Resolving SME insolvencies: an analysis of new Chinese rules

Abstract

ABSTRACT The resolution of insolvency of small and medium-sized enterprises (‘SMEs’) has attracted much attention and criticism globally. Studies from around the world suggest that regular insolvency law fails to address the particular needs and challenges of SME financial distress. China has recently introduced simplified rules aimed at improving the resolution of insolvent SMEs. This article examines these rules and assesses how well they address the identified needs and challenges faced by insolvent SMEs. It considers how the examined rules differ from regular insolvency law and how they compare with the broader international best practice and guidance for SMEs. The discussion evaluates new solutions and tools that have been used in China, their effectiveness and impact both on paper and based on the outcomes in practice. The article concludes by identifying eight lessons for other jurisdictions which are trying to improve resolution of SME insolvencies.