China: A Brief Analysis Of The Application Of The Statute Of Limitations To Bankruptcy Claim Verification

Last Updated: 28 April 2017
Article by Watson & Band Law Offices

[Abstract] In bankruptcy cases, an administrator needs to examine claims declared by creditors and verify that they are legal, authentic and valid after receiving supporting evidence from these creditors. To verify that a claim is "valid" means to verify whether or not the age of the claim is within the deadline imposed by the Statute of Limitations (the "SOL"). If the claim is within the SOL, it is considered valid in a bankruptcy proceeding. If not, it will not be considered a valid bankruptcy claim and will not be protected under bankruptcy law. Bankruptcy clams must be verified by an administrator subject to objections raised by the creditors and the bankrupt enterprise.

[Keywords] bankruptcy, creditor's claim declaration, statute of limitations

I. Application of the Statute of Limitations in Bankruptcy Cases

Once an enterprise enters into a bankruptcy procedure, all enterprise debts must be paid in proportion and order of priority mandated by the Enterprise Bankruptcy Law of the People's Republic of China. The nature of the enterprise's debts will not change just because the enterprise has entered bankruptcy: outstanding labor claims arising prior to bankruptcy remain valid, and unsecured loans owed by the enterprise prior to bankruptcy remain ordinary creditor's rights. Since the nature of the liabilities remain unchanged, the SOL as prescribed by the General Rules on P.R.C Civil Law and the Civil Procedure Law of the People's Republic of China apply to bankruptcy cases.

To avoid ambiguity in the application of the law, the Supreme People's Court further specifies in Article 61 of the Provisions on Issues Concerning the Hearing of Enterprise Bankruptcy Cases that claims exceeding the SOL shall not be considered bankruptcy claims.

Accordingly, in bankruptcy cases, an administrator must verify that the creditor's declared claims are still within the SOL. (likewise, the author believes that an administrator must also confirm that labor claims are still within the SOL for arbitration when he investigates claims asserted by laborers.)

II. Verification of Claims by Administrator Under the Statute of Limitations

Pursuant to provisions concerning the SOL under the General Rules on Civil Law and the Civil Procedure Law, SOL is a defense that a debtor may raise against a creditor. If a debtor does not raise an SOL defense in its Answer, the People's Court shall not educate the debtor about SOL or adjudicate by actively applying SOL-related provisions. In addition, if a creditor's claim falling outside the SOL has already been paid, the payment shall be protected by law and the debtor may not raise an SOL defense thereafter.

Moreover, according to Article 49 of the Enterprise Bankruptcy Law, when declaring a claim a creditor must explain in writing the amount of his claim, and must state whether there is any collateral. The creditor must also file relevant evidence of the claim. If a creditor declares a claim with an administrator, the creditor is required to submit evidence proving the amount of the claim, not further proof that the claim is still within the SOL.

In view of the foregoing, the author holds that an administrator should take the initiative to check whether or not the claim declared by a creditor is within the SOL, rather than simply relying on SOL-related documentation submitted by the creditor. In fact, according to the Enterprise Bankruptcy Law, an administrator should and is able to verify the SOL because

1. An administrator, after being established, is responsible for internal affairs such as managing the property of the bankrupt enterprise, along with external affairs such as representing the bankrupt enterprise in lawsuits. When it comes to claims declared by creditors, an administrator must prudently assert the SOL defense on behalf of the bankrupt enterprise.

2. Once the administrator has been established by a People's Court, he must fully administer the bankrupt enterprise by creating a detailed list of debts, financial materials, contracts and other important documents of the bankrupt enterprise, and must consult the relevant personnel of the bankrupt enterprise. For this reason, an administrator is able to verify the SOL's application to the debts of the enterprise, based on the materials available and its own investigation.

