Shanghai, China, Feb. 23, 2016 /PRNewswire/ -- In one of the most historic processes of China's history, the draft of the “Implementing General Law on Bankruptcy and Insolvency Law” was reported, and soon the law will be enacted.
Under this law, large enterprises and private firms will be excluded from the bankruptcy legislation, while in the case of small and medium sized enterprises (SMEs), the debt-to-equity ratio will not exceed certain limits. Further, in the case of firms that are grossly indebted, the court can assume direct responsibility in their restructuring process by appointing managers to assist in the restructuring.
However, a number of important details still need to be clarified, including insolvency management and exemption from bankruptcy in case of banks, and indirect creditors of SMEs. The following is an overview of these important amendments.
In terms of bankruptcy management, the law clearly states that when a firm is insolvent and needs protection, the Bankruptcy Department will take on the responsibility of the firm’s debtor management to provide for the debtor’s legal rights and interests and is entitled to appoint an insolvency manager in order to handle the firm’s insolvency.
In the case of SMEs, the creditor’s interest doesn’t automatically protect the firm from being liquidated in an insolvency process.
The Bankruptcy Department can also temporarily suspend insolvency processing of any creditors that are eligible to participate in the insolvency management, even if no sufficient reason exists to terminate the process.
This new regulation will help strengthen the organization and supervision of all types of insolvency processes. Moreover, it will help SMEs to recover their assets from their creditors, thus easing the burden for the ordinary Chinese company and helping meet the National People’s Congress's (NPC) requirement that all insolvency proceedings should be carried out “sover our major interests.”