Advanced search
Publication Cover
Journal of Corporate Law Studies Volume 12, 2012 - Issue 2
Submit an article Journal homepage
147
Views
9
CrossRef citations to date
0
Altmetric
Original Articles

From Global Convergence in China's Enterprise Bankruptcy Law 2006 to Divergent Implementation: Corporate Reorganisation in China

Roman Tomasic Dean and Professor of Law, Law School, University of South Australia, Adelaide; and Visiting Professor of Company Law, Durham Law School; email: [email protected].
&
Zinian Zhang Part-time Lecturer in Insolvency Law, Durham Law School; PhD candidate, Durham University; email: [email protected].
Pages 295-332 | Published online: 30 Jan 2017

  • See further OECD, “Principles of Corporate Governance” (2004), available at www.oecd.org/dataoecd/32/18/31557724.pdf (accessed on 30 October 2011).
  • R Kraakman et al., The Anatomy of Corporate Law: A Comparative and Functional Approach (Oxford University Press, 2nd edn, 2009).
  • R La Porta, F Lopez-de-Silanes and A Shleifer A, “Corporate Ownership around the World” (1999) 54 The Journal of Finance 471.
  • See, eg PP Lele and MM Siems, “Shareholder Protection: A Leximetric Approach” (2007) 7 Journal of Corporate Law Studies 17; MM Siems, “Shareholder Protection around the World (Leximetric II)” (2008) 33 Delaware Journal of Corporate Law 111.
  • See, eg CJ Milhaupt and K Pistor, Law & Capitalism: What Corporate Crises Reveal about Legal Systems and Economic Development around the World (University of Chicago Press 2010).
  • UNCITRAL, 2004—Legislative Guide on Insolvency Law (2005), available at http://www.uncitral.org/uncitral/en/uncitral_texts/insolvency/2004Guide.html (accessed on 30 October 2011).
  • UNCITRAL, Model Law on Cross-Border Insolvency with Guide to Enactment (1997), available at http://www.uncitral.org/uncitral/en/uncitral_texts/insolvency/1997Model.html (accessed on 30 October 2011).
  • BG Carruthers and TC Halliday, “Negotiating Globalization: Global Scripts and Intermediation in the Construction of Asian Insolvency Regimes” (2006) 31 Law & Social Inquiry 521, 539 (reporting the UN-invited “expert organizations and representative delegates from all the world's regions and levels of economic development” to join the drafting process for the purpose of widely recognised ligitimacy).
  • TC Halliday and BG Carruthers, “Foiling the Financial Hegemons: Limits to the Globalisation of Corporate Insolvency Regimes in Indonesia, Korea and China” in C Antons and V Gessner (eds), Globalisation and Resistance: Law Reform in Asia since the Crisis (Hart Publishing, 2007), 259 (documenting that much effect was made by the IMF, the World Bank and the Asian Development Bank to persuade or pressure Asian countries to reform their bankruptcy laws in the aftermath of 1997 Asian Financial Crisis).
  • See generally the classic works: E Bardach, The Implementation Game: What Happens after a Bill Becomes a Law (MIT Press, 1977); A Watson, Legal Transplants—An Approach to Comparative Law (The University of Georgia Press, 2nd edn, 1993).
  • R Cotterrell, Law, Culture and Society: Legal Ideas in the Mirror of Social Theory (Ashgate, 2006), especially ch 2.
  • See generally M Edelman, The Symbolic Uses of Politics (University of Illinois Press, 2nd edn, 1985); M Edelman, Political Language: Words That Succeed and Policies That Fail (Academic Press, 1977). See also J O'Brien, “The Politics of Symbolism: Sarbanes-Oxley in Context” in P Ali and GN Gregoriou (eds), International Corporate Governance after Sarbanes-Oxley (John Wiley & Sons, 2006), 9–25.
  • CD Booth, “The 2006 PRC Enterprise Bankruptcy Law: The Wait is Finally Over” (2008) 20 Singapore Academy of Law Journal 275; TC Halliday and BG Carruthers, Bankrupt—Global Lawmaking and Systemic Financial Crisis (Stanford University Press, 2009), ch 7; J Shi, “Twelve Years to Sharpen One Sword: The 2006 Enterprise Bankruptcy Law and China's Transition to a Market Economy” (2007) 16 Journal of Bankruptcy 645; R Tomasic and M Wang, “The Long March Towards China's New Bankruptcy Law” in R Tomasic (ed), Insolvency Law in East Asia (Ashgate, 2006).
  • These are problems that have been identified in other larger legal systems. See generally JL Pressman and A Wildavsky, Implementation: How Great Expectations in Washington are Dashed in Oakland (University of California Press, 2nd edn, 1979).
  • See further R Tomasic and P Little, Insolvency Law and Practice in Asia (FT Law & Tax 1997), 21–57. See generally CD Booth and X Zhang, “Chinese Bankruptcy Law in an Emerging Market Economy: The Shenzhen Experience” (2001) 15 Columbia Journal of Asian Law 1.
  • See further the discussion of this phase by Halliday and Carruthers, supra n 13, 274–75.
  • See further A Chen, “Why Does Capitalism Fail to Push China Towards Democracy?” in CA McNally (ed), China's Emergent Political Economy: Capitalism in the Dragon's Lair (Routledge, 2008).
  • Halliday and Carruthers, supra n 13, 275.
