Building Better Protections

Four judicial interpretation documents have been adopted and issued by the Supreme People's Court since the PRC Enterprise Bankruptcy Law (中华人民共和国企业破产法) (EBL) became effective in 2007. The rules in these documents stipulate the designation and remuneration of administrators, the acceptance of bankruptcy applications, and the identification of debtor's assets, but contain few details relating to the exercise and protection of creditors' rights. The gaps in this area have now been filled in by the Provisions on Several Issues Concerning the Application of the <PRC Enterprise Bankruptcy Law> (3) (EBL Interpretation III) （关于适用《中华人民共和国企业破产法》若干问题的规定 (三)） adopted by the Supreme People's Court in March 2019. The EBL Interpretation III strengthen the protection of creditors' rights in six key ways, which are outlined below.

I.     Granting creditors a number of procedural rights, including the right to file objections, the right to information and the right of revocation; and putting more emphasis on the legitimate rights and interests of minority creditors.

It is not rare that a debtor's shareholders will collude with others in fabricating claims for illegal purposes, such as debt evasion. This kind of fraud could not usually be uncovered simply by inspection of the administrator. In this case, other creditors may be motivated to launch their own investigations and file objections in order to keep the debtor's assets from decreasing. Taking advantage of this motivation, Articles 8 and 9 of the EBL Interpretation III grant creditors the right to file objections to discover and cancel false claims recorded in the register of claims, in order to protect the rights and benefits of genuine creditors.