BANKRUPTCY REGULATIONS OF SHENZHEN SPECIAL ECONOMIC ZONE ON
COMPANIES WITH FOREIGN INVESTMENT

(Issued by Guangdong Provincial Government on
November 29, 1986)

 

 

 

SUBJECT: BANKRUPTCY

ISSUING-DEPT: GUANGDONG PROVINCE

ISSUE-DATE: 11/29/1986

IMPLEMENT-DATE: 07/01/1987

LENGTH: 3694 words

TEXT:

CHAPTER I GENERAL PROVISIONS

[Article 1] The present Regulations are formulated according to relevant laws of the People's Republic of China and with a view to maintain the economic order of the Shenzhen Special Economic Zone (hereinafter referred to as the Special Zone) and to protect the lawful rights and interests of both creditors and debtors of any company which is being declared bankrupt.

[Article 2] The present Regulations are applicable to Sino-foreign equity and contractual joint ventures, and wholly foreign-owned enterprises and Sino-foreign joint-stock limited companies established in the Special Zone (hereinafter referred to as the company with foreign involvement).

[Article 3] For the purpose of the Present Regulations, the term "bankruptcy" hereunder refers to the bankruptcy declared by the People's Court, according to the procedures as stipulated in the Present Regulations, as a result of the total asset owned by a company with foreign involvement falling short of repaying its debts due.

[Article 4] The staff and workers of a company which has been declared bankrupt should, during the period when they wait for new employment, be provided their basic living expenses in accordance with the laws and regulations of the State and the Special Zone on the labor, wages and social insurance administration.

[Article 5] Bankruptcy declared in accordance with the bankruptcy laws of foreign countries does not automatically become effective on the asset of the company concerned in the Special Zone.

[Article 6] The jurisdiction of any bankruptcy case filed against any company with foreign involvement is vested in the Intermediate People's Court of the Shenzhen Municipality (hereinafter referred to as the Court).

CHAPTER II APPLICATION AND INSTITUTION

[Article 7] Creditor(s) is entitled to apply for declaration of bankruptcy of its debtor(s).

The debtor is entitled to apply for conciliation or declaration of bankruptcy.

Creditor(s) or debtor(s) shall submit the application of conciliation or declaration of bankruptcy to the Court.

[Article 8] Application submitted by the debtor(s) shall be accompanied with the resolution adopted by the shareholders at a shareholder general meeting or by board members at a board of directors meeting concerning the conciliation or the bankruptcy decision and a report on the assets and a statement showing the outstanding debts and the creditor's rights.

Application submitted by the creditor(s) shall provide documentary evidence showing the amount of the creditor rights, whether those creditor rights are secured by mortgage on asset or they are not secured by mortgage on asset and debtor's failure to repay his/her debts.

[Article 9] The Court shall, within 10 days after it has received the application, decide whether it will take up or not to take up the case.

[Article 10] The creditor(s) and debtor(s) shall go through the conciliation process according to the laws in case they can reach an agreement concerning how to repay (or settle) the company's debt.  However, the company shall be declared bankrupt if either they have failed to reach such an agreement or the agreement agreed upon is invalid.

[Article 11] The following actions committed by the bankrupt company are invalid if they are committed within the 180 days before the date the case is taken up by the Court:

(1) Concealing or hiding, appropriate without permission, or assigning gratuitously the company's assets;

(2) Providing guarantee to creditor rights which are originally not secured;

(3) Repaying debts which have not yet been due;

(4) Surrendering its creditors' rights; and

(5) Allowing other person to seize gratuitously its asset.

CHAPTER III LIQUIDATION COMMITTEE

[Article 12] The Court shall appoint a liquidation committee consisting of 3-5 liquidators (one of whom must be a registered accountant of the People's Republic of China) and a chairman for the committee within 10 days after it has taken up the case.

The liquidators shall either be paid by the debtor or they shall enjoy priority in payment from the asset of the bankrupt company.  The amount of their remuneration shall be decided by the Court.