  • S Li, “Bankruptcy Law in China: Lessons of the past Twelve Years” (2001) 4 Harvard Asia Quarterly 1. See also Siyuan Think Tank, ‘Statistical Chart of Enterprise Bankruptcy Cases in China from 1989 to 2010', available at http://www.caosy.com/view.asp?id=71 (accessed on 25 October 2011).
  • See generally R Tomasic, “The Conceptual Structure of China's New Corporate Bankruptcy Law” in R Parry et al (eds), China's New Enterprise Bankruptcy Law—Context, Interpretation and Application (Ashgate, 2010).
  • Halliday and Carruthers, supra n 13, 280.
  • OECD, “5th Forum of Asian Insolvency Reform (FAIR) (Beijing, China, 27–28 April 2006”, available at http://www.oecd.org/document/63/0,3746,en_2649_34813_38141887_1_1_1_1,00.html (accessed on 25 October 2011).
  • See, eg “Bankruptcy Laws Need Review”, China Daily, 17 March 2003, available at http://app1.chinadaily.com.cn/highlights/nbc/news/317law.htm (accessed on 25 October 2011); see also W Wang, “Adoption of Corporate Reorganization Regime in China—A Comparative Study” in W Wang and R Tomasic (eds), Reforms of PRC Securities and Insolvency Laws (Press of the China University of Political Science and Law, 1999) (in Chinese).
  • Halliday and Carruthers, supra n 13, 285.
  • See further S Block-Lieb and TC Halliday, ‘Harmonization and Modernization in UNCITRAL's Legislative Guide on Insolvency Law' (2007) 42 Texas International Law Journal 1.
  • Legislative Guide, supra n 6, 11.
  • Ibid, 11.
  • Ibid, 15.
  • Ibid, 5–16.
  • Ibid, 26.
  • Ibid, 209–10.
  • See further SJ Arsenault, ‘The Westernization of Chinese Bankruptcy: An Examination of China's New Corporate Bankruptcy Law through the Lens of the UNCITRAL Legislative Guide on Insolvency Law' (2008–09) 27 Penn State International Law Review 45. See also JMH Sprayregan and JP Friedland, ‘The Middle Kingdom's Chapter 11? China's New Bankruptcy Law Comes into Sight' (2005) 23 American Bankruptcy Institute Journal 34; JJ Rapisardi and B Zhao, “A Legal Analysis and Practical Application of the PRC Enterprise Bankruptcy Law” (2010) 11 Business Law International 49.
  • See, eg “Bankruptcy in China—Silent Busts”, The Economist, 9 October 2008, available at http://www.economist.com/node/12380989 (accessed on 25 October 2011). See generally H Zhang, “Corporate Rescue” in R Parry et al (eds), China's New Enterprise Bankruptcy Law—Context, Interpretation and Application (Ashgate, 2010).
  • R Tomasic and Z Zhang, “China's Enterprise Bankruptcy Law: Implementation of the Corporate Reorganization Provisions”, in J Garrick (ed), Law and Policy for China's Market Socialism (Routledge, 2012), ch 3.
  • See further NC Howson, “Judicial Independence and the Company Law in the Shanghai Courts” in R Peerenboom (ed), Judicial Independence in China: Lessons for Global Rule of Law Promotion (Cambridge University Press, 2010). See also generally X He, “The Recent Decline in Economic Caseloads in Chinese Courts: Exploration of a Surprising Puzzle” (2007) 190 The China Quarterly 352; QY Jiang, Court Delay and Law Enforcement in China—Civil Process and Economic Perspective (Deutcher Universitats-Verlag, 2006).
  • See further PRC Supreme People's Court, “Notice of Rejecting Company Law Petitions on the Temporary Basis”, Beijing, 21 September 2001, available at http://www.chinabaike.com/law/zhishi/yf/1424426.html (in Chinese; accessed 30 October 2011).
  • B Wang, “China's Hidden Bankruptcy”, Economic Observer, 5 June 2009, available at http://www.eeo.com.cn/ens/finance_investment/2009/06/05/139307.shtml (accessed on 8 August 2010).
  • The Preface of the EBL 2006.
  • In June 2000, the Draft of the Chinese Enterprise Bankruptcy and Reorganization Law was disseminated for public comments, available at http://www.bruptcy.com/article.php?todo=view&articleid=313 (in Chinese; accessed on 25 October 2011).
  • EBL 2006, Art 136.
  • EBL 2006, Art 70.
  • See further X He, “Enforcing Commercial Judgments in the Pearl River Delta of China” (2009) 57 American Jnl of Comparative Law 419; see also generally DC Clarke, “Power and Politics in the Chinese Court System: The Execution of Civil Judgment” (1996) 10 Columbia Journal of Asian Law 1; M Woo and Y Wang, “Civil Justice in China: An Empirical Study of Courts in Three Provinces” (2005) 53 American Journal of Comparative Law 911; S Liu, “Beyond Global Convergence: Conflicts of Legitimacy in a Chinese Lower Court” (2006) 31 Law and Social Inquiry 75. R Peerenboom, “Judicial Independence in China: Common Myths and Unfounded Assumptions” in R Peerenboom (ed), Judicial Independence in China—Lessons for Global Rule of Law Promotion (Cambridge University Press, 2010), has noted that in China: “Local protectionism may take many forms, some more serious than others. Local government officials may pressure a court to decide a case in favour of the local party, deny an outsider's application for enforcement, or just drag out the enforcement process, usually by requesting additional documents or by leaving a case pending. Local protectionism is therefore a matter of degree: it may impede or be an absolute bar to recovery … Although various factors contribute to local protectionism, the main causes are the way courts have been funded and judges appointed.”
