China’s Enterprise Bankruptcy Law Undergoes Its Inaugural Amendment

On 12 September 2025, the National People’s Congress of China issued draft revisions to the Enterprise Bankruptcy Law (the “Revision Draft”) for public comment. The Revision Draft is intended to address the novel challenges and problems that have arisen in the context of the application of the Enterprise Bankruptcy Law during the past 18 years.

The Revision Draft constitutes a pivotal component of ongoing supply-side structural reforms and is imperative for aligning with the latest international bankruptcy practices, thereby optimising the institutional role of bankruptcy in China’s high-quality economic development. The Revision Draft adheres to the principles of market regulation, concentration on critical issues, gradual advancement of reforms, and enhancement of legal coherence.

Key changes proposed in the Revision Draft

The Revision Draft is comprehensive in its scope and would include the addition and modification of more than 160 provisions to the existing 136 articles within 12 chapters of the Enterprise Bankruptcy Law. Key changes found in the Revision Draft are listed and discussed in this article.

Establishing a bankruptcy co-ordination mechanism

Issues related to social stability and credit restoration in bankruptcy cases need to be addressed by local people’s governments and relevant departments. To this end, the Revision Draft would establish a bankruptcy work co-ordination mechanism at the county level and above, and clearly define the leading departments responsible for performing administrative management duties and co-ordinating bankruptcy-related administrative matters (Article 7).

Enhancing the bankruptcy application and acceptance process

The Revision Draft provides for interim measures to prevent the debtor’s property from depreciating or being fraudulently transferred after the bankruptcy application is filed and before the court makes a ruling. During this period, creditors and debtors can seek to halt enforcement or protective actions (Article 11).

The Revision Draft would strengthen the obligations of legal representatives and other relevant personnel in the bankruptcy process. It clearly stipulates that such personnel should hand over property, seals, books, documents, and other materials to the bankruptcy administrator as required. If such personnel fail to hand over within the specified time limit, the bankruptcy administrator may apply for compulsory execution (Article 17).

Upon the court’s acceptance of a bankruptcy case, the range of actions for which preservation measures can be lifted and execution procedures can be stayed is broadened. This now includes administrative litigation and actions involving preservation and execution measures implemented by tax authorities and customs (Article 24).

Refining the bankruptcy administrator mechanism

First, the Revision Draft clearly provides that the bankruptcy administrator is the principal entity responsible for administering a debtor’s bankruptcy proceedings (Article 29).

Second, the Revision Draft would improve the way bankruptcy administrators are appointed; the creditors’ meeting can apply to the court to replace the bankruptcy administrator and recommend a candidate. The court is required to replace the administrator with a candidate proposed by the creditors’ meeting, provided the proposed candidate does not fall under any disqualifying conditions as per the Enterprise Bankruptcy Law. A single creditor may submit a petition for replacement, with the final decision resting with the court. The list of qualified bankruptcy administrators is to be updated regularly (Articles 30 to 32).

Third, the scope of a bankruptcy administrator’s duties is broadened to include the disclosure of pertinent property and management information to involved creditors, as well as the fulfilment of tax obligations such as tax filings and invoice issuances (Article 33).

Fourth, the revisions introduce a framework for increased supervision of bankruptcy administrators by relevant government departments (Article 38).

Refining the rules of setting aside or annulling transactions and the priority of claims

First, the Revision Draft details circumstances for setting aside or annulling a transaction or a transfer. Based on the original five types of revocable transactions, the Revision Draft classifies revocable transactions by nature and incorporates new types, including waiving security associated with external claims, extending the maturity of due claims, disposing of property rights for free, and assuming the role of a guarantor or co-debtor. The look-back period covering transactions between the debtor and its affiliates is extended to two years prior to the onset of the bankruptcy process, and fraudulent preference with affiliate parties is extended to one year. According to the Revision Draft, the bankruptcy administrator will prevail in litigation within one year from the date it knew or should have known the cause for revocation (Articles 42 to 47).

