China’s Enterprise Bankruptcy law: Implementation of the Corporate Reorganization Provisions

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Understanding the Enterprise Bankruptcy Law (2006) is enhanced with awareness of pre-existing legal provisions. Two decades earlier, the Enterprise Bankruptcy Law (For Trial Implementation) 1986 (EBL 1986), had been enacted, but with a very narrow remit. This cautious approach subsequently dominated the way bankruptcy laws were implemented in China. Apart from some provincial rules, prior to the enactment of the EBL 1986 there had not been a broad-ranging bankruptcy law since the 1949 founding of the PRC;1 during this period it was left to the government’s planned economy rather than ‘market socialism’ to determine the fate of SOEs. The drafting process for the Enterprise Bankruptcy Law 2006 took almost two decadesbefore the new more comprehensive law was enacted to replace the 1986 EBL (see Shi 2007; Booth 2008; Tomasic and Wang 2006). The EBL 1986 had been amended in 1994 to better align legal provisions with the newly established socialist market economy (Booth 2008). In updating the EBL 1986, China showed a willingness to embrace international bankruptcy norms (Tomasic 1998) to improve its economy, notwithstanding the fear of massive unemployment associated with the likely rigorous enforcement of bankruptcy law upon under-performing and often insolvent SOEs (Halliday and Carruthers 2009). At the same time, to take advantage of foreign ‘best practice’ in bankruptcy law,China’s law reformers examined bankruptcy regimes in Australia, Britain, France, Germany and the United States to help fashion their own new law. This process was also used to gain time while the internal political battle was fought between law reformers responding to the rise of the market economy and more ideologically driven hard-liners who saw bankruptcy law as a foreign set of values that were in conflict with traditional socialist ideas (Tomasic and Little 1997: 48-56). During the decade or so before the enactment of the Enterprise Bankruptcy Law2006 (EBL 2006), Chinese law reformers participated in many international bankruptcy law reform meetings, including the annual meetings of a regional forum for the discussion of insolvency law reform in Asia set up by the OECD in collaboration with the Asian Development Bank, Japan and Australia (the Forum for Asian Insolvency Reform).2