Draft revision of bankruptcy law in review

Chinese lawmakers conducted the first review of a draft revision to the Enterprise Bankruptcy Law on Monday, as part of the nation's intensified efforts to refine its fundamental market economy frameworks.

The draft revision, submitted to the ongoing session of the Standing Committee of the National People's Congress, China's top legislature, comprises 16 chapters and 216 articles, and introduces more than 160 provisions, offering a relatively comprehensive revision to the current law since its enforcement in 2007.

The Enterprise Bankruptcy Law, described as one of the cornerstones of the legal foundation of China's market economy, has played a critical role in ensuring the orderly exit of businesses, promoting fair competition and improving resource allocation, said Zhong Shan, chairman of the NPC's Financial and Economic Affairs Committee, while presenting the draft.

However, the law has increasingly encountered new challenges while keeping pace with changing business practices and is in urgent need of revision, Zhong said.

In 2024, Chinese courts concluded over 30,000 bankruptcy cases. However, these accounted for only about 0.5 percent of total business deregistrations, with restructuring and settlement cases making up just 4.6 percent of all rulings.

"From both a quantitative and structural perspective, the scale of market exits through bankruptcy proceedings remains far below the desired level," Zhong said.

In this regard, the draft revision draws on nearly two decades of implementation experience, targeting key challenges such as difficulties in initiating bankruptcy procedures, lengthy timelines, gaps in essential mechanisms and weak supporting systems. Proposed solutions aim to enhance the law's precision, effectiveness and operability, Zhong said.

To better respond to judicial practice and the needs of a more open economy, the draft also strengthens cross-border bankruptcy mechanisms.

A dedicated chapter further clarifies the scope of application, the extraterritorial effect of domestic proceedings, the jurisdiction of Chinese courts, and the recognition and assistance of foreign bankruptcy cases.

"Improving the bankruptcy legal framework will help safeguard China's judicial sovereignty, protect the legitimate rights and interests of foreign-related enterprises and residents, and promote alignment with international rules and mechanisms, to better serve the nation's new phase of higher-level opening-up," Zhong said.

The draft also introduces tailored rules for micro and small enterprises, while refining provisions for financial institutions and listed companies, to better reflect the diversity and complexity of bankruptcy cases in practice.

lijiaying@chinadaily.com.cn