Law of the People's Republic of China on Enterprise Bankruptcy
(For Trial Implementation)

(Effective Date:1988.10.01--Ineffective Date:)
(Adopted at the 18th Meeting of the Standing Committee of the Sixth National People's Congress and promulgated by Order No. 45 of the President of the People's Republic of China on December 2, 1986 for Trial Implementation Three Full Months After the Law on Industrial Enterprises with Ownership by the Whole People Comes into Effect)

CONTENTS

CHAPTER I GENERAL PROVISIONS
CHAPTER II THE SUBMISSION AND ACCEPTANCE OF BANKRUPTCY APPLICATIONS
CHAPTER III CREDITORS' MEETINGS
CHAPTER IV SETTLEMENT AND REORGANIZATION
CHAPTER V BANKRUPTCY DECLARATIONS AND BANKRUPTCY LIQUIDATIONS
CHAPTER VI SUPPLEMENTARY PROVISIONS

CHAPTER I GENERAL PROVISIONS

Article 1 This Law is formulated in order to suit the development of the planned socialist commodity economy and the needs of the reform of the economic structure, to promote the autonomous operation of enterprises owned by the whole people, to strengthen the economic responsibility system and democratic management, to improve the state of operations, to increase economic efficiency and to protect the lawful rights and interests of creditors and debtors.

Article 2 This Law applies to enterprises owned by the whole people.

Article 3 Enterprises which, owing to poor operations and management that result in serious losses, are unable to repay debts that are due shall be declared bankrupt in accordance with the provisions of this Law.

Enterprises for which creditors file for bankruptcy shall not be declared bankrupt under any of the following circumstances:

(1) public utility enterprises and enterprises that have an important relationship to the national economy and the people's livelihood, for which the relevant government departments grant subsidies or adopt other measures to assist the repayment of debts;

(2) enterprises that have obtained guarantees for the repayment of debts within six months from the date of the application for bankruptcy.

With respect to enterprises for which creditors file for bankruptcy, bankruptcy proceedings shall be suspended against those for which the superior departments in charge have applied for reorganization, and if the enterprise and the creditors have reached a settlement agreement through consultation.

Article 4 The state through various means shall appropriately arrange for the reemployment of the staff and workers of bankrupt enterprises, and shall guarantee their basic living needs prior to reemployment; specific measures shall be separately stipulated by the State Council.

Article 5 Bankruptcy cases shall be under the jurisdiction of the people's courts in the location of the debtor.

Article 6 Where this Law has not stipulated the procedures for bankruptcy cases, the legal provisions for civil procedures shall apply.

CHAPTER II THE SUBMISSION AND ACCEPTANCE OF BANKRUPTCY APPLICATIONS

Article 7 Where the debtor is unable to repay debts that are due, the creditors may file to declare the debtor bankrupt.

When the creditor is submitting the bankruptcy application, it should provide relevant evidence relating to the amount of the claim, whether or not it is secured with property, and to the inability of the debtor to repay debts that are due.

Article 8 The debtor, upon the agreement of its superior departments in charge, may apply for the declaration of bankruptcy.

When the debtor is submitting the bankruptcy application, it shall explain the circumstances of the enterprise's losses and deliver relevant accounting statements, a detailed list of debts and a detailed list of claims.

Article 9 After the people's court has accepted a bankruptcy case, it shall notify the debtor within ten days and make a public announcement. Within ten days after receiving the detailed list of debts delivered by the debtor, the people's court shall notify known creditors. The public announcement and notice shall stipulate the date of the first convening of the creditors' meeting.

Creditors who have been notified shall, within one month after receiving the notice, and creditors who have not been notified shall, within three months after the date of the public announcement, report their claims to the people's court and explain the amount of the claims, as well as whether or not they are secured with property, and also deliver relevant materials of proof. Creditors who do not report their claims during these periods shall be deemed to have automatically abandoned their claims.

The people's court shall register separately claims that are secured with property and claims that are not secured with property.

Article 10 Where creditors have made the bankruptcy application, the debtor shall, within 15 days after receiving the notice of the people's court, deliver to the people's court the relevant materials described in the second paragraph of Article 8 of this Law.

If the debtor is a guarantor for another unit, it shall, within five days after receiving the notice of the people's court, in turn notify the relevant parties.

Article 11 After the people's court has accepted a bankruptcy case, other civil enforcement proceedings against the property of the debtor must be suspended.

Article 12 After the people's court has accepted a bankruptcy case, payment by the debtor to only some of the creditors is null and void, with the exception of payments required for the normal production and operations of the debtor.

CHAPTER III CREDITORS' MEETINGS

Article 13 All creditors are members of the creditors' meeting. Members of the creditors' meeting enjoy the right to vote, provided, however, that creditors with claims secured with property which have not abandoned their priority right to be repaid are excepted. Guarantors of the debtor, after having repaid debts on behalf of the debtor, may be deemed creditors, and enjoy the right to vote.

