Insolvency Law Principles and the Draft Bankruptcy Law of the People's Republic of China

Abstract

Insolvency law reform has been an on-going effort in the People’s Republic of China for much of the last two decades. Since the enactment of the Enterprise Bankruptcy Law (for Trial Implementation) in 1986 there has been debate in this area about key principles. The 1986 law had limited application and there was widespread recognition in China of the need for a more broadly based insolvency statute which served to facilitate both the reorganisation and the winding up of companies and other business entities. But, it was not until August 2006 that a more modern Enterprise Bankruptcy Law was enacted in China. Various drafts circulated during the decade or so before the passage of the 2006 law. These drafts and the current Law drew heavily upon Western insolvency ideas and sought to apply these to the particular Chinese experience. The need for the enactment of this new legislation was apparent in view of the serious debt problems of many PRC state-owned business enterprises. This article examines key insolvency principles which have emerged through this law making process. The law also drew upon insolvency concepts found in other recent PRC laws which have dealt with insolvency issues, such as the 1993 Company Law. A number of law reform suggestions are made in this article. However, the key to an effective insolvency law will be the creation of an effective legal and administrative infrastructure which will ensure that insolvency administrations are undertaken economically, expeditiously and fairly. The enactment of the new insolvency law is but the first step in this process.