New bankruptcy code will streamline rules
By Xiao Yang (China Daily)
Updated: 2004-06-23 09:54

In a move that marks a milestone in China's market system, the Standing Committee of the National People's Congress (NPC) this week began to examine a draft bankruptcy law.

Once passed, the long-awaited draft will make major headway in streamlining bankruptcy rules.

In 1986 the NPC Standing Committee passed a provisional law on bankruptcy of State-owned enterprises, which has since become the country's top bankruptcy code.

But the law mainly focused on arrangements of workers with bankrupt State companies and social stability, whereas the protection of creditors' rights was given secondary consideration.

Moreover, since the only national bankruptcy law applies only to State enterprises, non-State businesses had to look for scraps of relevant rules stipulated in civil procedures when it came to declaring insolvency.

The draft bankruptcy code includes not only State enterprises, but all kinds of businesses with a legal status, as well as partnerships and sole proprietors. This is an essential and very necessary change.

Meanwhile, the new draft will end the old government-led bankruptcy practices.

Currently, bankruptcy of State enterprises is mainly handled by administrative means. The government usually sets up a quota for the number of bankrupt companies and then clears the mess through financial subsidies and writing off part of the non-performing loans borrowed from State banks.

The administrative measures in one way help guarantee the livelihood of workers of bankrupt State companies and maintain social stability. But they also add to the pressure on the banking system and have done little good to whip up State companies' initiative in market competition.

The market has long called for an all-inclusive bankruptcy code that treats the interests of creditors and members of bankrupt businesses fairly and rules out administrative intervention.

The decade spent on the new code indicates how fiercely legislators have been divided over the treatment of interests of different parties involved in bankruptcy cases.

But this week's submission of the draft to the examination procedure proves the market's will has finally won legislators' understanding. It stands as testimony to the market's victory in the pursuit of bankruptcy rules that are fair and free from administrative leverages.

It also contributes to perfection of the market system to which the nation is dedicated.

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