[Article 13] The liquidation committee shall be subject to supervision and guidance by the Court when the committee executes the conciliation and bankruptcy procedures.

[Article 14] The main functions of the liquidation committee when it executes the conciliation procedures are as follows:

(1) To convene and preside over the creditors' meeting;

(2) To investigate on the state of operation and management and the asset of the bankrupt company;

(3) To verify the lists of creditors and debtors of the bankrupt company;

(4) To supervise the drafting of the conciliation scheme; and

(5) To prevent any action that may affect the interests of the creditors.

[Article 15] The main functions of the liquidation committee when it executes the bankruptcy procedures are as follows:

(1) To convene and preside over the creditors' meeting;

(2) To be in charge of all assets of the bankrupt company and when it deems necessary, the committee can seal up the asset for safekeeping purpose;

(3) To be in charge of all books of accounts, vouchers and documents related to the financial affairs and assets of the bankrupt company;

(4) To introduce a scheme on how to manage and dispose of the assets of the bankrupt company;

(5) To recall the creditor rights and to repay the debts of the bankrupt company; and

(6) To conduct any other civil activities concerning the bankrupt company.

CHAPTER IV CREDITOR'S MEETING

[Article 16] The Court shall, either upon an application from the liquidation committee or by its own functions and powers, convene the creditors' meeting.

Functions of the creditors' meeting are as follows:

(1) To examine the creditor rights;

(2) To elect the creditor representative(s) who shall be responsible for keeping other creditor(s) informed of the working process of the liquidation committee and to put forward any opinion from the creditor(s); and

(3) To examine the conciliation scheme or the bankrupt-asset-disposition scheme.

[Article 17] The legal representative or any other senior management personnel of the bankrupt company shall attend the creditors' meeting and answer any inquiry from the liquidation committee or creditor(s) attending the meeting.

[Article 18] In order to adopt any conciliation scheme or bankrupt-asset-disposition scheme, creditor(s) attending the creditors' meeting and votes for the scheme shall together hold a simple majority of the total amount of the unguaranteed creditor rights of the bankrupt company.

CHAPTER V CONCILIATION

[Article 19] The Court shall issue the conciliation proclamation within five days after it has approved the conciliation application.  The Court shall also send the proclamation to the person (entity) who applies for the conciliation and creditor(s) who are already known to the Court.  The proclamation shall include the time limit for the creditor(s) to claim its creditor rights, the date of the first creditors' meeting and the date for the verification of creditor rights.

[Article 20] The liquidation committee shall convene the creditors' meeting to examine the conciliation scheme.

[Article 21] The main contents of the conciliation scheme shall include:

(1) Name of the person (entity) who applies for the conciliation and the name(s) and amount(s) of creditor rights of each creditor;

(2) Information concerning how long will the bankrupt company be allowed to delay its repayment of debts and how much of the debts will the creditor(s) of the company be willing to write off;

(3) A report on the production and operation of the bankrupt company and the reason(s) for the losses incurred by the company; and

(4) Plan and measures to improve the operation and management of the company.

[Article 22] The person (entity) who applies for the conciliation shall attend the creditors' meeting and answer any inquiry from the creditor(s).

The conciliation shall be considered withdrawn in case the person (entity) who applies for the conciliation fails to appear in the creditors' meeting without a justifiable reason or he/she refuses to answer inquiries from the creditor(s) during the meeting.

[Article 23] The person (entity) who applies for the conciliation may continue production and business during the conciliation process.

[Article 24] The following actions shall be considered invalid if they are committed by the person (entity) who applies for the conciliation during the conciliation process:

(1) Assigning gratuitously asset belonging to the bankrupt company; and

(2) Any non-gratuitous actions which are beyond the normal business scope of the bankrupt company.