  • See generally S Miller, “Institutional Impediments to the Enforcement of China's Bankruptcy Laws” (1996) 8 International Legal Perspectives 187, 189.
  • EBL 2006, Art 10.
  • EBL 2006, Arts 73 and 74.
  • EBL 2006, Art 87.
  • This information is drawn from Zhang's PhD data archive collected in regard to China's corporate reorganisation cases accepted by the court. There were 105 reorganisation cases reported in China up to November 2010.
  • Zhang's data shows that roughly 0.37% of dissolved companies in China resorted to in-court bankruptcy proceedings, and the rescue filing rate seems only to be 0.98% of all in-court bankruptcies. These figures are far lower than the general patterns in the US and the UK.
  • Q Wu, “Some Rotten Listed Companies Aim to be Reorganized”, Shanghai Stock Newspaper, 3 February 2010, 13.
  • M Pei, China's Trapped Transition: The Limits of Developmental Autocracy (Harvard University Press, 2006).
  • S Cao, “The Number of Bankruptcy Cases Decreases at the Record Level” (Siyuan Think Tank, 14 January 2010), available at http://www.caosy.com/view.asp?id=118 (in Chinese; accessed on 25 October 2011).
  • The figure is from B Wang, “China's Hidden Bankruptcy”, Economic Observer, 5 June 2009, available at http://www.eeo.com.cn/ens/finance_investment/2009/06/05/139307.shtml (accessed on 25 October 2011). Some insight into the level of company dissolutions at the regional level can be found in data disseminated by the Companies Office in Yuyao, an economically prosperous city in Zhejiang, which shows that the annual dissolution rate of enterprises was 7.5% in 2010; this may be echoed in other parts of China. See further The Company Office of Yuyao, “The Analysis of Enterprise Registration in 2010” (8 July 2011), available at http://www.yyaic.gov.cn/art/2011/7/8/art_18458_866708.html (accessed on 18 November 2011).
  • In its 2009 First Quarter Report, China Company Registration Ministry reported that there were 9,716,067 firms at the end of 2008. Meanwhile, the Annual Report 2008 by China Security Regulation Commission stated that there were 1625 firms listed on the Shanghai and Shenzhen Stock Exchanges at that time.
  • Chapter 3 of EBL 2006.
  • In Chinese bankruptcy practice, under the Enterprise Bankruptcy Law 1986, it was the liquidation committee organised by the court or the debtor that was in charge of bankruptcy issues; it is interesting to note that this name is still used in corporate reorganisations. The liquidation committee should be distinguished from the professional administrator, which is a law firm, an accounting firm or a combination of the two.
  • EBL 2006, Art 2.
  • H Bi, “The Role of Court in Corporate Reorganization” (2009) 1 Shandong Judicial Review 68 (in Chinese). The author, a senior judge, argues that the number of reorganisation candidates would be large in certain size in light of the possible huge costs of reorganisation proceedings. More importantly, Bi's view is a typical reflection of all practitioner attitudes.
  • An official report by the deputy chief judge of China Supreme Court revealed that the average repayment to creditors amounted to 6.63% in 1997. See further G Li, “The Speech in the National Court Bankruptcy Meeting” in The Whole Volume of Judicial Interpretation of China Supreme Court (China Legal Publishing House, 2004), 171 (in Chinese). A study in Shenzhen finds that the local liquidation return is also lower than 10% of the original debts. See Zhang and Booth, supra n 15, 10.
  • For the difference between traditional corporate rescue and business sale rescue see DG Baird and RK Rasmussen, “The End of Bankruptcy” (2002) 55 Stanford Law Review 752; G McCormack, “Apples and Oranges? Corporate Rescue and Functional Convergence in the US and UK” (2009) 18 International Insolvency Review 117.
  • The length of reorganisation is calculated from the date of the court's acceptance to the reorganisation plan's approval by the court. The ex post supervision period is excluded.
  • Zhang and Booth, supra n 15, 10.
  • Professor Lynn M LoPucki's research shows that big companies' business sale reorganisation takes 223 days on average in the US, while traditional reorganisations take 314 days to terminate the process. See LM LoPucki and JW Doherty, “Bankruptcy Fire Sales” (2007) 106 Michigan Law Review 25, 26.
  • In the data collected by Zhang in 2010, cram down was visible in 17 out of 58 reorganisations whose court approval information was publicly available.
  • T Lum, “Social Unrest in China”, report delivered to the US Congress, 8 May 2006, available at http://www.fas.org/sgp/crs/row/RL33416.pdf (accessed on 12 December 2011). The author argues that China's government tends to buy social stability in the event of social unrest.
