Insolvency 2022

Last Updated November 22, 2022


Law and Practice


Fangda Partners is one of the most prestigious law firms in China, with offices in Beijing, Shanghai, Guangzhou, Shenzhen and Hong Kong. The insolvency and restructuring practice is highly regarded, with a team of nearly 30 lawyers who are experienced in using both their legal and business skills. On the contentious side, the team has experience in enforcement and asset tracing, court-appointed administration, corporate control battles and compulsory liquidation; on the transactional side, it regularly represents investors, debtors, secured and unsecured creditors, creditors’ committees, bondholders, trustees, and government rescue funds in complex transactions where businesses are in financial difficulties. The firm has particular expertise in corporate rescues, debt restructuring and special assets acquisitions. The team works closely with the firm's market-leading professionals in real estate and construction, banking, M&A, funds, capital markets, antitrust, intellectual property, and labour, depending on the matter in hand. Recently, Fangda advised an ad hoc committee of note-holders in relation to notes issued by Huachen Energy, and acted as administrator in the bankruptcy reorganisation of Dalian Shipbuilding Industry Offshore Co, Ltd.

Steep Rise in Bankruptcy Cases

According to the latest statistics released by the Supreme Court, 13,000 bankruptcy and restructuring cases were closed in the year 2021, amounting to debts of CNY2.3 trillion. The total number of cases represents an increase of 28.31% compared to the same period in 2020. As for regional statistics, the Shanghai courts accepted an aggregate of 2,381 bankruptcy cases in 2021, which was an increase of 51.95% compared to 2020. In Shenzhen, a special economic zone where the intermediate court was the first bankruptcy court in the PRC and played a pioneering role in bankruptcy practice, statistics show that the number of bankruptcy cases closed by the Shenzhen intermediate court in 2021 totalled 735, representing a decrease of 19.14% compared to the same period in 2020. 

From 2021 to 2022, the market has witnessed a rocketing number of bankruptcies of listed companies. By the end of September 2022, approximately 37 listed companies were undergoing bankruptcy proceedings, while 92 reorganisation plans of listed companies were approved by the courts. This infers that the PRC stock market has gradually been keeping pace with economic fluctuations and reflecting the changes of capital flow, and the bankruptcy regime has been much more mature and prepared to play a critical role in such turbulence.

As the economy has shifted from a state of high-speed growth into a period of moderate growth, especially during the COVID-19 pandemic, the financial restructuring and insolvency regime has become a powerful tool in improving and accelerating market-exit efficiency, which can play a crucial role in boosting supply-side structural reforms. There has been a great wave of industrial integration in the past few years in various sectors, such as iron and steel manufacturing, shipbuilding, solar photovoltaic and the coal chemicals industry, as well as real estate and education. 

Corporate Bond Defaults

An outbreak of corporate bond defaults has also posed enormous challenges to the health of the bond market and the stability of the economic environment and, to some extent, has pushed forward the development of market-oriented financial restructurings and insolvencies. In 2021 the total amount of bond default reached CNY107.1 billion. Compared to 2020, there was a slight decline of CNY10.8 billion in the total amount of bond default, as the total volume of financing slumped because of the COVID-19 pandemic. However, the default rate is still high, due to the economic downturn. As a result, more market entities are seeking to utilise financial restructurings and insolvencies to address the difficulties and risks affecting them.

Banks Taking a More Active Role

According to the latest statistics released by the China Banking and Insurance Regulatory Commission (CBIRC) in August, the amount of non-performing loans in financial institutions totalled CNY2.95 trillion and the figure in commercial banks had reached CNY1.19 trillion by the end of July 2022. The statistics also show that in July 2022, the non-performing loan ratio of Chinese commercial banks reached 1.34%, accounting for 40.34% of all non-performing loans in financial institutions. Such a severe situation has pushed the banks to take a much more active role in the restructuring and insolvency market. The CBIRC has also played a much more active role in supporting banks in settling non-performing financial risks, and the CBIRC reckons that the rates of non-performing loans of the PRC banks are under control at the current stage.

The Bankruptcy Law

The Supreme Court issued a third judicial interpretation relating to the implementation of the PRC Enterprise Bankruptcy Law (the "Bankruptcy Law"), which came into effect on 28 March 2019. The new judicial interpretation clearly prescribes on several issues where there was previously a lack of statutory guidance. 

Additionally, strong emphasis has been placed on the importance of the bankruptcy regime at the administrative and judicial level. The National Development and Reform Commission (NDRC), the Supreme Court and 13 other relevant departments issued, in July 2019, the “Plan to Accelerate the Improvement of the Reform of the Exit Mechanism of Market Entities”, recognising the Bankruptcy Law to be a pivotal point in the development of the market economy. The National Court Conference on Bankruptcy Trials created the requirement that restructuring and bankruptcy tools be fully used by the judicial system. On 15 April 2020, the Supreme Court also issued “Opinions on Promoting the Efficient Trial of Bankruptcy Cases in Accordance with the Law”, emphasising the optimal use of bankruptcy methods to support economic growth, especially during the COVID-19 pandemic. 

The Shenzhen special economic zone has been set up as a pilot for the initiation of bankruptcy regulation for individual citizens. The regulation was published by the Shenzhen intermediate court and came into effect in March 2021. A few attempts have been made to enact this regulation but no official assessment is currently available.

Breakthrough in Cross-Border Proceedings

On 14 May 2021, the Supreme Court published two documents, “The Minutes of the Supreme Court and the Government of the Hong Kong Special Administrative Region (the 'HKSAR') on Mutual Recognition of and Assistance to Bankruptcy Proceedings between the Court of the Mainland and the HKSAR” (the “Minutes”) and “The Supreme Court’s Opinion on taking forward a pilot measure in relation to Recognition and Assistance to Bankruptcy Proceedings of the HKSAR” (the “Opinion”). As a starting point, the Opinion will firstly take pilots in Shanghai, Xiamen (Fujian Province), and Shenzhen (Guangdong Province).

These two documents have become a milestone on the path to establishing a practical and advanced cross-border insolvency regime in the PRC by providing guidelines to both mainland and Hong Kong practitioners when dealing with cross-jurisdiction cases. This initiative may also be a stepping stone for future developments in cross-border insolvency proceedings between the PRC and other countries.

In August 2021, with regard to the Samson Paper insolvency proceedings, the High Court of the HKSAR sent an application for assistance and recognition of the proceedings to the Shenzhen intermediate court pursuant to the Opinion, which represented the first attempt to practise under the Opinion.

In addition, according to the Meeting Minutes of the National Symposium on Foreign-Related Commercial and Maritime Trial Work (the “SPC 2022 Meeting Minutes”) – an internal guideline issued by the SPC on 24 January 2022 to the courts (which is not law itself but is used within the court system to guide the legal practice of PRC courts) – an unrecognised foreign judgment or ruling, together with a relevant notarisation certificate and other documentation, can be treated as valid proof for a foreign insolvency administrator or liquidator to participate in PRC litigation proceedings on behalf of the foreign insolvent company, without having to go through the formal procedure of recognition by the PRC courts.

The main legal sources governing reorganisations, liquidations and insolvencies in the PRC include: 

  • the Enterprise Bankruptcy Law of the People's Republic of China, which came into effect on 1 June 2007; 
  • the Provisions of the Supreme People's Court on Several Issues Concerning the Application of the Enterprise Bankruptcy Law of the People's Republic of China (I), which came into effect on 26 September 2011; 
  • the Provisions of the Supreme People's Court on Several Issues Concerning the Application of the Enterprise Bankruptcy Law of the People's Republic of China (II), which came into effect on 16 September 2013; and 
  • the Provisions of the Supreme People's Court on Several Issues Concerning the Application of the Enterprise Bankruptcy Law of the People's Republic of China (III), which came into effect on 28 March 2019.

There are three types of proceedings available under the Bankruptcy Law – reorganisation, reconciliation and bankruptcy liquidation. Reorganisation and liquidation can be voluntary or involuntary, depending on who petitions to initiate proceedings. 

In the course of voluntary liquidation, if the liquidation committee finds the company insolvent during the liquidation process, the committee is obliged to initiate a bankruptcy liquidation proceeding to clear the debts of the company. However, the law does not specify a time limit for the initiation of bankruptcy liquidation.