Second, the Revision Draft introduces a provision granting the creditors’ meeting the right to decide on significant property disposal of the debtor (Article 84).

Third, the priority of claims has been restructured. The revised order is:

• claims for personal injury compensation;
• liabilities associated with goods or services essential for consumers’ sustenance;
• employee salaries and social insurance;
• tax; and
• general unsecured claims.

Furthermore, the Revision Draft introduces a framework for subordinated debts, including loans provided by family members to the individual debtor, interest accruing post-bankruptcy acceptance, subordinated bonds, punitive damages, and claims from unfair transactions with affiliated parties (Article 162).

Introducing an out-of-court restructuring system

This framework facilitates out-of-court restructuring aimed at achieving reorganisation. In terms of linking out-of-court restructuring with formal reorganisation procedures, the following apply.

• The debtor may apply to the court for the inclusion of the terms of the out-of-court restructuring agreement into the reorganisation plan. If the reorganisation plan is consistent with the restructuring agreement, the consent given by creditors and the debtor’s shareholders to the agreement is deemed as their consent to the corresponding sections of the reorganisation plan.
• The debtor may also apply for approval of a preliminary reorganisation plan concurrent with its application for reorganisation. For this, the debtor would need to disclose necessary information, the content of the reorganisation plan would need to align with the Enterprise Bankruptcy Law, and adherence to pre-voting procedures and outcomes as stipulated in the Enterprise Bankruptcy Law is required. Additionally, the debtor would be required to prove the proposed plan is viable (Articles 100 to 102, Article 120).

Optimising the regulations on reorganisation

The Revision Draft introduces specific guidelines for selecting investors, emphasising the importance of an open and transparent recruitment process. Creditors and the debtor’s shareholders may propose potential investors, who would be granted access to debtor information and be required to submit deposits and maintain confidentiality (Articles 113 and 114).

The Revision Draft clarifies that creditors and interested parties whose rights are not adversely impacted by the reorganisation plan would not participate in the voting (Article 117).

The criteria for court approval of reorganisation plans are detailed, requiring adherence to legitimate voting procedures, feasibility of the business plan, and fairness, justice and legality of the plan’s content. Should creditors not approve the plan, the court may conduct a hearing prior to enforcing a cram-down approval. Interested parties dissatisfied with the court’s decision may apply for a review by a higher court (Articles 123 to 128).

A mechanism for credit repair is established, allowing debtors to apply to pertinent government departments, banks and other financial institutions for credit rehabilitation (Article 139).

Adding special provisions for the bankruptcy procedures of micro- and small enterprises (MSEs)

According to the Revision Draft, MSE cases may be adjudicated by a single judge, who is required to conclude the proceedings within six months of acceptance. The timeline for creditor claims is not bound by the standard procedure limits (30 days to three months). In reorganisation, the debtor may manage its assets and business under the supervision of the administrator generally. Either the bankruptcy administrator or the debtor must present a draft reorganisation plan within three months. Shareholders who are crucial to the debtor’s business and agree to settle debts with their future income may retain all or a portion of their shares and control (Articles 178 to 183).

Improving the bankruptcy system for financial institutions

The Revision Draft clarifies the legal framework and the scope of financial institutions subject to bankruptcy.

• The conditions for initiating bankruptcy proceedings require either insolvency or a regulatory authority’s determination that the institution has significantly deviated from regulatory standards.
• Applications for bankruptcy may be filed by five entities: creditors, debtors, regulatory authorities, their delegated agencies, and deposit insurance funds or other guarantee funds.
• The jurisdiction for bankruptcy cases involving financial institutions is assigned to intermediate people’s courts.
• Major shareholders, actual controllers, and beneficial owners of financial institutions who are primarily responsible for the bankruptcy would be required to fulfil the co-operation obligations as stipulated in Article 17 of the Revision Draft.
• The measures implemented by the financial regulatory authority, including asset verification, creditor verification, and property disposal, are deemed effective upon review and approval by the court.
• In cases where other laws provide specific provisions for the order of creditor claims in the bankruptcy of financial institutions, these provisions shall be adhered to (Articles 192 to 201).

