China Sets Short Timetable for Bankruptcy Law Reform

By Campbell Korff, Partner and Eu Jin Chua, Consultant, Clifford Chance, Hong Kong and Shanghai

Although it has been 10 years in the making, it appears that China will shortly have a bankruptcy regime to rival that of other developed economies – at least on paper. A new draft bankruptcy law has recently been submitted to the standing committee of the National People's Congress. The draft law is yet to be published, but a limited number of copies have been circulated to key organizations, including Clifford Chance. Present indications from the central government are that the draft law may be passed in early 2005. It of course remains to be seen whether such an ambitious timetable is adhered to, but this plan is certainly encouraging.

Regardless of when the draft bankruptcy law is passed, the proof of its effectiveness will, as with all Chinese legislation, be in its implementation and enforcement at a provincial level. Despite reasonably modern mechanisms for corporate rescue and liquidation, the draft law contains a number of procedural idiosyncrasies and ambiguities. These may, at least for the private creditor, render it toothless in reining in, in particular, debt laden state-owned (or connected) enterprises.