Creditors can petition for the commencement of involuntary proceedings by submitting an application to the court against the debtor for restructuring or liquidation when the debtor is unable to repay its debts as they fall due.

If a debtor fails to pay off its debts due, and its total assets are not enough to pay off all its debts, or it is obviously insolvent, it can be subject to reorganisation or liquidation proceedings under the bankruptcy law. 

If the debtor is highly likely to be insolvent, it can also be subject to reorganisation proceedings under the law. 

In voluntary proceedings, a debtor has to adequately prove its insolvency by submitting an audit or other equivalent documents to the court, showing that the debtor’s assets are not enough, or are unlikely to be enough, to cover all its debts. 

In involuntary proceedings, a creditor must prove that the debtor cannot pay debts owed to the creditor when they fall due. 

Where a commercial bank, securities company, insurance company or any other financial institution falls under any of the bankruptcy tests stipulated in Article 2 of the Bankruptcy Law, the financial supervision and administration authorities of the State Council may apply to the court for a reorganisation or a bankruptcy liquidation of the financial institution. 

However, there are no specific implementation measures governing the reorganisation and bankruptcy of financial institutions, or other types of public institution, apart from the Securities Companies Risk Disposal Regulations, which regulate the insolvency of securities companies. 

It is believed by bankruptcy professionals that out-of-court restructuring will help improve restructuring efficiency and greatly reduce costs. However, the PRC market is not mature enough for this perception to be widespread as yet. Bankruptcy practitioners do, however, have an incentive to promote out-of-court workouts, as the market is growing very quickly and insufficient court capacity means that the number of cases that can be heard is still limited. 

Lender support for borrower companies varies from case to case, and depends on factors such as the internal policy of the bank in question on dealing with non-performing loans, the reputation and integrity of the debtor, the support of the local government and bank regulator, etc. 

Since there are no applicable rules available for informal workouts at present, and out-of-court agreements only have the effect of a contract, market participants have begun to explore a practice similar to pre-pack administration in the US, where the major stakeholders agree on a restructuring plan out of court and then file for bankruptcy reorganisation and have the agreed plan confirmed by the court relatively swiftly. 

There is no requirement, however, for mandatory consensual restructuring negotiations before the commencement of a formal statutory process. 

The concept of standstill has been used in most out-of-court efforts in the market, but it may not actually be able to bind every major creditor due to the lack of unified practice rules or corresponding consequences for not abiding by them. 

There might be obligations for the debtor company during a consensual restructuring/workout to disclose financial information to the creditors’ committee to assist with the formulation of a viable plan. The debtor may also be required to preserve its assets and ensure their safety and integrity during the restructuring. 

There are no specific rules specifying the roles and functions of the ad hoc committee, although it is widely believed that the purpose of such a committee is to adopt timely and effective actions to protect the creditors’ interests and to contain, where possible, social and financial risks. 

The expenses of creditors’ committees are normally borne by the creditors themselves while, in some cases, the debtor bears the expenses for hiring a financial adviser to assist in due diligence and the formulation of the restructuring plan. 

For most cases on the market, an ad hoc creditors’ committee is commonly formed by banks or financial institutions that have large claims against the debtor. In a few cases, government authorities or other types of creditor representatives may be involved. 

Financial statistics, books or detailed assets lists, as well as important contracts or materials, will be required by the creditors from the debtor. 

From a practical point of view, it is difficult to make material modifications to the hierarchy and nature of existing claims. Normally, debt extension is widely accepted, and a reduction of debt may sometimes be achieved, but it is rare for the priorities of claims to be changed on a contractual basis. 

If new money is being injected by any creditor or new investor during out-of-court restructurings, super-priority security can only be granted if the existing creditors agree. 

There are no specific rules or laws related to conduct during out-of-court restructuring. The most relevant legal principle is that of good faith, which is required by Chinese civil law in all civil matters. 

It is rare for credit agreements to include terms permitting a majority or super-majority of lenders to bind dissenting lenders to changed credit agreement terms.

Informal consensual processes are perceived as extremely difficult because of the holdout issue. In some cases, where the dissident creditors only hold a limited amount of the claim, the majority creditors who have reached a restructuring plan will decide to pay the dissident creditors’ claims in full. 

Cram-down mechanisms only exist in bankruptcy reorganisation proceedings.

All kinds of security permitted by PRC Property Law are available to secured creditors, such as a mortgage over the debtor’s real estate, a pledge over equity interests owned by the debtor, a lien on movable assets, as well as pledges over bank accounts or other types of rights or properties owned by the debtor.

Outside bankruptcy, a secured creditor may bring a summary proceeding or a full-blown civil action to exercise its security interests. PRC law is not clear as to the effect of intercreditor covenants. 

Secured creditors cannot block or disrupt a bankruptcy proceeding. In bankruptcy, secured creditors enjoy first priority in receiving proceeds realised from the secured property. 

In bankruptcy reorganisation, enforcement of the security interest will be stayed, unless the secured creditor’s interest is at risk and no adequate protection is provided by the bankruptcy administrator. 

The secured creditor has no special procedural protection other than the rights discussed in 4.2 Rights and Remedies

No distinction is made between members of the class of secured creditors – all will have the same rights and priorities. Unsecured creditors, however, may sometimes be divided into a small-claim group and an ordinary unsecured class depending on necessity and individual cases. 

The secured creditor enjoys priority of payment in respect of the collateral’s value, while the unsecured group is repaid on a pro rata basis. The small-claim group creditors may obtain comparatively higher repayment than the ordinary unsecured group in many cases. 

Unsecured trade creditors will be treated as ordinary unsecured creditors and receive the same repayment as other creditors in the same group. There are a few cases where unsecured trade creditors enjoy a higher repayment rate than unsecured financial institution creditors for practical reasons, such as maintaining social stability or sustaining the debtor’s operation, provided that other unsecured creditors (mainly the financial institution creditors) agree to the arrangement. 

Unsecured creditors do not have the power to disrupt the insolvency/restructuring process or achieve any stay or deferral of a liquidation. 

However, unsecured creditors do have the right to raise an objection to the administrator’s review of the claims and to initiate litigation if they are unsatisfied with the administrator's response to the objection. In addition, an unsecured creditor enjoys rights prescribed by the Bankruptcy Law, as does every creditor, such as the right to obtain information, to participate in a creditors’ meeting, to vote on various motions and plans made by the administrator, etc.

Outside bankruptcy, pre-judgment attachments are allowed and widely used. Once the debtor enters bankruptcy, all antecedent attachments will be lifted. 

There are two types of priority claims pursuant to PRC law. One comprises bankruptcy expenses, including administration expenses, remuneration of the administrator and other procedural expenses; the other is debt incurred during the proceeding for the common benefit of the creditors, including new money borrowed for the purpose of continuous operation, and liabilities incurred for assumption of contracts. 

Secured creditors enjoy priority to the extent of the value of the collateral, except for claims related to (or arising from) administration of the collateral. 


When half or more of the creditors in the same voting group, representing two thirds or more of the total amount of the creditors' claim, vote in favour of the draft restructuring plan, the plan is deemed as passed by this group. When all voting groups vote in favour of the plan, the draft plan is deemed to be passed by the creditors’ meeting. 

If one or more voting groups vote against the plan, the court will have, upon an application made by the administrator, discretion to decide whether to exercise its cram-down power, subject to certain criteria prescribed by law. For the criteria that need to be met for the court to exercise this power, refer to 6.4 Claims of Dissenting Creditors

In principle, the hierarchy of claims is not subject to modification. However, the modification of claims can be achieved if the claim-holder, whose claim is subject to modification, voluntarily agrees to the arrangement. 

The requirements for commencing restructuring/reorganisation can be found in 2.4 Commencing Involuntary Proceedings

The purpose of a restructuring proceeding is to settle the debts of the company fairly through an adjustment plan, so as to safeguard the legitimate interests of the creditors and rescue the debtor’s value as a going concern. Debt avoidance or liability evasion through the proceeding is strictly prohibited. 

Formal reorganisation proceedings are court-driven and court-supervised processes. 

