Vol 10 (2013) - Issue 4

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To Recognise or Not to Recognise? Comparative Study of Lehman Brothers Cases in Mainland China and Taiwan

I. Article 5 of the 2007 EBL and Hua An Funds case
The bankruptcy law of Mainland China (Enterprise Bankruptcy Law, EBL) was completely modified in 2006 and the revised EBL came into force in 2007 (the 2007 EBL). From then on, Mainland China’s national bankruptcy law for the first time embraces one single article (Article 5) with two provisions regarding matters of cross-border insolvency. In accordance with Article 5, to recognise and enforce an insolvency proceeding opened outside Mainland China, the following conditions shall be met:
(1) relevant international treaties or reciprocal relations between the country concerned and Mainland China;
(2) the insolvency proceeding shall not violate the basic principles of the laws of the People’s Republic of China;
(3) the insolvency proceeding shall not jeopardise the sovereignty and security of the State or public interests;
(4) the insolvency proceeding shall not undermine the legitimate rights and interests of the creditors within Mainland China.

Some of these conditions are not crystal clear. For instance, what kind of China’s 'basic principles of the laws' shall be taken into consideration when dealing with the cross-border insolvency proceedings? The condition of 'public interests' shares the same problem. What kind of public interests shall be protected in the context of cross-border insolvency proceedings? After five years of implementation, these questions have not been answered. Until now there is no judicial interpretation provided for this article. Therefore, application of the provisions is mainly subject to discretion of the judges in an individual case without any guidance from the Supreme People’s Court. It would be a laborious task for the judge to check those conditions one by one without definite guidance.