  • See generally “Privatisation in China, Capitalism Confined”, The Economist, 3 September 2011, available at http://www.economist.com/node/21528262 (accessed on 20 October 2011).
  • As mentioned before, in reality, only big firms are allowed to file reorganisation petitions in China.
  • Wu, supra n 49, 13.
  • EBL 2006, Art 7.
  • For example, in the Guangxi Beisheng Medicine Manufacture Co Ltd reorganisation, the vice mayor, Mr Zhen Wen, was, in essence, self-appointed as the chairman of the liquidation committee. In other liquidation committees, Committee positions were filled with government officials. See Administrator of Guangxi Beisheng Pharmaceutical Co Ltd, “Beisheng Has Been Petitioned to Reorganization” (28 November 2008). In the Yangzhou Yangdong reorganisation, it was the managing deputy mayor of Yangzhou, Mr Yaling Zhong, who chaired the specially organised working team directing the reorganisation: see D Yu and P He, “The Former Chairman of Yuchai Manufacture is Involved in Yangdong Bankruptcy Troubles”, Economic Observer News, 15 November 2008, available at http://auto.jrj.com.cn/2008/11/1513222773049.shtml (in Chinese; accessed on 25 October 2011). In the Henan Xing'an Co Ltd reorganisation, the local vice mayor, Mr Xueda Qiao, presided over the liquidation committee: see N Yan, “The Shell of Xingan is Borrowed by Zhongyuan”, Stock Daily, 3 September 2009, available at http://stock.jrj.com.cn/2009/09/0301545964724.shtml (in Chinese; accessed on 25 October 2011). Mr Zhongwu Yang, the managing deputy mayor of Tongchuan, Shaanxi Province, chaired the liquidation committee of Qingling Cement Ltd: see Qingling Cement Ltd, “The Proclamation of Qingling Reorganization” (26 August 2009) (in Chinese).
  • It is argued that power in China is never far away from private business. See The Economist, supra n 65.
  • Z Lin, “Hualun has Filed for Reorganization and the Control Shareholder of Sichuan Jingding Might be Changed”, China Stock News, 2 June 2009, available at http://business.sohu.com/20090602/n264277530.shtml (in Chinese; accessed on 26 October 2011).
  • X Jiang, “The Role of Administrators in Reorganization”, presented at The Second Chinese Bankruptcy Conference, Beijing, 2009) (in Chinese). For example, in the reorganisation of Haiji Lvjian Ltd, Wuhai, Inner Mongolian, local government had a special working team in support of the court and the court-appointed administrator, a law firm: see X Li, “Local Government Guides the Reorganization of Haiji Lvjian Ltd and Mingtian Group Shifts its Inner Mongolia Strategy”, 21st Century Economy News, 27 September 2008, available at http://stock.jrj.com.cn/2008/09/2700552178789.shtml (in Chinese; accessed on 26 October 2011).
  • Z Li and H Yan, “The Concealed Truth of Zhoushan Shuaimai Bankruptcy”, China United Commercial News, 9 November 2009, available at http://www.cubn.com.cn/News3/news_detail.asp?id=5794 (in Chinese; accessed on 26 October 2011).
  • MY Zhang and BW Stening, China 2.0: The Transformation of an Emerging Superpower and the New Opportunities (John Wiley & Sons (Asia) Pte Ltd, 2010), 143.
  • In August 2009, the assets of a restaurant in Cixi, Zhejiang Province, were appropriated by creditors in force after they discovered that the CEO of the debtor had disappeared due to the excessive indebtedness. See J Li, “The Assets of a Restaurant in Cixi Were Grabbed by Creditors as the Top Manager Disappeared”, City Latest News Daily, 28 August 2009, 14 (in Chinese). In the Zhejiang Zonghen Group reorganisation, the end products in the storehouse of the Zonghen Group were seized by creditors who were worried by the debtor's capacity to repay debts. See X Cheng and G Cheng, “Who Can Explain the Collapse of Zonghen Group?”, Shanghai Stock News, 9 December 2008, available at http://company.cnstock.com/industry/2008–12/09/content_3907355_2.htm (in Chinese; accessed on 25 October 2011).
  • In the Beijing Wugu Daochang Food Co Ltd reorganisation, some security guards who were supervising the assembly line that was the key asset of the debtor, were instructed by a creditor to prevent the debtor from secretly transferring the asset; see S Ren and X Wang, “Wugu Daochang Collapses of Bankruptcy”, Beijing Commercial News, 10 January 2008, available at http://shipin.people.com.cn/GB/86120/6755711.html (in Chinese; accessed on 26 October 2011).
  • Art 5 of China's Supreme Court Direction upon Bankruptcy 2009–36, available at http://rmfyb.chinacourt.org/public/detail.php?id=129395 (in Chinese; accessed on 26 October 2011). The Supreme People's Court of China directed that the lower courts should rely on local governments and Party committees in prevention of illegal seizures of the debtor assets.
  • B Wang, “Changshu Kehong Entered in the Financial Trouble due to the Debt Crisis of China Steel”, Modern News, 14 October 2008, available at http://finance.sina.com.cn/roll/20081014/03172460475.shtml (in Chinese; accessed on 26 October 2011.
  • M Chen and W Zhou, “A Kiss of Death to a Small Entrepreneur in Dongguan”, Guangzhou Daily, 16 October 2008, available at http://news.sina.com.cn/o/2008–10–16/040714580744s.shtml (in Chinese; accessed on 26 October 2011).