A creditor, debtor or a debtor’s capital contributor, whose capital contribution makes up 10% or more of the debtor’s registered capital, can petition the court for reorganisation. 

The court will decide whether to accept the petition for reorganisation and will make a public announcement when the petition fully complies with the legal requirements. 


The typical timelines and milestones that apply to formal reorganisation proceedings are as follows. 

If the petition is made by: 

  • a creditor, the court will decide whether to accept the case within 22 days of the creditor submitting their petition; or
  • a debtor, the court will decide whether to accept the case within 15 days of the debtor submitting their petition. 

Under special circumstances, these two periods may be extended for another 15 days upon the approval of a higher-level court. 

The court will, within 25 days of the date it accepts the case, notify known creditors and publicly announce its decision. 

The term for lodging the creditor’s claim will be determined by the date on which the court announces its acceptance of an application for reorganisation. Claims must be lodged within a period ranging from 30 days to three months from this date. 

The first creditors’ meeting will be held by the court within 15 days of the expiry of the term for lodging a claim. 

The debtor or administrator should, within six months of the court accepting the reorganisation petition, submit a draft restructuring plan to the court and the creditors’ meeting. The six-month period can be extended for another three months if the court approves. 

An expedited process for reorganisation is not available in China. 

The administrator will conduct material examinations of the claims upon reviewing the documents and evidence submitted by the creditors. The results of this review will be filed for further review at the creditors’ meeting, and the undisputed claims will be confirmed by a court ruling which serves as final recognition. Interest on the claims (if any) will be calculated based on the date when the proceeding commences. 

Contingent claims can also be registered with the administrator during the proceeding. The administrator will examine the claims and preserve the portions for such claims before the final results are determined.


A restructuring plan, if approved by the court, will have binding power over the debtor and all creditors, including the “unknown” creditors or contingent claimants. 

A restructuring proceeding is not confidential, but the Bankruptcy Law itself does not require public disclosure of the key terms of the restructuring plan. Where the debtor is a public company, it will be subject to disclosure rules issued by the securities regulator. 

The judgment made on a reorganisation proceeding cannot be appealed procedurally. However, if the debtor’s business and assets continue to deteriorate and reach a hopeless state; or the debtor conducts acts of fraud and maliciously reduces its assets; or behaves in a way that similarly damages the interests of the creditors; or the administrator is unable to perform its duty due to the behaviour of the debtor; the court will, upon the application of the administrator or interested parties, terminate the proceeding, declare the debtor insolvent and convert the proceeding into a bankruptcy liquidation. 

The creditors will be divided into several groups to cast votes on the restructuring plan and where the level of support satisfies the legal requirements, the plan will be deemed as approved by the group. 

If the plan is passed by the creditors’ meeting, the court will issue a ruling to confirm the plan upon an application by the administrator. After that, the court will rule to terminate the proceeding and the execution period of the plan starts. During this period, value will be distributed to the creditors according to the legal hierarchy and on a pari passu basis unless the plan stipulates otherwise.

After the court accepts an application for reorganisation, an automatic stay will be granted to the debtor which prevents the creditors from taking further action to seek litigation or enforcement against the debtor. Interest calculation will cease and payment of debt to any individual creditor is prohibited. 

The administrator has the power to decide whether to continue the debtor’s operation (upon court approval) before the first creditors’ meeting is convened. The creditors’ meeting also has the power to decide whether to continue or suspend the debtor’s business under such a proceeding. 

The court will appoint an administrator to take charge of the debtor’s management. The administrator will be appointed from a roster published by the courts in the different provinces. See 9.3 Selection of Officers for details. In reorganisation proceedings, the debtor can also apply to the court to manage its own business, in which case, the administrator will only have a supervisory role and will not be involved in daily operational decision-making. 

The administrator, or a debtor in a state of self-management, may borrow funds to continue the debtor’s operation if the creditors’ meeting allows it to do so, or with the court’s approval before the first creditors’ meeting is convened.

Creditors are classified into four groups: the secured creditors’ group, the employees’ group, the tax group, and the unsecured creditors’ group. 

The creditors’ committee will consist of creditors selected by the creditors’ meeting, plus one employee representative of the debtor or a representative from the labour union. The creditors’ committee may include, at most, nine members. 

The creditors’ committee has the following powers and duties: 

  • to supervise the management and disposal of the debtor’s assets; 
  • to supervise the distribution of the insolvent assets; 
  • to propose to hold the creditors’ meeting; and 
  • to perform other duties as entrusted by the creditors’ meeting. 

When the creditors’ committee performs its duties, it has the right to require the administrator and debtor to give explanations or provide the relevant documents on matters relating to the scope of its functions and duties. 

The expenses of the creditors’ committee are usually compensated as part of the bankruptcy expenses. 

A creditor has the right to review the debtor’s financial status report, resolutions of the creditors’ meeting, resolutions of the creditors’ committee, the administrator’s supervision report, and the debtor’s financial and operational information necessary for the creditor to participate in the proceedings.

Where there is one (or more) voting groups, or votes against the draft restructuring plan, the court may exercise its power to cram-down the plan if it meets the following requirements: 

  • the secured creditors will be paid off from the value of the collateral and the losses incurred from postponed payment will be compensated in a fair manner, provided that the secured claims have not been materially damaged, or the relevant voting group has approved the draft plan; 
  • wages and other expenses of the employees, as well as taxes, will be paid off, or the relevant voting group has approved the draft plan; 
  • the repayment proportion of an unsecured creditor’s claim may not be lower than that in a liquidation scenario at the time when the draft plan is submitted for approval; 
  • the draft plan can bring a fair and just adjustment to the rights and interests of capital contributors; 
  • the draft plan treats the members of the same voting group fairly and the hierarchy of creditors' claims does not violate the provisions of Article 113 of the Bankruptcy Law; and 
  • the debtor's business plan is feasible.

When the creditor assigns or trades its claims, a notification must be sent, in writing, to the debtor and the administrator. Otherwise, the assignment or trading will have no effect on the bankruptcy estate. Once the duty of notification is fulfilled, the legal position of the previous creditor will be assumed by the new creditor. 

Substantive consolidation of group companies in bankruptcy proceedings is possible in the PRC, although there are no statutory provisions on implementation. In practice, where the assets and liabilities of entities within a corporate group are co-mingled to such an extent that separating them would be unfeasible or prohibitively costly, the court may – upon petition by the administrator – include all affiliates within the group in one combined procedure.

The administrator will manage and dispose of the debtor’s assets after taking the assets into custody under the proceeding. The use or sale of assets should be subject to the assets management plan and the assets disposition plan made by the administrator and then approved by the creditors’ meeting. 

Normally, the sale of assets during the proceeding is conducted by public auction, unless the creditors’ meeting agrees otherwise. 

Contractual transactions regarding the sale of assets are only enforceable with the approval of the creditors’ meeting. 

The administrator is responsible for executing the asset disposition plan if that plan is approved by the creditors’ meeting. A purchaser will acquire good title in a sale executed pursuant to such a restructuring proceeding, free and clear of claims. Creditors are neither allowed to bid nor act as stalking horses in a sale process under the proceeding. 

If a contract of transaction was signed prior to the proceeding and it has not been fully performed by both parties, the administrator will have the power to decide whether to rescind or adhere to the contract on the basis of maximising the debtor’s asset value.

No secured creditor liens or any security arrangements will be released pursuant to a restructuring.

The administrator or the debtor-in-possession may borrow funds so that the debtor can continue its operation during the proceeding. It is permitted for the debtor's assets to be used as security for such a loan. If the assets encumbered by pre-existing secured creditors have a value large enough to guarantee the new loan and the investor consents to this, the law does not prohibit the practice as long as the newly established encumbrance will not be detrimental to the pre-existing secured creditor(s). 

A creditor’s claim can be determined through statutory processes under the Bankruptcy Law, which authorises the administrator to examine and determine the value of a claim and submit it to the court for ruling, after review by the creditors’ meeting.

