Best Restructuring & Insolvency Lawyers in China

About Restructuring & Insolvency Law in China

Restructuring and insolvency law in China governs how financially distressed businesses and individuals go through processes to reorganize their obligations or liquidate assets if they are unable to meet their debts. The aim is to maintain economic stability, protect the rights of creditors and debtors, and provide structured procedures for resolving financial distress. Over the years, China has modernized its bankruptcy laws, primarily through the Enterprise Bankruptcy Law, to address growing complexities in the economy and globalization of business.

Why You May Need a Lawyer

There are several situations where seeking legal assistance in restructuring and insolvency becomes critical in China. Common scenarios include:

• You or your business cannot pay outstanding debts and face pressure from creditors.
• You need to negotiate debt restructuring plans with lenders to avoid formal bankruptcy.
• Your company is undergoing reorganization and requires a legally compliant plan to maximize asset value and continue operations.
• A creditor is seeking repayment or considering initiating insolvency proceedings against a debtor.
• You need to navigate complex cross-border insolvency issues or handle assets in multiple jurisdictions.
• You require guidance on director liabilities, employee rights, and asset protection measures during restructuring.

A lawyer can help protect your interests, ensure compliance with legal procedures, negotiate with stakeholders, and offer strategic advice tailored to your situation.

Local Laws Overview

The primary legal framework for restructuring and insolvency in China is the Enterprise Bankruptcy Law of the People’s Republic of China, which came into effect in 2007. Key aspects of local laws include:

• Scope: The law applies mainly to companies, including state-owned, private, and foreign-invested enterprises. Personal bankruptcy is not yet fully covered nationwide, but pilot programs exist in some cities.
• Types of Proceedings: The law recognizes three main types of proceedings - liquidation, reorganization, and settlement. Each has different requirements and outcomes.
• Role of the Court: Bankruptcy cases are handled by local People’s Courts, which have authority over acceptance, supervision, and resolution of cases.
• Administrator Appointment: A court-appointed administrator (often a law firm or accounting firm) manages the debtor’s assets and affairs during proceedings.
• Creditors’ Rights: Creditors must declare claims with evidence to the administrator. Voting by creditor groups determines restructuring or liquidation outcomes.
• Debtor Protections: Upon acceptance of bankruptcy, an automatic stay is enacted, stopping individual legal actions and asset preservation measures by creditors.
• Reorganization Plans: Debtors or administrators can propose reorganization plans, which must be approved by creditor voting groups and the court.
• Cross-Border Procedures: While not fully harmonized with international regimes, Chinese law allows for some recognition of foreign insolvency proceedings under specific conditions.

Frequently Asked Questions

What is the difference between restructuring and liquidation in China?

Restructuring aims to help a debtor reorganize its debts and business operations to continue as a going concern, often through court-approved plans. Liquidation involves winding up the business and distributing assets to creditors.

Who can initiate bankruptcy proceedings in China?

Bankruptcy proceedings can be initiated by the debtor itself or by one or more creditors when the debtor is unable to repay its due debts.

Is personal bankruptcy available in China?

As of now, personal bankruptcy is only available on a trial basis in certain pilot cities such as Shenzhen. There is not yet a comprehensive nationwide personal bankruptcy regime.

How are creditors treated under Chinese bankruptcy law?

Creditors are grouped and must declare their claims. Secured creditors may receive priority from the proceeds of collateral. All creditors can participate in meetings and vote on key decisions such as reorganization plans or settlement agreements.

What happens after a company enters bankruptcy proceedings?

The court accepts the case, appoints an administrator, and suspends most lawsuits and enforcement actions against the debtor. The administrator manages the business and prepares asset and debt lists for creditor review.

Can foreign creditors participate in Chinese insolvency cases?

Yes, foreign creditors can declare claims and participate in proceedings, but everything must be done in accordance with Chinese law and through the procedures set by the court.

What protections do company directors and managers have?

Directors and managers must act in good faith and cooperate with the court and administrator. They may be held liable for misconduct or fraudulent activities but have certain protections if acting appropriately within the law.

How long does a typical restructuring or bankruptcy process take in China?

Timelines vary based on complexity, size, and cooperation of stakeholders. Some cases can resolve in a few months, but large or contested matters may take years.

Are there alternatives to formal bankruptcy in China?

Yes. Out-of-court restructuring and settlement agreements can often resolve financial distress if creditors and debtors negotiate successfully under legal guidance.

What are the consequences of bankruptcy for employees?

Employees' claims for unpaid salaries and compensation are given priority in bankruptcy proceedings, but their employment may end if the business is liquidated. In reorganizations, efforts are made to preserve jobs when possible.

Additional Resources

Individuals and businesses can seek information and support from a number of organizations and government agencies. Helpful resources include:

• Local People’s Courts handling bankruptcy matters
• China Banking and Insurance Regulatory Commission (CBIRC) for financial industry guidance
• Official Bankruptcy Administrator Associations in major cities
• Municipal Justice Bureaus for lawyer referrals
• law schools and research institutes publishing insolvency guides
• Local bar associations providing lists of qualified insolvency practitioners

Next Steps

If you are facing financial distress or insolvency concerns in China, here is how you can move forward:

• Gather all relevant financial and legal documents related to your debts, assets, and business structure.
• Consult with a specialized lawyer experienced in restructuring and insolvency to evaluate your options and plan a strategy.
• Assess whether informal negotiations or formal court proceedings are best for your situation.
• Work closely with your lawyer to prepare required filings, coordinate with creditors, and participate in court or out-of-court procedures.
• Follow the progress of your case and keep open communication with your legal representative for updates and advice.

The laws and processes can be complex, so professional legal support is essential to maximize your chances of a successful outcome and protect your interests.