April 24, 2014
Bankruptcy in China and What to Do When Your Business Partner Goes Bankrupt
Presented by
Partner and Shanghai Office Chief Representative Yoshinari Yasue
Hosted by
Japan Knowledge Center Co., Ltd.
Ginza Phoenix Plaza (Paper Pulp Hall)

Seminar outline

“Once you start business in China, it’s hard to get out.”—This is something we hear often.

I would like to give an understanding of the bankruptcy system in China, focusing on the Enterprise Bankruptcy Law enacted in 2007, and discuss whether it can be used as a method of withdrawing from China.

It is not uncommon for a trading partner to file for bankruptcy. While China’s 2000-3000 cases each year seem much less than Japan’s, where the number of companies going bankrupt is over 10,000 annually, there may be problems beyond what creditors expect, as described by the saying “practice does not follow the law in China”. I will explain key points that creditors should prepare in case the worst should occur, looking at recent examples of problems like these.

Seminar topics

Part 1: Outline of China’s bankruptcy system 1. Laws and practice

(1) The reality after the enactment of the Enterprise Bankruptcy Law

(2) Use by foreign-invested companies

(3) What is “重整” (reorganization)?

2. Requirements for and effects of bankruptcy motions
(1) China does not have a personal bankruptcy system!
(2) The court has demanded a guarantee, but what should I do?
(3) Cases where the courts will not allow bankruptcy
(4) What disadvantages are there in filing for bankruptcy?

3. Progress of bankruptcy procedures and expected time to completion

Part 2: Practice under China’s bankruptcy system
1. Bankruptcy motions by creditors
(1) Is the system for creditor bankruptcy motions easy to use?
(2) Timing for processing bad-debt losses
(3) What went on behind the scenes in the iPad trademark case

2. Bankruptcy of trading partners
(1) What creditors should pay attention to to prevent reduction of the bankruptcy estate
(a) Items included in the bankruptcy estate and the order of precedence
(b) Rights available to creditors, including a comparison with Japan
(c) Precedents where labor debts were given precedence, notwithstanding the statutory order
(d) Can land be part of the bankruptcy estate, even though it is owned by the state?

(2) Conversion of the bankruptcy estate into cash and troubles involving this
(a) Conversion practice (including discussion of resellers and cases of illegality relating to them)
(b) Cases of recovery of molds lent to the trading partner’s factory