A reorganisation plan will be submitted by the administrator or the debtor for approval by the creditors’ meeting. If all groups of creditors vote in favour of the plan, the court will normally approve the plan upon application. While there are one or more dissenting groups voting against the plan, the administrator may apply to the court to exercise the power of cram-down over the dissenting groups, the standard for which is discussed in 6.4 Claims of Dissenting Creditors

The administrator has the power to decide whether to rescind or continue to adhere to a contract that was established before the proceeding, but has not been fully performed by both parties. The administrator will send written notice to the contractual party stating its willingness to continue or desire to terminate the contract, within two months of the commencement of the proceedings. If the administrator fails to do so within the two-month period, the contract is automatically deemed to be terminated. 

If the contract is terminated, the counterparty can make a claim against the debtor on the basis of the right to be compensated for damage incurred.

Non-debtor parties, such as guarantors, will not be released from liability due to the statutory insolvency procedure.

When a creditor is indebted to a debtor before the commencement of a proceeding, the creditor can make an assertion to the administrator for offset. However, offset is not allowed if a creditor obtains the claim from other creditors of the debtor after the commencement of a proceeding, or a creditor assumes liability to the debtor or obtains the claim against the debtor in the awareness of the debtor’s insolvency (except where the assumption of liability or obtaining of a claim arises from an event that occurred at least one year prior to the commencement of the bankruptcy proceedings). 

A reorganisation plan approved by the court has binding power over the debtor and all creditors. The court will not impose unobserved terms on the parties. If the plan cannot be implemented, the court will, upon petition by the administrator or any interested party, terminate the implementation of the plan and declare the debtor bankrupt. The party that fails to perform the terms of the agreement may bear liability for breach of contract or otherwise be held responsible according to the specifics of the non-performance.

When the debtor is in a state of bankruptcy, the existing owners’ equity has no value. It is unreasonable to allow the owner to retain any value in or from the debtor unless the new investor agrees to this on a negation basis. The law does not expressly prohibit existing equity owners from retaining ownership of the debtor upon conclusion of the reorganisation. In practice, it is up to the creditors and investors (if any) to decide whether to approve or accept a draft reorganisation plan that lets the existing equity owners retain some ownership. 

There are two types of statutory liquidation proceedings available in China: bankruptcy liquidation and involuntary company liquidation. 

A bankruptcy liquidation is a court-supervised proceeding by which a debtor company can settle its debts with fairness to all its creditors through unified procedures before dissolution. Under this proceeding, the debtor’s assets will be disposed of to maximise returns to the creditors under judicial supervision, and creditors in the same class will be paid on a pari passu basis. The proceeding, in practice, can be long and costly. 

An involuntary company liquidation proceeding is governed by the PRC's Company Law and is also subject to court supervision. In this proceeding, the company is solvent and can pay off all its debts with its assets. The judicial role in the proceeding is to ensure the distribution is fair and just, without discrimination to any of the creditors, and that no creditor will be left out before the shareholders of the company get back what’s left at dissolution. An involuntary company liquidation can also be time-consuming and costly. 

There is no court-supervised voluntary liquidation for a solvent company in China. 

Under bankruptcy liquidation, the people’s court will appoint a bankruptcy administrator to carry out the proceedings. 

How Proceedings Are Commenced

Bankruptcy liquidation can be commenced under the following circumstances: 

  • upon petitions to the court made by either a debtor or a creditor; 
  • upon application by the liquidation committee if it finds the debtor insolvent in an involuntary company liquidation; 
  • upon the consent of either the debtor or the creditor in a judicial enforcement procedure where sufficient assets cannot be located to satisfy the creditor; and 
  • upon petitions made by an administrator or other interested parties when a bankruptcy reorganisation proceeding fails. 

Involuntary company liquidation can be commenced upon the application of a creditor or a shareholder of the company, where an event of dissolution has occurred, and no liquidation committee has been established within the statutory time period to conduct voluntary liquidation. 

Statutory Requirements

The statutory requirements for commencing a bankruptcy liquidation are discussed in 6.1 Statutory Process for a Financial Restructuring/Reorganisation. The requirements for an involuntary company liquidation can be found above in this section. 

Creditors' Claims

In a bankruptcy liquidation, how a creditor's claims are calculated and recognised, at what point and by whom is discussed in 6.1 Statutory Process for a Financial Restructuring/Reorganisation

In involuntary company liquidations, creditors also need to declare their claims to the liquidation committee. The requirements regarding the submission of evidence and the examination procedures adopted by the liquidation committee are similar to those adopted in bankruptcy liquidations. However, interest on claims (if any) will continue to accumulate until the date on which such claims are fully compensated. 

Contingent claims will not be preserved by the liquidation committee in the case of an involuntary company liquidation. If contingent claims become liquidated claims after liquidation is completed, the creditor is entitled to seek compensation from the shareholders of the dissolved company to the extent of the value received by the shareholders from the liquidation. 


A bankruptcy liquidation is deemed to be commenced when the court issues an order accepting the bankruptcy liquidation petition. 

An involuntary company liquidation is deemed to be commenced when the court issues an order accepting the petition for a court-designated liquidation committee. 

See 6.1 Statutory Process for a Financial Restructuring/Reorganisation for the timelines relevant to bankruptcy liquidations. 

The difference in timeline between a bankruptcy reorganisation and a bankruptcy liquidation is that the law does not provide a time limitation for the latter, and the duration of bankruptcy liquidation proceedings therefore varies greatly on a case-by-case basis. 

In 2018, the High Court of Shanghai issued the Guidelines on Expedition of Bankruptcy Trials by Simplifying the Procedures (the "Guidelines"), which mandate that cases satisfying certain conditions will be tried under summary procedures in which statutory periods are substantially shortened. The Guidelines requires that a summary procedure must be closed within six months of its commencement date. 

The timelines that apply to involuntary company liquidation ensure that the liquidation committee notifies known creditors within ten days and makes an announcement in public newspapers within 60 days of its formation. 

Under involuntary liquidation proceedings, the liquidation committee is required to complete the procedure within six months of its formation, but can apply to the court for an extension if necessary. 

Trading Claims

This is dealt with in 6.5 Trading of Claims Against a Company

Stays and Moratoriums

This is dealt with in 6.2 Position of the Company, which contains information on moratoriums or "stays" of legal proceedings or enforcement actions in the case of a bankruptcy liquidation. 

No automatic stay or moratorium will be granted to a company in the context of an involuntary company liquidation. 

Continuation of Company Business

See 6.2 Position of the Company as well as 9.2 Statutory Roles, Rights and Responsibilities of Officers and 9.3 Selection of Officers for details of how a business will continue to be run in the event of a bankruptcy liquidation. 

In involuntary company liquidations, the court will designate a liquidation committee to perform the duty of liquidating the company under the court’s supervision. The liquidation committee is responsible for clearing the company’s assets, making a balance sheet and checklist of assets, notifying and making a public announcement to creditors, dealing with unfinished company business, clearing the taxes of the company, dealing with the remaining assets after payment of debts, and representing the company in legal procedures. 


See 6.12 Restructuring or Reorganisation Agreement for information on the rejection of contracts established before the bankruptcy liquidation. 

The law does not provide any special rules on dealing with the contract in an involuntary liquidation. Executory contracts in execution will be treated as if the company is in its normal state, and the liquidation committee does not have a separate legal ground to terminate executory contracts at its discretion. 

Rights of Set-Off

Refer to 6.14 Rights of Set-Off for details of set-off rights in bankruptcy liquidations. 

Set-offs between a creditor and the debtor in involuntary company liquidations are allowed and can be made in accordance with the PRC Contract Law. Set-offs are not subject to any special suspension or restrictions in an involuntary liquidation. 


See 6.3 Roles of Creditors for details of bankruptcy liquidations during involuntary company liquidations. There is no specific legal requirement to disclose information about the proceeding to the creditors, as long as their claims are paid in full. However, in practice, the liquidation committee will make reasonable disclosure to the creditors at its own discretion. 

Distribution of Value

In a bankruptcy liquidation, after full payment of the bankruptcy expenses and debts incurred for the common good of the creditors, the debtor's assets will be distributed according to the following hierarchy: labour claims, social security and tax claims, unsecured creditors’ claims. 

If no assets can be distributed, or after completion of asset distribution, the administrator will apply to the court to terminate the proceeding. Upon receipt of the application, the court will, within 15 days of the administrator applying to terminate the proceeding, make a decision on whether to do so. 

