The Use of Non-Court Based Corporate Rescue Does the Australian Voluntary Administration Procedure Provide a Model for China?

Abstract

In the recent international history of insolvency law reform, the reform of corporate rescue and restructuring has been an on-going project. In China, the enactment of the 2006 Enterprise Bankruptcy Law saw the introduction of a bankruptcy reorganization procedure that incorporates the debtor-in-possession model found in Chapter 11 of the US Bankruptcy Code. However, the Chinese corporate rescue procedure has been significantly underused due in part to various drawbacks associated with this court-based and highly politicized process. This paper explores the possibility of reforming China’s current corporate rescue regime by drawing upon the Australian voluntary administration (VA) procedure. Found in Part 5.3A of the Corporations Act 2001(CTH), this latter procedure was designed to provide a relatively swift, inexpensive and flexible corporate rescue mechanism for companies in financial distress. It comprises a non-court based mechanism under the control of one or more professionally qualified private administrators. It is interesting to note that the UK also moved away from exclusive reliance upon court-based administration procedures following the passage of the Enterprise Act 2002. This moved the UK closer to the Australian practitioner-dominated approach to corporate rescue. This paper argues that the addition of VA-style procedure to China’s current corporate rescue regime may be needed as China develops its market economy based on the rule of law.