Vol 6 (2009) - Issue 2

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A Notable Feature of China's New Bankruptcy Law: 'Administrator'

Introduction

China promulgated an entirely new Bankruptcy Law twelve years after the legislative plan was first put on the agenda of National People’s Congress in 1994.

The new law came into force in June 2007, and has brought a dramatic change to the bankruptcy legal framework. With the economic transition, China was in need of an effective bankruptcy law which could facilitate reforms to state-owned enterprises (SOEs) and restructuring of the banking community, and encourage the flow of foreign capital into China. The enactment of the Bankruptcy Law in 2006 may also help convince the EU to accept that China has established a market economy. The EU has hitherto refused to recognise China’s market economy status. The new Bankruptcy Law provides a way out for all types of enterprises which are not economically viable and removes many of the barriers to liquidation of SOEs. There are two remarkable achievements of the new law. One is the Chinese modified reorganisation procedure which was established with reference to the US Chapter 11 and provides a legislative mechanism and legal grounds for the restructuring of viable businesses. The other is the establishment of the office of administrator which this article will analyse. We will begin with a brief introduction of the predecessor of the administrator, the ‘liquidation group’ under the Bankruptcy Law 1986 and then look at all the administrator-related issues under the new law.

The 'liquidation group' in the 1986 bankruptcy legal framework

After experiencing a decade-long political campaign under the Cultural Revolution from 1966 to 1976, the Chinese government acknowledged the potential collapse of the national economy and, at the end of 1978, launched an economic reform and opening-up policy. Since then, China has been on track for the economic transition from a highly centralised planned economy to a socialist market economy. The reforms led China to put aside the ideological debate and to replicate legal institutions, such as private property, corporate personality and bankruptcy, which originated in the West. In February 1984, China opened up the discussion of bankruptcy-related issues for the first time, and an article regarding the bankruptcy of state-owned enterprises (SOEs) was published in the Chinese Communist Party official journal. At the beginning of 1985, the central government authorised three significant industrial cities, Shenyang, Wuhan and Chongqing, to produce bankruptcy regulations for local SOEs. The first bankruptcy law since China was founded in 1949 was enacted on the basis of experience from the above three cities and efforts of both government officials and scholars. The Bankruptcy Law 1986 only applied to SOEs and did not come into effect until 1 November 1988, when the law on SOEs became effective.