Vol 8 (2011) - Issue 6

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Protection of Labour Claims in Insolvency Proceedings: A Comparative Analysis of the UK and China

Introduction

Workers who build a fixed connection with a firm and obtain wages, pensions and the like through their employment contracts are the real profit producers.1 If the firm slides into insolvency and fails to pay remuneration and social insurance of employees at the due time, the workers become creditors in respect of their unpaid wages, and moreover they are unsecured creditors towards the bankrupt firm with preferential treatment according to British and Chinese insolvency proceedings. It should be noted that workers often enjoy advantages over consumers and trade suppliers. First of all, it is common in the distribution of bankrupt property that labour claims are conferred statutory priority over unsecured creditors, even though the degree and scope of the preferential status may be limited. 2 In addition, the workers are likely to have better information about the situation of the firm’s business. Even though they do not have access to the financial and accounting records in the ordinary business, they can sense the profitability or downturn of the firm. This article focuses on the role of labour in corporate insolvency and rescue proceedings. It also fully examines the protection of employee claims in the UK and Chinese corporate insolvency laws, and draws comparisons between the two.

1. Labour’s roles and positions in corporate insolvency

In some countries, workers are fully recognised as participants in a company. Their representatives are involved in corporate governance and decision-making. They have the right to be informed and consulted. If the company verges on insolvency, they are entitled to engage in the negotiation for a rescue scheme and to exert influence on the approval of the scheme. It should be noted that France follows this model and the workers are able to raise the alarm under the alert system. In addition, in China, the workers’ representatives can participate in corporate governance and have a voice and power to act. At least one representative of the work force which is elected through the workers’ congress is appointed to the board of directors in a company which is completely owned by the state.3 Moreover, the representatives of the workforce can also be elected to be members of the supervisory board. The proportion of workers’ representatives in the supervisory board should be not less than one third. The workers’ representatives, who become the members of the supervisory board through election, are vested with the power to monitor the financial reports and the state of the company, and supervise the behaviour of directors in the ordinary course of business.