In the case of an involuntary company liquidation, after the liquidation committee has finished distributing the company’s assets, paying the remaining value to shareholders, and it has completed de-registration of the company, it will apply to the court for a ruling to terminate the proceeding.

Refer to 6.8 Asset Disposition and Related Procedures for details regarding bankruptcy liquidations. 

In involuntary liquidations, a liquidation committee has broad discretion in asset disposition under the supervision of the court. The liquidation committee has the responsibility to dispose of the assets in a way that is in the best interests of both the company and its creditors. 

Refer to 6.3 Roles of Creditors for details on bankruptcy liquidation. 

There is no creditors’ committee in an involuntary liquidation. 

Article 5 of the Bankruptcy Law prescribes that a foreign bankruptcy judgment must be recognised and enforced according to treaties or conventions, or the principle of reciprocity. However, the article only provides a general basis for recognition of foreign bankruptcy proceedings without any guidance on implementation. 

Recognition of foreign restructuring or bankruptcy proceedings in China is decided on a case-by-case basis.   

Pursuant to the Opinion governing bankruptcy proceedings relating to the HKSAR and the mainland, the intermediate courts of the pilot cities have jurisdiction over such bankruptcy proceedings initiated in the HKSAR. The administrator appointed in the Hong Kong proceedings can petition the mainland courts for recognition and assistance by submitting documents including:

  • a letter of application;
  • a letter for recognition and assistance issued by the High Court of the HKSAR; 
  • orders of commencement of the proceeding and appointment of the administrator;
  • evidence proving the centre of main interest of the debtor is located in the HKSAR;
  • duplicates of judgments and rulings of the proceeding and the identification of the administrator; and
  • if the assets of debtors in mainland China are located in pilot cities, the administrator should provide evidence that these are not the principal place of business, nor the agency of the debtors.

Note that these requirements only apply to proceedings relating to the HKSAR and the mainland. Nevertheless, they offer reference to proceedings opened in other jurisdictions that may seek recognition and assistance from the PRC courts.

The PRC has entered into protocols or treaties with 39 countries and independent economic areas on civil judicial assistance but none of these explicitly includes protocols or arrangements co-ordinating cross-border bankruptcy proceedings.

Pursuant to the Opinion governing bankruptcy proceedings relating to the HKSAR and the mainland, after recognition of a Hong Kong proceeding, litigations against the debtor in mainland courts must be suspended and interim measures must be terminated. In addition, the Opinion also grants the administrator of a Hong Kong proceeding similar rights and powers prescribed under the PRC Bankruptcy Law, provided that such proceeding is recognised by the mainland court.

Since PRC law does not currently provide detailed guidance on cross-border proceedings, there are no specific rules determining the governing law. If a PRC court recognises a foreign proceeding, the rules of international private law as well as the PRC Civil Procedure Law might be referred to as the primary legal sources. 

The Minutes and the Opinion published by the Supreme Court now provide a consistent guideline and facilitate bankruptcy proceedings between the mainland and HKSAR, which can be regarded as a forerunner in this area and may provide models for future regularisation of cross-border cases.

Foreign creditors will receive the same treatment as domestic creditors under a PRC proceeding, without discrimination. 

In the minutes of the National Court Work Conference on Bankruptcy Trials issued by the Supreme Court in 2018, it is pointed out that the interests of domestic and foreign creditors will be balanced subject to the principle of equal protection of claims in the same group. Domestic employee claims, tax claims and secured claims, however, will be protected adequately and preferentially. 

The Opinion, just published, further stresses that the assets of debtors in mainland China will be distributed to preferred claims in priority pursuant to the PRC Bankruptcy Law before being distributed fairly to other debtors under the Hong Kong proceedings.

The Civil Procedure Law and its judicial interpretation provide sources for the recognition and enforcement of foreign judgments or rulings. For the purpose of being recognised, the foreign judgments or rulings should be binding and enforceable and there should be international treaties or reciprocity between that jurisdiction and the PRC. 

Recognition and enforcement of foreign judgments and rulings may not violate the basic principles of domestic laws or state sovereignty and security, or public interests. Meanwhile, the PRC courts refuse to recognise foreign judgments or rulings due to the absence of treaties or reciprocity. The PRC has entered bilateral judicial assistance treaties on civil and commercial matters with 39 jurisdictions. In most of these treaties, there are only provisions in circumstances where recognition and enforcement may be declined, with no explicit provisions on making positive decisions. 

If a foreign judgment has been recognised, the PRC court will decide to enforce it, pursuant to the Civil Procedure Law.

In 2019, the PRC signed the Final Act of the 2019 Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (the “HCCH Convention”). However, the PRC had not finalised its ratification at the national level at the time of publication of this guidance.

Under the PRC regime, statutory officers are appointed by the courts as administrators in reorganisation and liquidation proceedings. There is no other type of statutory officer under PRC law. 

The responsibilities of the administrator include: 

  • taking control of the debtor’s assets; 
  • investigating the debtor's assets and preparing the assets report; 
  • determining the debtor’s internal business; 
  • determining the debtor's daily and necessary expenses; 
  • determining whether to continue or cease the business of the debtor before the first creditors’ meeting; 
  • managing and disposing of the debtor’s assets; 
  • representing the debtor in litigation, arbitration and other legal procedures; 
  • proposing to convene the creditors’ meeting; and
  • other duties entrusted to the administrator by the court for the sake of the proceeding. 

The administrator reports directly to the court and is under the supervision of the creditors’ meeting as well as the creditors' committee (if established). The fiduciary duty of the administrator requires it to perform its role diligently and with due care in accordance with the law. 


According to the Provisions of the Supreme People's Court on Designating the Administrator During the Trial of Enterprise Bankruptcy Cases (the "Provisions"), courts can appoint administrators – through a random draw, competitive bidding or direct designation upon recommendation – from the regional administrators’ rosters issued by the High Courts in different provinces. 

The High Courts are responsible for preparing the administrator rosters in their area of jurisdiction according to certain statutory criteria. The rosters may include institutions such as law firms, accounting firms, bankruptcy liquidation firms and qualified individual practitioners. 

In most cases, the court will randomly appoint a firm on the roster to act as administrator by way of lucky draw. Individual practitioners acting as administrators are hardly seen in judicial practice. In significant cases, the court may use competitive bidding to select an administrator from the roster. 


Administrators can be replaced at the request of the creditors’ meeting to the court, on the grounds of incompetence or unlawful and improper conduct. The court will examine the facts and decide whether to replace the administrator as requested by the creditors’ meeting, within 12 days of the request being submitted. 

The administrator can voluntarily resign from its position for fair and proper reasons upon the court’s approval. 

The court has the discretion to replace the administrator ex officio under certain legal conditions.


The company management and directors have a statutory duty to co-operate and support the work of the administrator. In practice, it is crucial that the administrator forms an active and co-operative relationship with the management and directors, which will effectively facilitate the bankruptcy process and maximise value for the stakeholders. 

The administrator will normally take the place of the previous management and the board will cease to function. If the debtor applies for, and the court approves, debtor in possession, the management will remain in place and continue to operate the debtor under the supervision of the administrator.


Apart from the liquidation committee, institutions such as law firms, accountancy firms, as well as liquidation firms, can serve as administrators. No creditor, creditor representative, owner, officer or director can serve as the administrator. 

In most cases, law firms or accountancy firms serve as the administrator. It is uncommon for other restructuring professionals, who do not have licences to practise law or accounting, to serve as the administrator, but they may be engaged as advisers or interim management by the administrator. 

The PRC Bankruptcy Law is silent on directors’ duties, such as putting financially troubled companies into insolvency proceedings or stipulating any positive actions to be taken by directors before opening the proceedings. However, the law provides that legal representatives of distressed companies or, at the insolvency court’s decision, financial officers and other specific managers, shall perform the following duties during insolvency proceedings:

  • take good care of the assets, financial books and other documents that are held by them;
  • carry out work under the instructions of the insolvency court and the administrator, and answer enquiries truthfully;
  • attend creditors’ meetings and respond to creditors’ enquiries;
  • not leave their domiciles without the insolvency court’s permission; and
  • not undertake the role of director, supervisor or senior manager of other companies.

