CHINA Trends and Developments Contributed by: Wenle Du, Yao Zhang, Lei Zhu and Yadan Pang, Han Kun Law Offices
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. 12. 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 share - holder must submit a plan for repaying non-dis - chargeable 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-dischargea - ble, 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 revi - sion of the current Enterprise Bankruptcy Law, consti - tuting a systematic upgrade of the bankruptcy regime. This upgrade focuses on improvements to the market exit mechanism, rescuing struggling businesses, miti - gating 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 entre - preneurial 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.
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