Enhancing the bankruptcy regulations for listed companies

The Revision Draft provides that the court is required to seek the opinion of the China Securities Regulatory Commission (CSRC) before accepting applications for the reorganisation of listed companies and may consider the CSRC’s input before determining that the reorganisation plan has been fully implemented (Articles 96 and 138). The China Securities Investor Services Center is authorised to represent investors in filing claims (Article 81). Listed companies undergoing reorganisation must adhere to the information disclosure requirements set by the securities regulatory authority.

Introducing a system for consolidated bankruptcy

The Revision Draft outlines the criteria for accepting cases, the jurisdiction of the court, and the legal implications of substantive consolidated bankruptcy.

• It clarifies details such as the interruption of the statute of limitations for external debt claims, revocable actions, revocable individual settlements, the initiation of creditor claims, and the submission of draft reorganisation plans (Articles 184 to 188).
• It also provides guidelines for the acceptance, jurisdiction, settlement of associated creditor claims, and the voting on draft reorganisation plans in the co-ordinated trials of related enterprises (Articles 189 and 190).
• Individuals and enterprises that meet certain conditions may apply for substantive consolidation trials or co-ordinated trials.

Refining the judicial co-operation system in cross-border bankruptcy

The court has jurisdiction over debtors with foreign domicile. Bankruptcy proceedings can be initiated if it is in the best interest of the creditors.

The bankruptcy administrator may apply to foreign courts for recognition of the bankruptcy procedure and for recognition of their status as an administrator. The chapter outlines the conditions and effects of recognition and assistance of foreign bankruptcy proceedings.

Per Articles 202 to 206, the basis for recognition of restructuring or insolvency procedures in another country encompasses:

• proceedings taking place in the place where the debtor has the centre of its main interests;
• compliance with PRC laws and public policy;
• non-infringement on national sovereignty and social interests; and
• protection of creditors’ rights within China, and adherence to the principle of reciprocity.

Introducing a debt settlement system for individual shareholders

The Revision Draft would establish a framework for addressing the debts of individual shareholders of bankrupt companies, as follows.

• For an individual shareholder to seek bankruptcy protection, the company must be in bankruptcy and the individual shareholders must be jointly liable for the company’s debts (Article 2).
• Individual shareholders are required to fully and accurately disclose their personal and family assets and be subject to supervision (Article 19).
• Individual shareholders with predictable future income may apply for reorganisation; the shareholder must submit a plan for repaying non-dischargeable debts and dischargeable debts, with a maximum execution period of five years (Article 98). A period of supervision is also stipulated, which can extend up to five years (Article 174).
• Debtors who, through intentional acts or gross negligence, infringe upon the personal rights and interests of others, owe goods or services essential for consumers’ welfare, owe labourers’ wages, or cause losses to the enterprise are subject to non-dischargeable debt obligations (Article 175).
• Malicious debts of the debtor are non-dischargeable, including violations of bankruptcy regulations, obligations, or behavior restrictions, debts primarily caused by gambling and other malicious conduct, bankruptcy fraud, and responsibility for financial fraud (Article 176).

In summary

The Revision Draft represents a comprehensive revision of the current Enterprise Bankruptcy Law, constituting a systematic upgrade of the bankruptcy regime. This upgrade focuses on improvements to the market exit mechanism, rescuing struggling businesses, mitigating economic and financial risks, and safeguarding the interests of various stakeholders.

The refinement of the bankruptcy legal framework is instrumental in cultivating a fair, transparent, and predictable business environment under the rule of law. This, in turn, helps to stabilise entrepreneurs’ expectations and stimulate investment and entrepreneurial activity. By promoting a legal environment that encourages innovation and accepts failure, the Revision Draft provides a robust foundation for the “rebirth” of market entities.