enhancing china’s nascent corporate rescue regime — a case study of zhejiang province zinian...
TRANSCRIPT
Enhancing China’s Nascent Corporate Rescue Regime
— A Case Study of Zhejiang Province
Zinian Zhang (张子年 )
under supervision of Prof. Roman Tomasic
Durham University Law School
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1. History of China’s bankruptcy Law
1906 bankruptcy law by Qing Dynasty. 1935 Bankruptcy law by Nationalist Govt.
1986 Bankruptcy Law by Communist Govt.
2006 China Enterprise Bankruptcy Law
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1. History of China’s bankruptcy Law
China Enterprise Bankruptcy Law 1986 - applying to state-owned enterprises (SOEs) - served as a government tool to reform SOEs - a chapter in Civil Procedure Law for non-SOEs
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1. History of China’s bankruptcy Law
Radically changed economy in recent
decades
- accession to WTO
- growing private sectors
- foreign investment
- global trade
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1. History of China’s bankruptcy Law
China Enterprise Bankruptcy Law 2006
- embracing international insolvency principles
- applying to all enterprises
- rescue-oriented
- insolvency practitioner, moratorium, cram-down,
etc.
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2. Implementation of rescue in China
105 rescues reported from 2007 to 2010
Payment to unsecured creditors at 21%
175 days on average to complete a rescue
Big-firm-first rescue approach
Nearly a quarter of rescues conducted in
Zhejiang
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3. Corporate rescues in Zhejiang
Zhejiang Province
Shanghai
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3. Corporate rescues in Zhejiang
Zhejiang Economy in China
- the 4th in GDP among 31 provinces
- 94% of GDP contributed by manufacture and
service
- 82% of industrial-added value from private
sectors
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3. Corporate rescues in Zhejiang
20 reorganizations dealing with 35 debtor
companies
91% of debtors are totally private
Big-firm-first approach
£130,538,690 debt per debtor
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3. Corporate rescues in Zhejiang
260 days on average to complete a rescue
Absolute priority principle largely complied with
Special protection to general public shareholders
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3. Corporate rescues in Zhejiang
All secured and preferential creditors fully paid
Unsecured claims 36% satisfied on average
- national figure at 21%
- liquidation at less than 10%
75% of rescues are company sales
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3. Corporate rescues in Zhejiang
Cram-down against shareholders in 44% of rescues
No cram-down against creditors in Zhejiang
Cancellation of old shares under consent of
shareholders
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4. Courts’ acceptance of rescue
Court’s hesitation in hearing corporate bankruptcy
Corporate bankruptcy – controlled by Govt, in
history,
Inaction of court leads to few company bankruptcies
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4. Courts’ acceptance of rescue
Difficulties of court in dealing with corporate
rescues
- courts inferior to other government bodies
- lack of cooperation from government
institutions
- in fear of collective protest
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4. Courts’ acceptance of rescue
The usual route to formal rescue
- company collapse
- social crisis by unpaid employees or
creditors
- protest
- government intervention
- court ordered to commence a rescue
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5. Administrators in Zhejiang
Zhejiang Bankruptcy Administrator List 2007
- made in September 2007
- by Zhejiang High Court
- 34 law firms and 14 accountant firms
included
- no training and examination before and
after16
5. Administrators in Zhejiang
Law firms appointed in 45% of reorganizations
Accountant firms: 20%
Government-organized liquidation committee:
35%
Lawyers included in most of above committees
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5. Administrators in Zhejiang
The roles of administrator in rescue
- taking control
- verifying debts
- instigating agreement between investors and
creditors
- initiating a reorganization plan
Debtor-in-possession vs. practitioner-in-possession
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6. Challenges of early rescue
The debtor: in fear of losing control
- especially disclosure of tax evasion
No wrongful trading mechanism in China
Punishment from market:
- 50% chief executives absconding
Social attitude hostile to a second chance
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Conclusions
Optimism:
- rescue aligned with local government’s interests
- fast growing private sectors
- prospective economic recession
- lowered economic growth target less than 8%
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Conclusions
Pessimism:
- a lack of rule of law
- poor record in enforcing commercial law
- corrupted judges and courts
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Thanks you
谢谢
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