III. Creditor Objections to Administrator's Conclusion of SOL Verification

After examining claim declaration materials submitted by creditors, the administrator must prepare a Credit Form in accordance with the Enterprise Bankruptcy Law so that the creditor's meeting can review it. In practice, however, due to limited time for the creditor's meeting, it may not be practical for all creditors to verify every declared claim. Consequently, in most cases the administrator will notify creditors of the progress of claim verification (especially when a declared claim(s) is rejected or when the amount of the claim is adjusted or reduced by the administrator) and illustrate the facts relating to and the grounds for unrecognized claim(s) as well as any adjustments or reductions in the claim(s) amount.

Where the administrator refuses to recognize a declared claim on the ground that the SOL has expired, the creditor may raise a defense with documents evidencing the interruption or suspension (tolling) of the SOL. If the claim in question is found to have been tolled, and if it is still within the SOL, the administrator must approve the claim.

IV. Objections Filed by Bankrupt Enterprise or Other Creditors

According to the Enterprise Bankruptcy Law, the Claim Form generated by the administrator must be submitted to the creditors' meeting for review, and the bankrupt enterprise or creditors may object to claims on this form. Likewise, in bankruptcy procedures, the bankrupt enterprise and creditors are legally entitled to apply to the administrator for review of the claim declaration materials submitted by creditors, which means that the law supports bankrupt enterprises' and creditors' right to know and to object to claims declared by other bankruptcy creditors. If, after exercising its right to know, a bankrupt enterprise or creditor believes that the SOL applicable to any claim declared by any other creditor has expired under the SOL, it may file an objection to the administrator demanding reexamination.

V. Flexible Application of SOL Examination Rules in Bankruptcy Claim Verification

A number of statutes and regulations including the General Principles of Civil Law, the Civil Procedure Law and the Provisions of the Supreme People's Court on Certain Issues Concerning the Application of the Statute of Limitations to Civil Trials provide provisions regarding the SOL. According to these,a general rule for the examination of a creditor's claim to determine whether or not it is still within the SOL is that the creditor must assert its rights against the bankrupt enterprise within two years of the date that it knows or should have known that its rights have been infringed by the enterprise. We should pay particular attention to the application of certain general rules in bankruptcy cases. Generally speaking, when an enterprise has qualified for bankruptcy (or such a qualification gradually arises) prior to entering into bankruptcy procedures, the enterprise often suffers from loss of laborers and slack management. During this period, the enterprise tends to act passively in external affairs (the performance of contracts and the settlement of debts and creditor's claims); therefore, some contracts could be suddenly suspended during the course of their execution. Since contracts generally represent mutual agreements, the establishment of the specific amount of a creditor's claim or terms of payment depends on the fulfillment of the contract, and the abrupt suspension of performance of the contract will leave the amount of a creditor's claim or terms of payment undetermined. In this circumstance, the author holds that the examination of the SOL as applied to the creditor's claims should be conducted by considering the composition of such claims and the relevant parties' contractual payment terms.

1. For claims on which the terms of payment have been established under the contracts, the SOL should start running on the day immediately following the due date of the corresponding payment; and if the relevant SOL has expired, the corresponding claims should not be treated as bankruptcy claims.

2. If, under the provisions of the relevant contract, a creditor's claim arises after a creditor has partially performed his obligations but relevant payment terms have not yet been fulfilled, the author believes that as long as specific performance of such contract is not required, the creditor's claim should be declared and examined in accordance with applicable provisions governing the termination of mutual agreements under the Enterprise Bankruptcy Law. Correspondingly, such creditor's claim should not be burdened with SOL issues.

VI. Summary

The main goal of the trial and management of bankruptcy cases is to sort out and pay all bankruptcy claims. Since the establishment of a creditor's claim has a direct impact on other creditors' interests, administrators should carefully examine the claim and the corresponding SOL status to avoid the risk of being penalized or facing claims for recovery due to creditor's losses caused by faulty creditor claim examination and verification. Likewise, creditors should understand and use the law. They should not hesitate to assert their legal rights, and they should avoid forfeiting legal protection due to problems arising from the claim recovery process.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
Email Address
Company Name
Confirm Password
Mondaq Newsalert
Select Topics
Select Regions
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions