Vol 10 (2013) - Issue 2

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Application and Acceptance Procedures in New Enterprise Bankruptcy Law of China: Perspectives and Problems

1. Introduction
The Chinese Enterprise Bankruptcy Law 2006 (hereinafter 'EBL 2006') implemented in June 2007 is considered to be more refined and fair in comparison to the old bankruptcy law which was promulgated in 1986.1 It was expected that more and more bankruptcyrelated cases including liquidation and reorganisation would be put into bankruptcy proceedings under the new law. However, the number of bankruptcy cases experienced a decline from 2007 to 2010. The Supreme People’s Court ('SPC') issued a judicial interpretation in respect of the Enterprise Bankruptcy Law 2006 in September 2011 ('2011 Judicial Interpretation') to clarify the potential problems within the application and acceptance procedures in response to this unexpected situation.

2. Background issues
The new EBL implemented in 2007 was supposed to improve the opening procedure and broaden public access to the bankruptcy proceedings. In contrast to the EBL 1986,2 the new law extends the scope of application, covering all enterprises with separate corporate personality, and gives no special entitlements to stateowned enterprises and utility companies. Whereas the number of bankruptcy cases accepted was 3819 in 2007, it was 3139 in 2008, and 3128 in 2009. In 2010, the number declined to 2366. Meanwhile, the number of enterprises which had their business licences revoked by the commerce department had increased to hundreds of thousands. It seemed that the EBL 2006 was not performing its function. The underlying reasons for the difficulty in application and acceptance of bankruptcy cases will be discussed below.

2.1 The reluctance of the Chinese courts
The courts are very hesitant to take on bankruptcy cases. Initially, bankruptcy trials are held in commercial courts, tried by different judges with various capacities since there are no independent bankruptcy courts in China. With little experience, considering the complicated legal issues in bankruptcy cases, judges tend initially to not accept them. When it comes to performance appraisal, although bankruptcy cases are much more complex and take more time to wind up, the standard of evaluation is the same as other commercial cases, leading to reluctance to accept bankruptcy cases. Most importantly, complex social and economic challenges, including social stability, the maintenance of economic security and order, the protection of interests and rights of the employees, are involved in bankruptcy cases. The limited resources and power of the judiciary are unlikely to handle these all matters. Thus, the courts commonly choose to refuse to accept the cases as far as possible.