The area of insolvency under PRC law in general is complicated, because there are still different insolvency regimes applying to state owned enterprises, foreign investment enterprises ("FIEs"), and companies. Also, the insolvency regime relates to the liquidation of an entity - there is no equivalent under existing PRC law dealing with the receivership or administration concepts under English law.
Applicable to all legal entities, whether state owned enterprises, FIEs or companies is Part 19 of the Civil Procedure Law of the PRC, adopted in 1991 and supplemented by an opinion by the Supreme People's Court issued on the Civil Procedure Law in 1992.
For foreign investment enterprises, there are also detailed provisions contained in the Administration of the Finances of FIEs Provisions, local legislation on the liquidation of FIEs in Beijing and Shanghai and provisions in the Joint Equity Venture Implementing Rules and Wholly Foreign Owned Enterprise Implementing Rules.
For state owned enterprises, the Bankruptcy Law promulgated in 1986 will be applicable. The law went into effect in November 1988 but was suspended from late 1989 through 1990 during the credit rationing period then in effect in the PRC. A problem with the enforcement of the Bankruptcy Law on state enterprises apparently was the absence of a social welfare infrastructure which may afford protection to the redundant employees.
For companies, prior to the implementation of the Companies Law, there have been various pieces of local and national legislation which were not consistent in every respect. The new national Companies Law will supersede such previous laws, and will provide a uniform legislative framework for insolvency in respect of all companies.
For further details, see the article headed "Insolvency provisions under the Companies Law applied to state owned enterprises and FIEs".
This article is intended to provide a general guide to the subject matter. Specific advice should be sought about individual circumstances. Further information or advice may be obtained from Linklaters & Paines, Hong Kong office, 14th Floor, Alexandra House, Chater Road, Hong Kong; telephone: (852) 2842 4888; fax: (852) 2810 8133; contact David Mullarkey or Jeremy Parr.