Another important innovation is the adoption of restructuring procedures based on other countries’ experiences. The possibility of restructuring balances the interests of stakeholders and uses legal protections to help potentially risky enterprises prevent or avoid bankruptcy if a bailout is worthwhile or possible.
But stricter and more reasonable standards should be established for courts’ approval of restructuring plans. For example, if the required majority of shareholders adopts such a plan, the court should protect the rights of the minority of creditors who may have opposed it. And if the liquidation rate for creditors’ common claims is defined as no lower than that at the time the draft restructuring plan was submitted for approval, compensation must be considered in the event that payment is delayed.
Moreover, the Bankruptcy Law, the Company Law and the Securities Law should be well coordinated and mutually reinforcing.
How can an enterprise being restructured, say, find a way to issue securities for financing if it cannot meet conventional standards such as profitability and net asset value, as required by the Company Law and the Securities Law? The law must contain specific provisions regarding such matters in order to ensure successful listing of restructuring firms.
To prevent fraud, an acute problem in the past, the new law established a “right of rescission,” whereby the receiver can ask courts to rescind any action by a debtor that involves fraud, evasion, or unfair liquidation in the prescribed period before a bankruptcy petition is accepted and assets recovered. The system now holds the key to fairness liquidation. Moreover, the Criminal Law now includes bankruptcy fraud.
The successful implementation of the revised Bankruptcy Law hinges on its effective enforcement and abandonment of the mindset and practices shaped under the old version, especially in the era of policy-based bankruptcy.
Despite the difficulties that remain, China’s bankruptcy legislation is increasingly adapted to the market economy; the trend is irreversible.
Wang Xinxin is a professor of law at Renmin University of China and director of its Bankruptcy Law Research Center.
COPYRIGHT: PROJECT SYNDICATE
RSS