  • Yu and He, supra n 69.
  • Ibid. In terms of the local government paying employees, the Supreme People's Court urges that such debt should be granted priority as employees' claims in encouragement of government positive intervention. In most cases, local governments disburse public budgets to pay employees so as to ensure regional social stability for unpaid workers by preventing them from protesting in front of government buildings. This is in fact risky, as it might result in arrest, but usually the approach is very effective. The local district government also paid the outstanding wages to employees on behalf of the debtor in the Xiamen Xingxing Artefact Co Ltd reorganisation. See C Zhang, “The Court Helps Workers to Recoup Unpaid Wages duo to the Disappearance of the Employer with Half Billion Indebtedness”, Fujian News Net, 5 January 2009, available at http://news.qq.com/a/20090108/000381.htm (in Chinese; accessed on 25 October 2011).
  • For example, in the Yangzhou Yangdong reorganisation, the local municipal government organised an interim panel soliciting new investors; in other cases similar panels were formed by the government or by the participation of senior government officials. See The Municipal Government of Jiangyan, Jiangsu Province, “The Government Decision of Forming an Investor-Soliciting Panel for Yangdong Co Ltd” (1 July 2009), available at http://xxgk.jys.gov.cn/web/index.php?cat=97&id=6353 (in Chinese; accessed on 27 October 2011). In some cases, local governments would even enter negotiations with potential strategic investors to aid a feasible and effective reorganisation; for example, in the Chongqing Zava reorganisation, local governments played a critical role in recruiting bidders. See J Lu, “Exploring New Approaches of Corporate Reorganization—Report on Reorganizations of Zava Tech and Xinmei Lianhe”, available at http://hai-chuan.com/showdetails.php?sortid=8&id=158 (in Chinese; accessed on 27 October 2011).
  • In China, if a company clashes with some key officials, its collapse might be imminent as it is very easy for the officials, with their control over law enforcement, to destroy its business. For example, in the Hubei Tianfa Oil Ltd, Hunan Taizinai Milk Ltd and Hubei Eaststar Airline Ltd reorganisations, all the former CEOs were arrested by police on the ground that they were not willing to cooperate with local governments in consenting to government-proposed reorganisation plans. See A Cheng and S Yuan, “The Rocky Journey of the Oil Giant, Mr Jia'nong Gong”, Oriental Outlook, 12 April 2008, available at http://www.fox2008.cn/ebook/rmwz/rmwz2008/rmwz20080310.html (in Chinese; accessed on 27 October 2011); B Ye, “It Is Fraught of Uncertainty in the Reorganization of Taizinai Milk Ltd as It Is Obstructed by Mr Chuntu Li”, 21st Century Economy News, 14 September 2010, available at http://finance.sina.com.cn/chanjing/gsnews/20100915/04268658217.shtml (in Chinese; accessed on 27 October 2011); L Liu and M Su, “The Defeat of Crazy Mr Lang”, No 1 Finance Daily, 24 March 2009, available at http://mnc.people.com.cn/GB/9011630.html (in Chinese; accessed on 27 October 2011). Furthermore, the collapse of Hebei Dixian Textile Co Ltd might have been directly caused by the fact that its CEO was arrested by the local customs authority. The underlying reason for this may be that that company sued the latter in the court on the ground that the local customs authority's law enforcement against the claimant was allegedly illegal. Unfortunately, however, prior to the final judgment of that administrative case, the CEO of the claimant was arrested by the defendant. See X Wang, “The Conquering and Fiasco of the Textile Emperor”, Commercial World, 19 September 2008, available at http://finance.jrj.com.cn/people/2008/09/1616202062677.shtml (in Chinese; accessed on 27 October 2011).
  • H Liu, “Ten Billion Investment of Mingtian Group Was Blocked and the Assets of Haiji Lvjian Co Ltd Would be Apportioned by 112 Creditors”, 21st Century Economy News, 14 April 2009, available at http://finance.ifeng.com/news/industry/20090414/537494.shtml (in Chinese; accessed on 27 October 2011). In the reorganisation of the Nanwang Group, Hangzhou, Zhejiang Province, the local government gave similar land benefits in support of the reorganisation. See L Ma, “Jinwoniu Has Entirely Collapsed and Some Doubts Are Now Cast to Nanwang” Legal Entity, 23 December 2009, available at http://www.chinavalue.net/Media/Article.aspx?ArticleId=51844 (in Chinese; accessed on 27 October 2011).
  • Z Zhen, “Banks Are Abused by The Local Government in Jiufa Ltd Reorganization”, Huaxia News, 8 November 2008), available at http://stock.jrj.com.cn/2008/11/0801272638876.shtml (in Chinese; accessed on 27 October 2011.