The PRC Bankruptcy Law also provides that directors may be held liable if: 

  • their breach of duties of fiduciary loyalty and diligence have caused the bankruptcy of the debtor; 
  • they are directly involved in fraudulent and preferential transactions that have been set aside or annulled by the court upon request by the administrator; or
  • it is found that directors have assisted, or been negligent, when a shareholder has failed to contribute its subscribed capital in full or has illegally withdrawn its capital. 

Directors may also bear criminal liability under the PRC Criminal Law, which prescribes penalties for officers who are directly in charge of or responsible for concealing company assets, making false balance sheet or asset records, or illegally distributing assets before repaying debts; if severe losses are caused to the creditors or other stakeholders during liquidation.

If directors are involved in any of the negative behaviours set out in 10.1 Duties of Directors, an administrator can assert claims against those directors. If the administrator fails to take prompt action, the creditors may also initiate action against those directors. 

Historical transactions that took place within one year of the proceeding can be set aside if they are: 

  • gratuitous transfers of assets; 
  • transactions at obviously unreasonable prices; 
  • providing collateral for antecedent unsecured debts; 
  • payments of debts that are not due; or
  • acts of abandonment of creditors' rights. 

Also, when a debtor cannot pay its due debts and becomes insolvent or obviously lacks liquidity, any payment of debt to an individual creditor that took place within six months of the proceeding can be set aside unless the payment is beneficial to the debtor’s assets as a whole. 

Acts of concealment or the transfer of assets for the purpose of debt evasion, as well as the fabrication of debts or acknowledgement of untruthful debts, no matter if prior to or after commencement of the proceeding, will be deemed invalid.

Refer to 11.1 Historical Transactions.

The administrator has the statutory power to set aside or annul historical transactions before the court, while an individual creditor has no such power. However, creditors are entitled to supervise the work of the administrator by making requests or propositions regarding questionable transactions, if they have certain evidence of their questionability.

Claims against the aforesaid transactions can be brought in both reorganisation and bankruptcy proceedings.   

Fangda Partners

24/F, HKRI Centre Two
HKRI Taikoo Hui
288 Shi Men Yi Road

+86 21 2208 1166

+86 21 5298 5599
Author Business Card

Trends and Developments


Capital Equity Legal Group (CELG) is a comprehensive, professional, standardised and internationalised large-scale law firm in China. The existing member offices of CELG include Hangzhou, Shanghai, Nanjing, Hefei, Zhengzhou, Ningbo, Huzhou, Zhoushan, Wuhu, Hamburg in Germany and Vancouver in Canada. The firm is also affiliated to a number of legal co-operation agencies all over the world. CELG has more than 100 partners and 800 lawyers and assistants. It has been ranked by Chambers and Partners as a Band 1 law firm in Corporate/Business law in East China, and as a Band 2 firm in Restructuring/Insolvency law in China. CELG has its own reorganisation and restructuring team, which has more than 60 lawyers and assistants. The team has handled more than 260 insolvency and restructuring cases as bankruptcy administrators since 2009, involving debts of more than CNY500 billion. Since 2011, the cases handled by the team have been listed as typical cases 25 times by local High Courts and the Supreme People’s Court.

China’s Bankruptcy Law

This article takes a look at trends and developments in China’s bankruptcy law in 2022. It is divided into four parts: the first part reviews China’s macro situation in 2022; the second part introduces the debt risks in several industries; the third part introduces legislative trends and the judicial policy, the amendment of the Enterprise Bankruptcy Law and other relevant laws that have had a profound impact on the handling of bankruptcy cases, and explains how policy guidance, such as optimising the business environment and constructing a national unified market, will also play a positive role in the implementation of China's bankruptcy law; while the fourth part is a practical exploration of Chinese bankruptcy law which introduces the experiences and development trends of small and medium-sized enterprise reorganisation, listed company reorganisation, personal bankruptcy, cross-border bankruptcy, and the administration system.

1. The macro situation

In the current complex international and domestic environment, the risks and uncertainties in China’s economy have increased. Since March 2022, Shanghai, Jilin, Hainan and other regions in particular have experienced the severest resurgence of the COVID-19 pandemic since 2020, which has significantly impacted the economic situation.

According to the data released by the National Bureau of Statistics, the GDP in the first half of 2022 was CNY56,264.2 billion, an increase of 2.5% year on year. In the second quarter, the downward economic pressure increased significantly, and the GDP increased by 0.4% year on year. The Central Economic Work Conference suggested for the first time that “China’s economic development is facing the triple pressures of shrinking demand, supply shocks and weakening expectations”, and reiterated that the country should “continue to focus on economic construction”. The 2022 Government Work Report emphasised that China’s economy is still facing the challenge of the “triple pressures”.

However, China has strong economic resilience and broad prospects. The favourable factors and conditions supporting the economy are still solid. Market confidence has rebounded, and the basic trends of long-term economic development have not changed.

2. Which industries deserve attention?

Air transport

The air transport industry has faced the worst slump since 2020, especially this year, coupled with the influence of rising fuel prices. In the first half of 2022, the total turnover volume of civil aviation transport was 29.34 billion ton-kilometres, down 37% year on year, and only 46.7% of the total in the same period in 2019. The lowest number of flights in one day was 2,967, only 17.8% of the number of flights in the same period in 2019, and aviation revenue was only CNY307.2 billion, less than 60% of the revenue before the COVID-19 pandemic. The industry-wide loss was CNY108.9 billion, more than the loss in the whole of 2020 and 2021.

In April this year, Hainan Airlines (HNA) announced the conclusion of the implementation of the reorganisation plan. Recently, HNA released its semi-annual report showing that the company achieved operating revenue of CNY11.08 billion in the first half of the year, down 39.59% year on year, and the net profit attributable to shareholders of the listed company was -CNY12.84 billion, compared to a loss of CNY881 million in the same period of the last year, with the loss increasing by 1,357.29% year on year.

In addition, Uni-Top Airlines, which is second only to SF Airlines in terms of the size of its cargo fleet, entered bankruptcy liquidation proceedings in 2021, and transferred to reorganisation proceedings in May this year.

Tourism and hospitality

The COVID-19 pandemic has had a fatal impact on the tourism and hospitality sectors. Statistics released by the Ministry of Culture and Tourism show that in the first half of 2022, Chinese residents made 1.46 billion domestic trips, down 22.2% from the previous year, and domestic tourism revenue was CNY1.17 trillion, down 28.2% from the previous year. In 2022, bankruptcy cases involving travel agencies, hotels and cultural-tourism towns also increased compared to previous years.

Since the implementation of the “New Coronavirus Pneumonia Prevention and Control Plan (Ninth Edition)”, the quarantine period for close contacts and inbound travellers has been adjusted from “14+7” days to “7+3” days, and the coverage time range of the “Communication Itinerary Card” query results has been adjusted from 14 to seven days, while the asterisk mark on the card has been removed. This change has promoted the recovery of tourism, hotels and retail.

Restaurant, retail and cinema

The COVID-19 pandemic has also affected the basic living consumption of the general public. According to statistics, in the first half of 2022, the number of restaurant cancellations nationwide was about 373,000, and the total restaurant revenue was CNY204 billion, down 7.7% year on year. The cinema industry was even more severely affected. At the end of March 2022, the total number of cinemas nationwide fell from 11,822 to 5,725, with more than half shutting down, and the operating rate nationwide was only 47.6%. The total box office revenue of Chinese films in the first half of the year was 17.2 billion yuan, with 52.21 million total shows and 400 million total tickets sold, a sharp 41.6% decrease from last year and the lowest since 2015. The number of bankruptcy cases of restaurants, retail outlets and cinemas was up from previous years.

In response, China introduced a series of policies, such as the “Several Policies on Promoting the Recovery and Development of Difficult Industries in the Service Sector”, jointly issued by the National Development and Reform Commission, the Ministry of Culture and Tourism and 12 other departments, which proposed 43 specific measures in three aspects, demonstrating the government’s determination to relieve the hardship.

