Beijing (AsiaNews/SCMP) China's National People's Congress (NPC) yesterday announced passage of the much-anticipated Corporate Bankruptcy Law. For lawmakers, the law will provide protection to both creditors and workers of insolvent companies. It will come into effect on June 1 next year, 12 after the draft was first tabled, and replace the Interim Enterprise Bankruptcy Law, which was applied primarily to state-owned enterprises and paved the way to economic liberalisation and the dismantling of the old industrial system. The new law will apply to state-owned enterprises, private companies, financial institutions and foreign-invested companies.
Speaking at a news conference in the Great Hall of the People, members of the Standing Committee of the NPC said any enterprise declaring bankruptcy would pay its creditors first, and could then use any remaining assets to pay laid-off workers.
"The provision is a compromise that aims to protect both creditors and workers of insolvent enterprises," Cheng Siwei, a vice-chairman of the Standing Committee.
"The new law embodies the notion of putting people first, as it fully considers workers' interests. At the same time, it complies with standard international practice in better protecting lenders' interests," said Jia Zhijie, a member of the Standing Committee.
The new law makes an exception for about 2,000 ailing state-owned enterprises, which will be allowed to declare a "policy bankruptcy", in which laid-off workers will be paid first.
Under a State Council compromise, those state-owned enterprises that announce bankruptcy before June next year can be closed down with financial aid from the government and laid-off workers could be paid first. All other companies are instead supposed to fall under the new rules.
Under the terms of the new law, senior managers must shoulder greater responsibility for bankruptcies, and are restricted from taking senior positions in other companies for three years following a declaration of bankruptcy.
The law will also empower state regulators to institute bankruptcy procedeeing for troubled financial institutions.
In addition, NPC member An Jian said that a new provision will enable financial institutions in difficulty to qualify for either a trusteeship or takeover measures.
"Financial regulatory authorities may resort to a takeover or trustee measures during this process to guarantee that it will be smoothly executed and to prevent a situation where a creditor may seek bankruptcy assets," he explained.
The new law also allows for the reorganisation of failing companies that might be saved. Mr An said certain reorganisation schemes could be applied to insolvent or financially-strapped companies "but whose fortunes may be revived". This way they could avoid the effects of liquidation, such as unemployment and loss of income.
Under the old bankruptcy law, some 60 million people joined the ranks of the unemployed.
