Twelve Years to Sharpen One Sword : The 2006 Enterprises Bankruptcy Law and China's Transition to a Market Economy

An effective insolvency system represents a critical component and distinguishing feature of every well-functioning market economy. Among intensive efforts to institutionalize insolvency regimes in many developing countries since 1998, the adoption of the 2006 Enterprises Bankruptcy Law (hereinafter the 2006 EBL or the Law) in China represents an eye-catching accomplishment. The 2006 EBL establishes the legal mechanism through which enterprises can exit from the market or, preferably, be reorganized in an orderly fashion and thus is conducive to promoting a socialist market economy. This article will sketch the contours of the legislative background of the 2006 EBL, analyze its main points and features, identify the challenges to its enforcement, and examine other characteristics of the Law in order to provide some answers to these questions from the perspective of an insider. Following the introduction, Part II examines the legislative background of the 2006 EBL and discusses the inefficiency of previous bankruptcy legislation and practice and the role that both domestic demands and exterior pressures played in providing the impetus for reform. This part is designed to provide an understanding of the overall contents and structures of the Law. Next, the main elements of the 2006 EBL will be analyzed. These elements include the applicability and availability of bankruptcy procedures, the system of the bankruptcy administrator, the procedures for reorganizations of enterprises, the priority of claims established for bankruptcy distribution, the handling of cross-border issues, and other significant changes from the prior law. The 2006 EBL represents an amalgam of borrowing from international experiences and drawing on uniquely Chinese considerations. The article identifies several challenges for enforcing the 2006 EBL and offers suggestions on how to ensure that the Law functions well in practice