Real estate

Bankruptcies of real estate enterprises are not uncommon, but the real estate sector in China was under particular pressure in 2022. The financial sources of real estate development continue to decline, especially domestic loans, mortgage loans and advance receipts. The concentrated exposure of the liquidity crisis in the real-estate sector has triggered the spread of house delivery problems, and some of the top-ranked, large real estate companies have also fallen into debt crisis. On 28 July 2022, the Political Bureau of the Central Committee of the CPC emphasised that “the real estate market should be stabilised, the point that houses are for living and not for speculation should be adhered to. The local governments should fully take on their responsibilities to ensure the delivery of houses and stabilise people’s livelihood.”

On 31 August, the state council executive meeting further pointed out that rigid and upgraded housing demand should be supported, and phased credit policies and special borrowing to ensure the delivery of buildings should be flexibly used. Accordingly, relief measures for real estate enterprises have been introduced in various places, and to “ensure the delivery of houses and stabilise people’s livelihoods” has become the most important policy of the real estate industry this year.

Financial institutions

The debt issues of financial institutions seem to have received insufficient attention in the past, but nowadays particular attention is being paid to local small and medium-sized banks with poor management and risk awareness. Debt crises broke out in some village banks, which aroused widespread concern. Accordingly, the relevant departments are investigating those banks, and in the meantime, are taking measures to compensate the depositors in advance and trace the assets. There has also been an increase in the number of bankruptcy cases of financial institutions. In July, the China Banking and Insurance Regulatory Commission (CBIRC) approved the entry of the New China Trust Co, Ltd into bankruptcy proceedings, and the Beijing financial court accepted the reorganisation of 1an Property Insurance Co, Ltd. The CBIRC approved the Liaoyang Rural Commercial Bank and Liaoning Taizihe Village Bank entering into bankruptcy proceedings in August, and the Zhongwang Group Finance Co, Ltd entering into bankruptcy proceedings in September.

Currently, the Financial Stability Law (Draft) is in the consultation stage. The purpose of disposing of high-risk banking institutions in accordance with the market-based rule-of-law principles is to protect the legitimate rights and interests of financial consumers, respect the rules of the market, strictly prevent moral hazards and maintain financial stability. These cases illustrate that bankruptcy has become an important tool for the crisis management of financial institutions.

3. Legislative trends and judicial policy

The amendment of the bankruptcy law

According to the legislative work plan of 2021 adopted by the Standing Committee of the National People’s Congress (NPC), the amendment of the Enterprise Bankruptcy Law is a key legislative task. In 2021, the NPC conducted a special inspection of the implementation of the Enterprise Bankruptcy Law, assigning a team to analyse the effectiveness of the implementation, the existing difficulties and problems and their causes, and the improvement measures, and made it clear that the amendment of the Enterprise Bankruptcy Law will be accelerated, while the practical needs surrounding the bankruptcy of natural persons, financial institutions and listed companies will receive attention. According to the legislative plan of Standing Committee of the NPC in 2022, the draft amendment of the Enterprise Bankruptcy Law is to be submitted for consideration this year.

Co-ordination of the bankruptcy law with other laws

Firstly, since the implementation of the Civil Code of China on 1 January 2021, the Supreme People’s Court has issued a series of supporting judicial interpretations (such as the judicial interpretation of the security system) and normative documents, which have had a significant impact on bankruptcy cases, specifically in the identification of debtor’s assets (title retention and financial lease), the priority of claims (eg, expansion of the types of security, clarification of the priority of registration and PMSI), and the statute of limitations, etc. In February this year, in order to further improve and bring into play the financing function of the security system, the People’s Bank issued the “Measures for the Unified Registration of Security Interests Over Movable Properties and Rights”, which is a further manifestation of the substantive theory of security.

Secondly, in December 2021, the draft amendment to the Company Law was first submitted to the NPC for consideration and is currently being amended. Some parts of the draft amendment are expected to impact on the bankruptcy regime, such as the interface between the authorised capital system and the financing of bankruptcy enterprises, and the interface between corporate governance and directors’ liability.

Thirdly, in June this year, the draft Civil Enforcement Law was published and is currently in the consultation stage, partly related to bankruptcy. The Civil Enforcement Law would promote co-ordination and complementation between enforcement and bankruptcy proceedings.

Further optimization of the business environment

The optimisation of the business environment has been a key focus of government at all levels in China in recent years. In October 2021, the State Council issued the “Opinions on Launching Pilot Work on Business Environment Innovation”. Since then, the Ministry of Natural Resources and relevant pilot cities have issued specific rules, some of which are directly relevant to the handling of bankruptcy cases, such as effectively revitalising land assets, properly identifying the ownership of assets, and accepting the real estate registration of bankrupt enterprises under certain conditions where some of the materials are lacking.

Building a national unified market

In March 2022, the Central Committee of the CPC and the State Council put forward the “Opinions on Accelerating the Construction of a National Unified Market”. Then, in July, the Supreme People's Court issued the “Opinions on Providing Judicial Services and Guarantee for Accelerating the Construction of a National Unified Market”, which emphasises the need to improve the rescue and exit mechanism for market subjects, adhering to the direction of marketisation, legalisation, specialisation and informationisation of bankruptcy trials. In addition, bankruptcy cases will be heard according to the law to promote a mechanism of survival of the fittest enterprises.

4. Practical exploration

Reorganisation of SMEs

According to statistics, by the end of 2021, the number of enterprises in China reached 48.42 million, of which more than 99% are small and medium-sized enterprises (SMEs). SMEs contribute 60% of the GDP, 50% of tax revenue and 80% of urban employment. Although the overall life cycle of SMEs is short, at an average of only 2.9 years, SMEs are an important part of Chinese economic resilience and employment resilience. They are the largest and most dynamic enterprise group and are related to the country’s overall economic and social development. SMEs in most countries around the world have been adversely affected by COVID-19, and the same applies to SMEs in China.

In January 2022, the Supreme People’s Court issued the “Guiding Opinions for Fully Maximising the Role of Judicial Functions to Boost the Development of Micro, Small and Medium-Sized Enterprises (MSMEs)”, which emphasised the importance of “scientifically identifying and protecting MSMEs with salvage value worth saving in accordance with the law”. Attending to the theoretical foundations and practice of reorganisation of SMEs is an urgent task.

On 25 April 2022, the Beijing Bankruptcy Court issued the “Measures for the Rapid Reorganisation of Micro, Small and Medium-sized Enterprises (for Trial Implementation)”. The document focuses on cost reduction and rapid trial. It is the first domestic document specifically focused on the reorganisation of MSMEs. At the same time, the Beijing No 1 Intermediate People’s Court issued “Typical Cases of Judicial Rescue of Micro, Small and Medium Enterprises”, covering various types of SME reorganisation. It is believed that the reorganisation of SMEs will become an important issue in China’s reorganisation system in the future.

Reorganization of listed companies

In the recent past, the number of reorganisation cases of Chinese listed companies has increased year on year. According to statistics, as of 4 August 2022, 94 listed companies on the stock exchanges of Shanghai and Shenzhen had been told by the court to terminate their reorganisation process and approve their reorganisation plan.

The policy also encourages the implementation of reorganisation. “Opinions on Further Improving the Quality of Listed Companies” issued by the State Council clearly states that listed companies are supported to clear their risks through bankruptcy and reorganisation. This year, the stock exchanges of Shanghai and Shenzhen issued “Guidelines for the Self-Regulation of Listed Companies – Bankruptcy and Reorganisation”, to standardise the whole bankruptcy and reorganisation procedure of listed companies.

At present, there are several issues worthy of attention in the reorganisation of listed companies:

First, the tedious pre-examination procedures for the reorganisation of listed companies. Listed companies in China need to undergo a strict “dual-track” approval process before entering the reorganisation process, that is, they need to submit to the China Securities Regulatory Commission (CSRC) and the Supreme People’s Court for approval through the government and the court level by level. At this stage, the securities regulatory department pays more attention to the protection of the rights and interests of small and medium shareholders, such as whether matters like the major shareholder’s illegal appropriation of funds or a listed company’s illegal guarantee can be practically solved. This “dual-track” approval originated from the minutes of the Supreme People’s Court and the CSRC in 2012, but as ten years have since passed, the necessity and effectiveness of this are worth reconsidering.

