Vol 14 (2017) - Issue 1

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Adoption and Confirmation of Draft Plan of Reorganisation for Enterprises in China: Observing the US Lawmaking Experience

I. Introduction
Promulgated on 27 October 2006, the Enterprise Bankruptcy Law of the People’s Republic of China (hereinafter the 'EBL') brought in China’s own reorganisation system following a process of learning from other countries’ experiences, particularly the legislative experience of the United States. This newly born bankruptcy law (compared with the Enterprise Bankruptcy Law (For Trial Implementation) of the PRC, which was promulgated in 1986) reflects the tendency for social value development of modern bankruptcy laws, and is critical in improving the market economy legal system of China.
The reorganisation system is universally recognised by nations of the world as the most powerful mechanism for preventing enterprises from becoming bankrupt. It firmly integrates goals both of debt discharge and business rescue: on the one hand, through adjusting debt-credit relationships, it resolves debt crises, eliminates causes of bankruptcy, and prevents enterprises from becoming bankrupt; on the other hand, it realises that the rights of interested parties (particularly those of the creditors) depend upon the revival of the debtor’s business. It preserves the operational value of the enterprise/business, and eventually enables creditors to earn a higher repayment than they would get under a liquidation process. The reorganisation procedure can not only protect the legitimate interests of multiple interested parties such as creditors, debtor and equity investors to a larger extent, but also can prevent related enterprises from the domino effect of bankruptcy among suppliers, distributors, and interrelated guarantee entities, as well as avoid employees becoming unemployed, with the consequential social instability. It comprehensively utilises various legal leverages to resolve a series of social problems caused by corporate bankruptcy, therefore possesses a vital relevance for China in its building of a harmonised market economy. In addition, the reorganisation system also manifests the state’s modest participation in highprofile economic activities through judicial procedure, which will be good for reducing social losses and protecting overall social interests. All these are primary reasons for the reorganisation system being adopted by China and quickly becoming popular.
Unlike the United States, China is a developing country in transition from a centralised planned economy to a market economy. Heavily influenced by its historical, economic and cultural traditions, numerous misunderstandings regarding the bankruptcy system still exist in Chinese society. Bankruptcy rulemaking in this country has areas of inadequacy, and its implementation has also met with much social resistance. Under a market economy, bankruptcy of an enterprise is not itself a problem, rather, the true threat is the lack of appropriate legal and social mechanisms in problem resolution. After constitution of the reorganisation system by the EBL, hundreds of entities have had a second life through the reorganisation procedure. Between its initial implementation on 1 June 2007 and 31 December 2013, a total of 43 listed public companies entered into reorganisation. By 31 December 2015, 47 publicly listed companies had entered into reorganisation. In general, however, the EBL and its reorganisation system did not receive any attention or sufficient adoption from enterprise industries and the relevant government agencies.
This article will focus on the adoption and confirmation of the draft plan for business reorganisation in China, refer to the American legislative experience for a comparative study, and provide lawmaking suggestions for the legislature in China.