The revised law, believed to be 12 years in the making, was passed by the powerful Standing Committee of China's National People's Congress. The measure, formally called the Enterprise Bankruptcy Law, is scheduled to come into effect June 1, 2007.
The measure modernizes a 1986 bankruptcy law that applied to state-owned enterprises. It's seen as an attempt to provide a more relevant legal structure to China's increasingly market-driven economy.
"The current bankruptcy rules ... are widely regarded as outdated as they fail to give sufficient protection to creditors and only touch on state-owned enterprises," the official Xinhua news agency said.,
The new law, comprising 12 chapters and 136 articles, is believed to be far more comprehensive than the previous version, which had six chapters and 43 articles and was widely considered incomplete when it was issued. The 1986 version also had no provision for personal bankruptcies.
The new law will govern both private enterprise and state-owned enterprises under a "unified corporate bankruptcy law," Xinhua said.
At its heart, the new measure will require companies that go bankrupt to pay guarantees to creditors first, with employees' wages outstanding and other obligations paid out of what remains, Xinhua said.
Backers of the new law said it brought China into line with international standards and would help reassure foreign investors while safeguarding labor rights.
"The new law embodies the notion of putting people first, as it fully considers workers' interests. At the same time it accords with standard international practice in better protecting lenders' interests," Xinhua quoted Jia Zhijie, member of the NPC Standing Committee, as saying.
The broader plan also will also see a general restructuring of the bankruptcy system, clarifying the role of liquidators and putting in place new rules to prevent cheating during the bankruptcy process, Xinhua said.
Xinhua said the roughly 2,000 state-owned enterprises expected to announce bankruptcy before next June would not be affected by the rule change. The central government has set aside 33.8 billion yuan ($4.2 billion) this year to help those companies settle claims from laid-off workers.
The new law will also enable China's financial supervisory body to take bankrupt financial institutions to court, Xinhua said.
Chris Oliver is MarketWatch's Asia bureau chief, based in Hong Kong.
Source :http://www.marketwatch.com
The measure modernizes a 1986 bankruptcy law that applied to state-owned enterprises. It's seen as an attempt to provide a more relevant legal structure to China's increasingly market-driven economy.
"The current bankruptcy rules ... are widely regarded as outdated as they fail to give sufficient protection to creditors and only touch on state-owned enterprises," the official Xinhua news agency said.,
The new law, comprising 12 chapters and 136 articles, is believed to be far more comprehensive than the previous version, which had six chapters and 43 articles and was widely considered incomplete when it was issued. The 1986 version also had no provision for personal bankruptcies.
The new law will govern both private enterprise and state-owned enterprises under a "unified corporate bankruptcy law," Xinhua said.
At its heart, the new measure will require companies that go bankrupt to pay guarantees to creditors first, with employees' wages outstanding and other obligations paid out of what remains, Xinhua said.
Backers of the new law said it brought China into line with international standards and would help reassure foreign investors while safeguarding labor rights.
"The new law embodies the notion of putting people first, as it fully considers workers' interests. At the same time it accords with standard international practice in better protecting lenders' interests," Xinhua quoted Jia Zhijie, member of the NPC Standing Committee, as saying.
The broader plan also will also see a general restructuring of the bankruptcy system, clarifying the role of liquidators and putting in place new rules to prevent cheating during the bankruptcy process, Xinhua said.
Xinhua said the roughly 2,000 state-owned enterprises expected to announce bankruptcy before next June would not be affected by the rule change. The central government has set aside 33.8 billion yuan ($4.2 billion) this year to help those companies settle claims from laid-off workers.
The new law will also enable China's financial supervisory body to take bankrupt financial institutions to court, Xinhua said.
Chris Oliver is MarketWatch's Asia bureau chief, based in Hong Kong.
Source :http://www.marketwatch.com