Second, the protection of small and medium shareholders’ claims. Chinese securities regulators attach great importance to the protection of the rights and interests of small and medium shareholders of listed companies. In order to further protect the legitimate rights and interests of investors, unblock the channels for investor rights relief, and strictly crack down on illegal activities such as financial fraud in the securities market, in January 2022, the Supreme People’s Court issued “Several Provisions on the Trial of Civil Cases for Damages for the Tort of Misrepresentation in the Securities Market”. How to deal with the claims of small and medium shareholders due to the misrepresentation of the debtor in the case of listed company reorganisation is a significant problem. Such debts, hidden legally, will cause great uncertainty in the implementation of the reorganisation plan.

Third, ignore the principle of absolute priority. In the reorganisation of listed companies in recent years, it is usually difficult for ordinary creditors to obtain substantial full repayment, and they can often only obtain a certain percentage cash repayment and stock repayment. The stock price is often predicated on the assumption of better future operating performance. As a result, ordinary creditors are usually still repaid at a discount. However, investors of listed companies, especially small and medium shareholders, do not need to transfer their rights and interests. Because the securities regulatory authorities attach more importance to the protection of the rights and interests of small and medium shareholders, the absolute priority principle in bankruptcy law has almost become a dead letter in the reorganisation of listed companies.

Personal bankruptcy

In recent years, there has been a strong call for the formulation of personal bankruptcy law, and many experts have suggested that the revision of the bankruptcy law should include adding personal bankruptcy. The current bankruptcy law in China refers to the Enterprise Bankruptcy Law. The subject of this law is the legal body of an enterprise, and organisations other than legal bodies of enterprise must refer to this law for bankruptcy liquidation. The legislation of natural person bankruptcy has been a blank for a long time.

In practice, however, enterprise owners (even their family members) are often required to provide personal guarantees for loans. Once the enterprise fails to repay the debts, enterprise owners often find themselves in financial difficulties. Since 2018, Zhejiang province has begun to explore the centralised clearing of personal debts. On 26 August 2020, Shenzhen, which has the legislative power as the special zone, passed the “Regulations on Personal Bankruptcy”, which were implemented on 1 March 2021. This is the first personal bankruptcy legislation in mainland China. At the same time, Shenzhen Bankruptcy Administration Office, which specialises in personal bankruptcy affairs, was established, and a series of supporting rules were issued accordingly. In May this year, Shenzhen Bankruptcy Court issued the “Implementation Opinions on Strengthening Personal Bankruptcy Application and Review”. In September this year, Shenzhen Bankruptcy Court released the annual typical cases, all of which were personal bankruptcy cases. It is expected that the practice in Shenzhen can provide valuable experience for the ongoing bankruptcy law amendment.

Cross-border bankruptcy

Although the current bankruptcy law has only one principled stipulation on cross-border bankruptcy, mainland China’s attitude towards cross-border bankruptcy is increasingly open. The most important achievement in recent years has been the “Minutes of the Meeting on Mutual Recognition and Assistance to Bankruptcy Proceedings between the Courts of the Mainland and of the Hong Kong Special Administrative Region” issued by the Supreme People’s Court and the government of the Hong Kong Special Administrative Region in 2021. The Supreme People’s Court designated the People’s Courts of Shanghai, Xiamen in Fujian Province, and Shenzhen in Guangdong Province to carry out the pilot work of recognising and assisting bankruptcy proceedings in Hong Kong. Although the opinion did not adopt the expression “non-main procedure”, it focused on the 1997 Model Law of UNCITRAL. On 15 December 2021, Shenzhen Intermediate People’s Court brought in a verdict to recognise the voluntary winding-up procedure of Re Samson Paper Co, Ltd in Mainland China. This case marks the beginning of cross-border bankruptcy assistance between the Mainland and Hong Kong.

In addition to the recognition of overseas bankruptcy proceedings, based on recognition of overseas bankruptcy administrators and past case-by-case review based on the principle of reciprocity, further provisions were made in the “Minutes of the National Symposium on the Foreign-Related Commercial and Maritime Trial Work of Courts” on 24 January 2022.

In addition, another noteworthy case is the bankruptcy and reorganisation case of Huachen Energy Co, Ltd heard by the Beijing No 1 Intermediate People’s Court. Based on the rigorous legal proceeding in this case and the impartial protection of the interests of all parties, the Bankruptcy Court of the Southern District of New York issued an order of recognition after the hearing, acknowledging the reorganisation procedure of Huachen Energy Co, Ltd in China as a foreign main proceeding under Chapter 15 of the US Bankruptcy Code and acknowledging all corresponding remedies. This is the first full recognition of China’s reorganisation procedures and a reorganisation plan by a US court.


First, the mode of appointment of administrators has been diversified, starting with administrators being recommended by creditors. The previous mode of appointing administrators was mainly random. Even if administrators were selected through competition, in many places, such as Zhejiang, the top three would first be selected through competition and then by drawing lots, which meant the final selection was based on luck. Some administrators could not handle difficult and complex matters, which adversely affected bankruptcy cases. Recently, the mode of selecting the best administrator through the recommendation of creditors has been tried out. For example, Beijing, Hainan and other places have successively issued documents to allow bankruptcy management departments or major creditors to recommend intermediaries from the administrator register to the people’s court after consultation. This approach is expected to significantly alter the current administrator selection landscape.

Second, the industry’s self-discipline and the standardised management of the administrator need to be better implemented. According to statistics, as of 30 June 2022, 200 bankruptcy administrator associations of all levels had been established nationwide, and some provinces (such as Zhejiang, Jiangsu and Shandong) have even achieved full coverage of all cities. It is worth noting that, with the continuous improvement of industry self-discipline requirements, many experts and scholars have called for the establishment of a national administrator association in the bankruptcy law amendment, with all practising institutions included in the association, in order to better implement the management and standardisation of the administrator institution and its members.

Capital Equity Legal Group

11F Building
Huanglong Century Plaza
Hangda Road

+86 571 87901648

+86 571 87901646
Author Business Card

Law and Practice


Fangda Partners is one of the most prestigious law firms in China, with offices in Beijing, Shanghai, Guangzhou, Shenzhen and Hong Kong. The insolvency and restructuring practice is highly regarded, with a team of nearly 30 lawyers who are experienced in using both their legal and business skills. On the contentious side, the team has experience in enforcement and asset tracing, court-appointed administration, corporate control battles and compulsory liquidation; on the transactional side, it regularly represents investors, debtors, secured and unsecured creditors, creditors’ committees, bondholders, trustees, and government rescue funds in complex transactions where businesses are in financial difficulties. The firm has particular expertise in corporate rescues, debt restructuring and special assets acquisitions. The team works closely with the firm's market-leading professionals in real estate and construction, banking, M&A, funds, capital markets, antitrust, intellectual property, and labour, depending on the matter in hand. Recently, Fangda advised an ad hoc committee of note-holders in relation to notes issued by Huachen Energy, and acted as administrator in the bankruptcy reorganisation of Dalian Shipbuilding Industry Offshore Co, Ltd.

Trends and Development


Capital Equity Legal Group (CELG) is a comprehensive, professional, standardised and internationalised large-scale law firm in China. The existing member offices of CELG include Hangzhou, Shanghai, Nanjing, Hefei, Zhengzhou, Ningbo, Huzhou, Zhoushan, Wuhu, Hamburg in Germany and Vancouver in Canada. The firm is also affiliated to a number of legal co-operation agencies all over the world. CELG has more than 100 partners and 800 lawyers and assistants. It has been ranked by Chambers and Partners as a Band 1 law firm in Corporate/Business law in East China, and as a Band 2 firm in Restructuring/Insolvency law in China. CELG has its own reorganisation and restructuring team, which has more than 60 lawyers and assistants. The team has handled more than 260 insolvency and restructuring cases as bankruptcy administrators since 2009, involving debts of more than CNY500 billion. Since 2011, the cases handled by the team have been listed as typical cases 25 times by local High Courts and the Supreme People’s Court.

Compare law and practice by selecting locations and topic(s)


Select Topic(s)

loading ...

Please select at least one chapter and one topic to use the compare functionality.