[Article 25] Any creditor(s) who disagrees with the conciliation scheme which has already been adopted by creditor(s) at the creditors' meeting shall file his/her objection with the Court within seven days after the conciliation scheme has been adopted.

The Court shall decide whether it will approve the conciliation scheme or not to approve the scheme within 15 days after the scheme has been adopted by creditor(s) at the creditors' meeting.

[Article 26] After the scheme has been approved by the Court, the Court reserves the right to revoke its approval and immediately declare the person (entity) who applies for conciliation bankrupt if any one of the following situations occures:

(1) The conciliation scheme has affected the lawful rights and interests of creditor(s) who was absent at the creditors' meeting (at which the conciliation scheme was adopted).  The "aggrieved" creditor(s) has filed his/her complaint with the Court within 10 days after that creditors' meeting and the Court has verified such complaint as valid;

(2) A cancellation application has been submitted to the Court by the creditor(s) who hold(s) a simple majority of the total amount of the unguaranteed creditor rights of the bankrupt company in case the person (entity) who applies for the conciliation fails to, or is unable to, execute the scheme; or

(3) It is discovered, within six months after the conciliation has been adopted, that the person (entity) who applies for the conciliation has committed fraud about the conciliation and his/her committed fraud has been verified as valid.

CHAPTER VI BANKRUPTCY

SECTION I BANKRUPTCY PROCLAMATION

[Article 27] After the Court has adjudicated the debtor bankrupt, the Court shall issue the bankruptcy proclamation.  The bankruptcy proclamation shall include the time limit for the creditor(s) to claim his creditor rights, the date of the first creditors' meeting and the date for the verification of creditor rights.  The Court shall send the bankruptcy proclamation to the bankrupt company and creditor(s) who are already known to the Court.

[Article 28] The duration of the bankruptcy procedure-starting from the date the Court issues its bankruptcy proclamation to the date the bankruptcy procedure is completed - shall be 180 days.  Under special circumstances, the Court can issue an extension adjudication of the duration.

[Article 29] The Court may adjudicate termination of a bankruptcy procedure (after it has issued the bankruptcy proclamation) if the Court has received from the liquidation committee a termination application which has been approved by creditor(s) at a creditors' meeting and the asset of the bankrupt company is found to be insufficient to cover the expenses that would have incurred as a result of the bankruptcy.

[Article 30] The Court may take restraining action against any member of the board of directors or any other senior management personnel of the bankrupt company who has impeded the process of the bankruptcy procedure but the Court's measures must be in conformity with the provisions in the Civil Procedural Law of the People's Republic of China (for trial implementation).

SECTION II BANKRUPTCY ASSETS

[Article 31] Bankruptcy assets include:

(1) Property belonging to the bankrupt company at the time when the company is declared bankrupt;

(2) Other property rights that are within the purview of and shall be exercised by the bankrupt company; and

(3) Property recovered by the bankrupt company in accordance with Article 11 of the present Regulations.

[Article 32] The liquidation committee shall have the rights concerning the management and disposition of the bankruptcy assets of the bankrupt company.

SECTION III BANKRUPTCY CREDITOR RIGHTS

[Article 33] Bankruptcy creditor rights refer to the unguaranteed creditor rights produced before the company is declared bankrupt.

Creditor rights that have not yet been due at the time the company is declared bankrupt shall be considered mature but the interest that would have been generated on such creditor rights and has not yet been due shall be written off.

[Article 34] The following items shall not be considered as bankruptcy creditor rights:

(1) Interest accrued from the creditor rights after the company has been declared bankrupt;

(2) Expenses disbursed by creditor(s) as a result of his/her participation in the bankruptcy procedure; and

(3) Damage compensation, penalty and fine for delaying payment due to the company's failure to execute its contract terms as a result of its bankruptcy.

[Article 35] Creditor(s) shall, within the period stipulated by the Court, report to the liquidation committee, the amount of and when, where and how his/her creditor rights are acquired and the documentary evidence proving his/her claim.