  • Even judges have been critical of the government's interference in bankruptcy matters. See H Yang and J Huang, “Optimisation of Bankruptcy Administrator Regime”, Chinese People's Court Website, 3 August 2005, available at http://www.chinacourt.org/public/detail.php?id=171868 (in Chinese; accessed on 21 November 2010). One typical example is the reorganisation of Shenxing Taifeng Ltd, Shenzhen, Guangdong Province, in which a guiding team was formed by the Shenzhen Municipal Government to dictate the reorganisation although the King & Wood Law Firm was officially designated as the administrator. See Shenxing Taifend Co Ltd, “The Reorganization Plan of Shexing Taifeng” (8 May 2010).
  • Zhejiang Haina Science and Technology Co Ltd, Annual Report 2008 (30 April 2009).
  • D Yu and J Li, “The Success of the First Listed Company Reorganization and the Uncertainty of its Long-Term Survival”, Legal Daily, 25 November 2007, available at http://www.lawbase.com.cn/law_info/[email protected] (in Chinese; accessed on 27 October 2011).
  • “Legal and Practical Problems of Bankruptcy Administrators”, China Law Education Website, 5 November 2009 http://www.chinalawedu.com/new/21604_23361_/2009_11_5_ji35062753211511900227360.shtml (in Chinese; accessed on 27 October 2011).
  • Xin He, “Ideology or Reality? Limited Judicial Independence in Contemporary China” (2004) 6 Australian Journal of Asian Law 213.
  • Z Shen, “The First Corporate Reorganization in Jiangsu Province”, Xinhua Daily, 6 February 2009, available at http://www.js.xinhuanet.com/xin_wen_zhong_xin/2009–02/06/content_15618231.htm (in Chinese; accessed on 27 October 2011). In this case, 15 local bank branches were summoned by the local government, which prevented the banks from dismembering the debtor. In the Hualun Paper Group reorganisation, Hangzhou, Zhejiang Province, an interim banking coordinating committee was established by the local government to prevent individual banks harassing the debtor in support of rescue. See Y Ma and Z Xia, “Hualun in Financial Trouble is Investigated by the Local Government”, Daily Economy News, 25 April 2009, available at http://www.nbd.com.cn/newshtml/20090425/20090425020032201.html (in Chinese; accessed on 27 October 2011).
  • Lu, supra n 83.
  • Professor Li once also argued that local governments tend to organise companies at the cost of the central government by means of pressuring banks owned by the latter to accept a sharp haircut. See S Li, “The Urgency of the Supreme Court's Judicial Interpretation in Regulating Listed Company Reorganisation”, Legal Daily, 13 October 2008, available at http://news.sohu.com/20081012/n259977029.shtml (in Chinese; accessed 7 November 2011).
  • T Li, “China National Aviation Fuel Group Persists in Reorganizing Eaststar Airline and Three of Its Affiliates Have Submitted Application to The Court”, China Commercial Daily, 10 July 2009, available at http://finance.people.com.cn/GB/9630651.html (in Chinese; accessed on 8 November 2011).
  • B Liu, “Eaststar Airline Is Being Wound Up and It Is the Fate of Private Airlines?”, Legal Daily Weekend, 10 April 2009, available at http://www.china.com.cn/travel/txt/2009–04/10/content_17580826.htm (in Chinese; accessed on 8 November 2011).
  • Ma, supra n 85.
  • L Sun et al., “Various Parties Try to Rescue Yijiaxiang, Which Is a Prominent Food Brand in China”, Qianjiang Evening News, 28 October 2008, available at http://biz.zjol.com.cn/05biz/system/2008/10/28/010072278.shtml (in Chinese; accessed on 8 November 2011); W Lu, “The Business of Yijiaxiang is Still in Operation”, News of City and Countryside, 27 October 2008, available at http://www.yuhang.gov.cn/class/class_43/articles/128901.html (in Chinese; accessed on 8 November 2011).
  • J Wang and B Jiang, “The Owner Couple of Yijianxiang Disappeared and The Company Is Distressed by Over Indebtedness”, Youth Times, 23 October 2008, available at http://zjnews.zjol.com.cn/05zjnews/system/2008/10/23/010059521.shtml (in Chinese; accessed on 8 November 2011).
  • Y Wang, “Government Shows Hands in Intervening Guangming's Reorganization”, 21th Century Economy Report, 7 January 2010, available at http://www.chinainsol.org/show.aspx?id=650&cid=13 (in Chinese; accessed on 8 November 2011). In this case, one of liquidation committee members, Le Wang, was a journalist for Heilongjiang Economy Newspaper; the local government seems to have exploited the journalist's expertise in manipulating the public media with the aim of justifying government intervention.
  • In the Zhejiang Zonheng Group reorganisation, it was reported that one (or more) of China's national leaders, whose name(s) was not given as it was regarded as an official secret in China, took an interest in this case and advised local authorities to save the firm. See Z Tang, “Our Firm Notarized the Voting of Zonheng Creditor Meetings” (Guoxing Notary Firm, 30 December 2009), available at http://www.sxsgzc.com/news_page.asp?id=1147 (accessed on 18 August 2010).
  • Ma, supra n 85.
  • Li, supra n 94. Professor Li pleaded for the government to withdraw from company reorganisations for the purpose of fairness.
  • Yang and Huang, supra n 87.