The chairman of the creditors meeting is designated by the people's court from among the creditors with the right to vote.

The legal representative of the debtor must attend the creditors' meetings and answer the creditors inquiries.

Article 14 The first creditors' meeting is called by the people's court, and shall be convened within 15 days after the expiration of the period for reporting claims. Subsequent creditors' meetings are convened at such times as the people's court or the chairman of the meeting deems them necessary, and may also be convened on the request of the liquidation committee or of creditors whose claims comprise more than one fourth of the total amount of claims not secured with property.

Article 15 The functions and powers of the creditors' meeting are:
(1) to examine materials of proof relating to the claims, and to confirm the amount of such claims and whether or not the claims are secured with property;
(2) to discuss and adopt a draft settlement agreement; and
(3) to discuss and adopt a plan for the disposition and distribution of bankruptcy property.

Article 16 Resolutions of the creditors meeting are adopted by a majority of creditors with the right to vote present at the meeting; the amount of their claims must comprise more than half of the total amount of claims that are not secured with property, however, with respect to a resolution adopting a draft settlement agreement, such amount must comprise more than two thirds of the total amount of claims not secured with property.

Resolutions of the creditors' meeting shall have binding force on all the creditors.

Creditors who consider the resolutions of the creditors' meeting to be contrary to the provisions of law may, within seven days after the creditors' meeting has made such resolutions, apply to the people's court for judgment.

CHAPTER IV SETTLEMENT AND REORGANIZATION

Article 17 With respect to enterprises for which the creditors apply for bankruptcy, the superior departments in charge of the enterprise that is the subject of the bankruptcy application may, within three months after the people's court has accepted the case, apply to carry out reorganization of the enterprise; the period of reorganization shall not exceed two years.

Article 18 After an application for reorganization is submitted, the enterprise shall propose a draft settlement agreement to the creditors' meeting.

The settlement agreement shall stipulate the period in which the enterprise shall repay the debts.

Article 19 After the enterprise and creditors' meeting have reached a settlement agreement which has been recognized by the people's court, the people's court shall make a public announcement and suspend the bankruptcy proceedings. The settlement agreement shall have legal effect from the date of the public announcement.

Article 20 The reorganization of the enterprise shall be supervised by its superior departments in charge.

The reorganization plan of the enterprise shall be discussed by the congress of the staff and workers of the enterprise. The circumstances of the reorganization of the enterprise shall be reported to the congress of the staff and workers of the enterprise and its opinion shall be heeded.

The circumstances of the reorganization of the enterprise shall be periodically reported to the creditors' meeting.

Article 21 During the period of reorganization, an enterprise in any of the following circumstances shall, upon judgment of the people's court, terminate reorganization and declare its bankruptcy:

(1) not implementing the settlement agreement;
(2) continued worsening in its financial condition, for which reason the creditors' meeting has applied for the termination of reorganization; and
(3) committing any of the acts listed in Article 35 of this Law and seriously harming the interests of creditors.

Article 22 With respect to an enterprise that has undergone reorganization and is able to repay debts in accordance with the settlement agreement, the people's court shall terminate the bankruptcy proceedings for such enterprise, and also make a public announcement thereof.

With respect to an enterprise that, on the expiration of the period of reorganization, is unable to repay debts in accordance with the settlement agreement, the people's court shall declare such enterprise bankrupt, and shall re-register the claims in accordance with the provisions of Article 9 of this Law.

CHAPTER V BANKRUPTCY DECLARATIONS AND BANKRUPTCY LIQUIDATIONS

Article 23 In any of the following circumstances, after the judgment of the people's court, an enterprise shall be declared bankrupt:

(1) if, in accordance with the provisions of Article 3 of this Law should be declared bankrupt;
(2) if, reorganization has been terminated in accordance with the provisions of Article 21 of this Law; and
(3) if, upon the expiration of the period of reorganization, is unable to repay debts in accordance with the settlement agreement.

Article 24 The people's court shall, within 15 days after the date the enterprise is declared bankrupt, establish a liquidation team to take over the bankrupt enterprise. The liquidation team shall be responsible for the keeping, putting into order, appraisal, disposition and distribution of the bankruptcy property. The liquidation team may carry out necessary civil actions in accordance with law.

The members of the liquidation team shall be designated by the people's court from among the superior departments in charge, government finance departments, and other relevant departments and professional personnel. The liquidation team may hire necessary work personnel.

The liquidation team is responsible to, and shall make report on its work to, the people's court.

Article 25 No unit or individual may illegally dispose of the property, account books, documents, materials, seals, etc. of a bankrupt enterprise.

The debtors of a bankrupt enterprise and persons holding the property of a bankrupt enterprise can repay debts or deliver property only to the liquidation team.

Article 26 The liquidation team may decide to terminate or to continue to perform the contracts that have not yet been performed by the bankrupt enterprise.

If the liquidation team decides to terminate a contract, and the other party to the contract suffers harm as the result of the termination of the contract, the amount of compensation for the harm constitutes a bankruptcy claim.

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