended purpose-the prevention of a greater number of small-and medium-sized enterprises in temporary financial difficulties from premature corporate bankruptcy; but the implementation of the EBL and, by extension, China's corporate bankruptcy system was less than ideal. One of the main tenets of the EBL is the requirement for any reorganization plan to be approved dually-i.e., sanctioned by both the creditors and the court; but the EBL fails to prescribe clearly the circumstances under which the court's discretionary power in granting its approval should be exercised and, if so done, to what extent those powers should be kept in check. The deficiencies of the EBL might impact adversely China's securities markets because there is a strong linkage between an effective corporate bankruptcy reorganization system and increased securities trading. A listed company facing bankruptcy but whose shares remain tradable in China's securities market would normally be labeled as an *ST corporation2 first, before being delisted eventually. While reorganization can theoretically, if not practically, provide reprieve for a bankrupt company by saving it from premature corporate bankruptcy, recent research has indicated that the number of successful reorganization cases are few and far between. The paucity of successful bankruptcy reorganization cases in China suggests the EBL, as it was implemented, may have inadvertently put restraints in its own application, in contrast to the more efficacious corporate bankruptcy laws in jurisdictions such as Australia, the United Kingdom,, and the United States, each of which provided a model for reorganization legislation. There are both internal and external factors attributive to such lackluster results following the EBL's implementation. The internal factors consist of some judges' preference in applying the old law (which contains no reorganization provisions whatsoever) over the newer EBL, as the new law is less familiar to them. The external factors comprise local protectionism of preferred enterprises and a lack of qualified bankruptcy professionals in China. This article aims to examine the implementation and practice of China's corporate reorganization process, formed and shaped by Chapter 8 of the EBL, immediately before and throughout, the global financial crisis. Relevant issues in regards to the administrator system and the expenses associated with the reorganization process will also be addressed. It is hoped that this article, if construed properly , may inform of future amendments to China's EBL.
Persistent Identifierhttp://hdl.handle.net/10722/164144
ISSN

 

DC FieldValueLanguage
dc.contributor.authorLee, Een_US
dc.date.accessioned2012-09-20T07:56:01Z-
dc.date.available2012-09-20T07:56:01Z-
dc.date.issued2011en_US
dc.identifier.citationThe International Lawyer, 2011, v. 45 n. 4, p. 939-974en_US
dc.identifier.issn0020-7810-
dc.identifier.urihttp://hdl.handle.net/10722/164144-
dc.description.abstractThe number of enterprises plunging into bankruptcy starting in 2008,1 during which time China was affected by the global financial crisis, tested the efficacy of the Enterprise Bankruptcy Law (EBL), which established a statutory-based reorganization process to be followed and which was seemingly designed for the resurrection of corporate entities caught in financial malaises. During the global financial crisis, the EBL served its intended purpose-the prevention of a greater number of small-and medium-sized enterprises in temporary financial difficulties from premature corporate bankruptcy; but the implementation of the EBL and, by extension, China's corporate bankruptcy system was less than ideal. One of the main tenets of the EBL is the requirement for any reorganization plan to be approved dually-i.e., sanctioned by both the creditors and the court; but the EBL fails to prescribe clearly the circumstances under which the court's discretionary power in granting its approval should be exercised and, if so done, to what extent those powers should be kept in check. The deficiencies of the EBL might impact adversely China's securities markets because there is a strong linkage between an effective corporate bankruptcy reorganization system and increased securities trading. A listed company facing bankruptcy but whose shares remain tradable in China's securities market would normally be labeled as an *ST corporation2 first, before being delisted eventually. While reorganization can theoretically, if not practically, provide reprieve for a bankrupt company by saving it from premature corporate bankruptcy, recent research has indicated that the number of successful reorganization cases are few and far between. The paucity of successful bankruptcy reorganization cases in China suggests the EBL, as it was implemented, may have inadvertently put restraints in its own application, in contrast to the more efficacious corporate bankruptcy laws in jurisdictions such as Australia, the United Kingdom,, and the United States, each of which provided a model for reorganization legislation. There are both internal and external factors attributive to such lackluster results following the EBL's implementation. The internal factors consist of some judges' preference in applying the old law (which contains no reorganization provisions whatsoever) over the newer EBL, as the new law is less familiar to them. The external factors comprise local protectionism of preferred enterprises and a lack of qualified bankruptcy professionals in China. This article aims to examine the implementation and practice of China's corporate reorganization process, formed and shaped by Chapter 8 of the EBL, immediately before and throughout, the global financial crisis. Relevant issues in regards to the administrator system and the expenses associated with the reorganization process will also be addressed. It is hoped that this article, if construed properly , may inform of future amendments to China's EBL.-
dc.languageengen_US
dc.publisherAmerican Bar Association, International Law and Practice Section.en_US
dc.relation.ispartofThe International Lawyeren_US
dc.subjectBankruptcy reorganization-
dc.subjectCourt decisions-
dc.subjectBankruptcy laws-
dc.subjectCorporate reorganization-
dc.subjectInvestments-
dc.titleThe Reorganisation Process Under China's Corporate Bankruptcy Systemen_US
dc.typeArticleen_US
dc.identifier.emailLee, E: eleelaw@hku.hken_US
dc.identifier.authorityLee, E=rp01257en_US
dc.identifier.hkuros208979en_US
dc.identifier.volume45en_US
dc.identifier.issue4-
dc.identifier.spage939en_US
dc.identifier.epage974en_US
dc.publisher.placeUnited States-

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