China's New Bankruptcy Law: Slow Train Coming
By Brad Luo and Steve Dickinson
On June 1, 2007, China enacted a new bankruptcy law. One year on, our report from the field indicates it is only very slowly having an influence on debtor-creditor relations. Like so many of China's newly enacted business laws, it has been slow to take hold because so much of it remains unclear due to the lack of comprehensive implementing regulations.
In comparison with its predecessor, the current Enterprise Bankruptcy Law is a major step towards establishing a comprehensive and modern bankruptcy system that is up to international standards. For example, it:
-- pays secured creditors ahead of employee claims;
-- allows all business entities, other than partnerships and sole proprietorships, to file for bankruptcy protection;
-- allows both voluntary and involuntary filings;
-- allows all debtors to undertake a Chapter 11-like reorganization process;
-- establishes a brand new bankruptcy functionary, the bankruptcy administrator, who is to be appointed by the bankruptcy judge, and to be monitored by the creditors’ committee;
-- empowers creditors to be more actively involved in the bankruptcy process; and
-- protects creditors by allowing them to vote in the reorganization plan, even though they cannot submit a plan themselves.
China is not one of the fifteen countries that has adopted legislation based on the UNCITRAL Model Law on Cross-Border Insolvency.
Based on information provided by the Bankruptcy and Restructuring Research Center of China University of Politics and Law [Chinese] (which appears to be a think tank), only three Chinese companies have elected to go through reorganization under the new Enterprise Bankruptcy Law.
Curiously, the Chinese State Council has not issued comprehensive implementing regulations, more than a year after promulgation of the new law, leaving serious issues unresolved. For instance, even though the bankruptcy code provides for lifting the automatic stay under Article 75, it does not explain the circumstances under which the bankruptcy judge should lift the stay.
The Supreme People’s Court has issued a couple of interpretative opinions regarding the new bankruptcy code. On April 4, 2007, it issued the Rules on Appointing Bankruptcy Administrators [Chinese] and Rules on Compensating Bankruptcy Administrators [Chinese], both of which became effective on the same date as the bankruptcy code. On April 16, 2008, the China Securities Commission promulgated the Measures on the Reorganization of Listed Companies [Chinese], primarily dealing with the standards for reorganization and the responsibilities of parties involved in a reorganization.
The lack of regulations and the relatively low number of bankruptcy cases filed illustrates the current problem with legislation in China. Over the last several years, China has rushed to implement a whole slew of major laws required for a modern market economy. Many of these laws were adopted in the midst of a great deal of controversy and to get these laws passed, decisions on controversial issues were often deferred to subsequent promulgations of regulations. The delay in issuing regulation is not simply a result of a lack of time or technical difficulty. It is a symptom of the fact that many of the controversial issues have not been resolved at the top levels of government. Until this happens, we should not expect to see much clarity on this or any number of other recent laws.
For more on China's new bankruptcy law, check out the following previous posts:
-- "China's New Bankruptcy Laws: Good For Business"
-- "China's New Bankruptcy Laws: Not Quite So Good For Business"
-- "China's New Bankruptcy Law"
-- "China's New Bankruptcy Law -- First Report From The Ground"
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The Regulation Concerning Establishment of Harmonious Labor Relationship in Shenzhen Economic Special Zone (Draft) was released for comment on June 2, 2008 by Standing Committee of National People Congress of Shenzhen City. The Draft consists of six chapters, regulating four aspects mainly: self-discipline and development of employer and employee, collective negotiation in labor relationship, service and administration of government, management and assistance of labor disputes.
Background
The Labor Contract Law came into force as of January 1, 2008, which has a great effect on Chinese labor relationship. Several levels of society were keen to the release of implementary rules to clarify some ambiguous articles. On May 8, the Legislative Affairs Office of the State Council of PRC released the Implementary Ordinance on Labor Contract Law on for public input. The Draft was the first local regulation on the implementation of the Labor Contract. For establishment of harmonious labor relationship, the lawmaking team of the Draft prepared from January 2008 and collected lots of legislative information on the labor law of other states and area.
Highlights
Conclusion of labor contract. Employer may terminate the labor relationship without paying economic compensation if the employer proposes to sign the written labor contract within one month after the date the Employer starts using the employee but the employee refuse to such a proposal without proper reasons. Employee shall pay employee double monthly salary if the Employer fail to sign a retroactive labor contract with employee within one year after employer starts using the employee; however, in the event that the employee refuses to sign retroactive labor contract, employer may terminate the labor relationship with paying economic compensation.
For the purpose of protecting the employee’s rights and interests, Labor contract law imposes obligation of conclusion of labor contract on Employer. The labor contract law regulates that employer shall pay doubly monthly salary if they fail to sign labor contract within one year after starting using employee. In fact, in some area, some employees refuse to sign labor contract because they are reluctant to be deducted 7% or more of his salary for the social insurance from their lower salary; on the other hand, employer lacks employee to carry on business, so they are unwilling to urge the employee to sign the labor contract by claiming to terminate the labor relationship, although employer has to bear the legal risk of labor disputes and administrative penalties.
Non-fixed term contract. If the non-fixed term contract shall be concluded in according to the law, but employee’s condition is superior to the former labor contract, the contract shall be concluded after friend consultations conducted in accordance with the principles of equality and mutual benefit. If the contract can not reached, each party may file a lawsuit or apply for arbitration.
Article 14 of Labor Contract Law imposes the obligation of conclusion a non-fixed term contract on employer. The employer has to conclude the non-fix-term contract or else the employer has to pay double monthly salary if the employee has been working for the employer for a consecutive period of not less than 10 years; the renewal occurs following the conclusion of a fixed-term employment contract on two consecutive occasions etc. so if some employee abuse the rights to conclude non-fixed term contract, the employer has no choice to accept or face the risk to pay double monthly salary or administrative penalty.
Collectively negotiation and collective labor contract. The Draft details the collective negotiation, including startup, negotiation content, obligation of negotiants, process, content of collective negotiation etc. the chapter five of labor contract law outlines the collective negotiation system only, more detail rules needed to make the general principles come into force.
Credit system of labor relationship. The credit system of labor relationship will be established by the government. The labor administrative bureau will record the basic information of the enterprise into credit system if the employer breaches the labor law, regulations materially. The employer recorded shall not carry on program invested by government, participate in government stock. The legal representative or principal of the employer is prevented to from registering new enterprise in Shenzhen.
Salary security system in construction industry. The government will establish salary security system in construction industry. The construction company shall deposits 1% of construction contract price into special bank account to secure the salary of the employee. The bail shall be managed by construction administrative bureau with supervision of labor administrative bureau. If the construction unit fail to payoff the salary of employee or make salary settlement, the construction administrative bureau will not begin check and accept process for the construction.
Negotiation on strike and Issuance of the Order to Resume. If shutdown, cacanny occurs in employer, the represent of labor union shall negotiate with employer to express the opinion of employee and propose solution plan. The employer must take measures for the reasonable conditions of employee. If shutdown, cacanny occurs in water plant, electricity plant or other enterprise which provides public service, the government may order the employer or employee to resume ordinary production as soon as possible.
Legal assistance and judicial salvation. The lawyer registered in Shenzhen shall assume a legal assistance for labor dispute case under the arrangement of the legal administrative bureau.
Posted by: forrest | June 5, 2008 1:25 AM
Does anyone know whether any Chinese companies have settled their bankruptcy claims in court under the new laws? In particular Zarva Technology
thanks
Posted by: poorvic | July 23, 2008 4:05 PM