  • Under Art 4 of China State Compensation Law 1994, the government is liable for economic damages committed by its officials. However, in bankruptcy matters, when faced with government involvement, the court should require all government departments to bear the burden of compensation jointly in cases where loss is due to the misconduct or even negligence of officials.
  • In the Haiji Lvjian (Inner Mongolia) Co Ltd reorganisation, creditors accessed the draft of the reorganisation plan two hours before voting. Although they opposed the voting, their voices were ignored by the administrator. At the time, the meeting hall contained armed policemen seeking to deter any dissatisfaction by creditors. See A Zhang, “The Shares of Haiji Lvjian Are Sold at ¥1 and All Investment Worth Billions of Mingtian Co Ltd Wasted”, Daily Economy News, 21 April 2009, available at http://finance.sina.com.cn/stock/s/20090421/04076127208.shtml (in Chinese; accessed on 8 November 2011).
  • For example, in the reorganisation of Zhejiang Haina Co Ltd, the reorganisation plan was released by the administrator rather than by the debtor, although the former management was running the business with the leave of the court. Strictly speaking, this is not in conformity with Art 80 of EBL2006. See The Administrator of Zhejiang Haina Co Ltd, “The Reorganization Plan of Zhejiang Haina Ltd” (24 October 2007). In other cases, the same principle is adopted. This seems to be contrary to Art 80 of the EBL 2006.
  • EBL 2006, Art 22.
  • In terms of judicial independence in China, see NC Howson, “Judicial Independence and the Company Law in the Shanghai Courts” in R Peerenboom (ed), Judicial Independence in China Lessons for Global Rule of Law Promotion (Cambridge University Press, 2010).
  • A leading Chinese corporate lawyer who also practices in insolvency, Mr Youxi Chen, argued that the proper status of lawyers as administrators would be the assistant of judges. See Y Wang, “Mr Chen Gave a Speech in the Seminar Concerning the Role of Administrators in Shaoxing” (19 September 2011), available at http://www.glawyer.net/newLSsite/BlogShow.aspx?itemTypeID=53176ddc-94f7-4943–884d-9f0100cbe847&itemID=12563dc3-7d1a-4c9ba18e-9f62017243e3&user=9898 (in Chinese; accessed on 2 December 2011).
  • J Liu, “Xiamen Xingxing Artefact Ltd Recovers Due to the Brilliant Service of Xingshi Law Firm in Formulating its Reorganization Plan”, available at http://www.fidelity-cn.com/news-view.php?nid=75 (in Chinese; accessed on 18 September 2010).
  • EBL 2006, Art 22.
  • “Legal and Practical Problems of Bankruptcy Administrators”, China Law Education Website, 5 November 2009, available at http://www.chinalawedu.com/new/21604_23361_/2009_11_5_ji35062753211511900227360.shtml (in Chinese; accessed on 21 November 2010).
  • Suzhou Intermediate Court, Jiangsu Province, “Optimisation of Corporate Reorganization by Analysing Suzhou Yaxing Case”, People's Court News, 30 May 2009, available at http://www.szlawyerclub.com/news_detail.php?id=257&nowmenuid=48&cpath=0068:&catid=68 (in Chinese; accessed on 8 November 2011).
  • Ibid.
  • Ibid.
  • S Guo, “The Reorganization of Taizinai Group is Questioned as The Eligibility of the Petitioner is Doubted”, Weekend of Legal Daily, 6 August 2010, available at http://finance.sina.com.cn/chanjing/sdbd/20100805/15098429561.shtml (in Chinese; accessed on 8 November 2010).
  • Gerard McCormack, “Control and Corporate Rescue—an Anglo-American Evaluation” (2007) 56 International & Comparative Law Quarterly 530.
  • J Ning, “Rethinking the Bankruptcy Administrator Regime”? 10 February 2011), available at http://www.hicourt.gov.cn/theory/artilce_list.asp?id=5657&l_class=4 (in Chinese; accessed on 16 April 2011); the author is a senior judge in Guangzhou Intermediate Court.
  • Y Yuan, “The Local Government Is Accused of Supporting the Debtor Evading Debts in Zhejiang Shuaima Insolvency Case”, China Business Times, 26 October 2009, available at http://news.eastday.com/m/20091026/u1a4759794.html (in Chinese; accessed on 27 October 2011. In this case, some creditors applied to reorganise the company, but the application was refused by the government working group that had been established to assist with the liquidation. Strictly speaking, this was not a typical reorganisation case, but in terms of the function of the administrator, it may be typical. The honesty of the administrator, a local lawyer, made clear that administrators are not independent. It is economically rational for them to work at the behest of the court.
  • Lu, supra n 83; P Wang, “The Confusion of Taizinai Insolvency”, Global Entrepreneur, 15 April 2010, available at http://121.101.219.32/index.php?m=content&c=index&a=show&catid=82&id=15413 (in Chinese; accessed on 27 October 2011); Q Gong, “Changshu Authorities Support Restructuring Ferro China Co Ltd”, Finance, 16 October 2008, available at http://www.caijing.com.cn/2008–10–16/110020969.html (in Chinese; accessed on 27 October 2011); C Wang and K Chen, “Zongheng Group is Rescued by Jinggong Conglomerate”, 21 Century Economy Report, 2 December 2009, available at http://finance.sina.com.cn/stock/s/20091202/00287042138.shtml (in Chinese; accessed on 27 October 2011).
