Executory contracts in insolvency: The Chinese perspective

Abstract

This chapter considers the treatment of executory contracts in the context of mainland China. Before insolvency proceedings, when financial or economic distress happens, the Civil Code applies and the chapter briefly discusses the ‘unsafe right defence’, which enables the innocent party to suspend the executory contract and ask for security to continue the contract. The chapter’s main focus is on the laws applicable in insolvency proceedings, which are discussed in their historical and institutional context. It is explained that in insolvency the administrator of the insolvent party has the last word as to whether or not to continue the executory contracts, although the innocent party has the benefit of security and preferential status so that they are in a better position than other equally-ranking creditors. There is an examination of exceptions in special cases, as well as ipso facto clauses. The chapter also considers recent Supreme People’s Court guidance to protect the insolvent party which impacted by the spread of COVID-19 pandemic or pandemic prevention and control measures. There is also discussion of anticipated reforms to the Chinese insolvency framework.