  • See P Wang, “The Confusion of Taizinai Insolvency”, Global Entrepreneur, 15 April 2010, available at http://121.101.219.32/index.php?m=content&c=index&a=show&catid=82&id=15413 (in Chinese; accessed on 27 October 2011).
  • Zhang, supra n 106.
  • Y Li, “Seven Banks Are Involved in the Financial Trouble of Xiaoshan International Hotel, and the Legality and Validity of Its Previous Restructuring is Questioned by Creditors”, 21 Century Economy Report, 15 July 2010, available at http://news.hexun.com/2010–07–15/124251973.html (in Chinese; accessed on 27 October 2011).
  • F Yi, “The Manipulation of Beiya Reorganization”, Weekly News of Stock Market, 8 October 2008, available at http://www.chinavalue.net/media/Article.aspx?ArticleId=33636 (in Chinese; accessed on 27 October 2011); T Li, “The Demise of the Control Shareholder and the Survival of New Ones in the Reorganization of Baoshuo Ltd”, Review of Commercial World, 3 April 2008, available at http://finance.sina.com.cn/stock/companyresearch/20080403/17304707726.shtml (in Chinese; accessed on 27 October 2011).
  • China's Criminal Law 1999, Arts 159, 272 and 162.
  • In the reorganisations of Jiangsu Yangdong Engine Co Ltd, Hubei Tianfa Petrol Co Ltd, Hunan Taizinai Milk Co Ltd, Hubei Eaststar Airline Co Ltd and Heilongjiang Guangming Furniture Co Ltd, the CEOs were arrested and convicted largely by virtue of their reluctance to listen to the local governments. In the cases of Zhejiang Haina Science and Technology Co Ltd, Heilongjiang Beiya Co Ltd, Henan Xing'an Co Ltd, Chongqing Zara Co Ltd, Hebei Dixian Textile Co Ltd, Liaoning Jinghua Chemistry Co Ltd, Ningxia Qingtai Trust Co Ltd, Zhejiang Hualun Paper Co Ltd, Zhejiang Jingxing Trust Co Ltd, Zhejiang Huachen Junling Real Estate Co Ltd and Zhejiang Zonghen Group Co Ltd, the CEOs were arrested prior to or after the reorganisation, though none of them were investigated or reported by the administrators to the police or other authorities.
  • H Zhou, “China's New Bankruptcy Law and Its Administrator-centred Control” (2006) 6 Journal of the East China University of Politics Science and Law 121, 123 (in Chinese).
  • EBL 2006, Art 73.
  • Wang, supra n 110.
  • McCormack, supra n 118, 530.
  • Ibid.
  • EBL 2006, Art 73.
  • “Remuneration Code of Insolvency Administrator”, promulgated by China's Supreme Court on 12 April 2007, available at http://www.court.gov.cn/qwfb/sfjs/201006/t20100628_6405.htm (in Chinese; accessed on 27 October 2011.
  • Ibid.
  • In the US, the creditors committee is allowed to hire lawyers to undertake their professional work at the cost of the estate. See generally KN Klee and KJ Shaffer, “Creditors' Committees under Chapter 11 of The Bankruptcy Code” (1992–93) 44 South Carolina Law Review 995, 1001.
  • R Tomasic and M Wang, “Reforming China's Corporate Bankruptcy Laws” (2005) 18 Australian Journal of Corporate Law 220, 222.
  • For example, on 4 February 2010, when Shanghai Hongshen Co Ltd lodged its reorganisation petition before the First Intermediate Court, Shanghai, the petition was ignored by the Court at least until 19 August 2010. See J Yu, “Hongshen Reorganization is Planned by Shundong Investment That is Alleged a Specially Established Investment Tool”, Shanghai Stock News, 10 February 2010, available at http://www.chinainsol.org/show.aspx?id=811&cid=13 (in Chinese; accessed on 27 October 2011); J Peng, “The Acceptance of Hongshen Reorganization Petition is Still Pending”, The First Finance Daily, 19 August 2010, available at http://finance.jrj.com.cn/2010/08/1901357976672.shtml (in Chinese; accessed on 27 October 2011).
  • See generally Y Huang, Capitalism with Chinese Characteristics—Entrepreneurship and the State (Cambridge University Press, 2008).

Reprints and Corporate Permissions

Please note: Selecting permissions does not provide access to the full text of the article, please see our help page How do I view content?

To request a reprint or corporate permissions for this article, please click on the relevant link below:

Order Reprints Request Corporate Permissions

Academic Permissions

Please note: Selecting permissions does not provide access to the full text of the article, please see our help page How do I view content?

Obtain permissions instantly via Rightslink by clicking on the button below:

Request Academic Permissions

If you are unable to obtain permissions via Rightslink, please complete and submit this Permissions form. For more information, please visit our Permissions help page.

Related research

People also read lists articles that other readers of this article have read.

Recommended articles lists articles that we recommend and is powered by our AI driven recommendation engine.

Cited by lists all citing articles based on Crossref citations.
Articles with the Crossref icon will open in a new tab.