[Article 36] Creditor rights which have not been reported to the liquidation committee within the time period stipulated by the Court shall not be recognized unless the delay (for reporting) is found to be outside the responsibility of the creditor(s) who holds such creditor rights and he/she has reported to the liquidation committee before the bankruptcy assets are appropriated.

[Article 37] The liquidation committee shall report the findings of its creditor rights investigation to the creditor(s) at a creditors' meeting.  The liquidation committee shall also report the findings of its investigation to the Court for confirmation.

[Article 38] In the event the subject of a creditor right is not defined in the form of a currency or the subject is denominated in a certain currency but the exact amount is not fixed or the amount is fixed but denominated in a foreign currency, then the value which shall be attached to that creditor right shall be the one evaluated at the time the company is declared bankrupt.

[Article 39] Creditor rights that were guaranteed with the company's physical asset(s) before that company is declared bankrupt shall enjoy priority in the right of claim on that physical asset(s).

In the event the value of the physical asset(s) is in excess of the amount of the creditor right it is guaranteed, the portion in excess shall become bankruptcy assets and subject to appropriation in accordance with the bankruptcy procedures.

In the event the value of the physical asset(s) is less than the amount of the creditor right it is guaranteed, the amount that has not been settled shall become bankruptcy creditor rights and shall be settled in accordance with the bankruptcy procedures.

[Article 40] Creditor(s) can have his/her creditor rights offset with those debts he/she owes the bankrupt company at the time it is declared bankrupt.

[Article 41] Property which is not under the ownership of the bankrupt company can be recovered by its owner(s) without following the bankruptcy procedure.

SECTION IV MANAGEMENT AND REALIZATION OF BANKRUPTCY ASSETS

[Article 42] The following actions, if committed by the liquidation committee, shall be subject to the consent of creditor(s) at a creditors' meeting:

(1) Assignment of property/asset;

(2) Assignment of patent right and trade mark;

(3) Borrowing;

(4) Assignment of creditor rights and negotiable securities;

(5) Execution of contracts;

(6) Surrender of rights; and

(7) Legal disputes related to the bankruptcy assets.

The aforesaid actions shall be subject to approval by the Court if any one of them is to take place before the first creditors' meeting.

[Article 43] The liquidation committee shall collect from the subscriber(s) any subscription he/she has subscribed to the company but he/she has not yet paid.

[Article 44] After the company has been declared bankrupt, the liquidation committee can terminate the leasing contract(s) of the company.

[Article 45] The liquidation committee may redeem its guaranteed debts and recover its physical assets which has been used as guarantee.

[Article 46] The liquidation committee shall realize (or sell off) and assign the bankruptcy assets in accordance with the relevant provisions.

SECTION V DISPOSITION OF BANKRUPTCY ASSETS AND TERMINATION OF BANKRUPTCY

[Article 47] The liquidation committee shall introduce the bankruptcy-asset-disposition scheme to creditor(s) at a creditors' meeting for adoption.  After the scheme has been adopted by creditor(s) at the meeting and adjudicated by the Court as valid, the liquidation committee shall dispose of the bankruptcy assets according to the scheme.

[Article 48] The following expenses incurred during the bankruptcy procedure shall enjoy priority in payment from the bankruptcy assets:

(1) Expenses needed for the management, realization and disposition of bankruptcy assets, including remuneration for the personnel hired to handle such procedures; and

(2) Expenses incurred in litigation in the course of any legal dispute related to the bankruptcy.

The liquidation committee shall report all expenses incurred during the bankruptcy procedure to creditor(s) at a creditors' meeting.  In the event of any disagreement from creditor(s) concerning such expenses at the creditors' meeting, the Court shall be responsible for the final adjudication.

[Article 49] Bankruptcy assets shall be disposed of in the following order:

(1) Wages for workers and staff and labor insurance fees;

(2) Taxes payable to the State;

(3) Bankruptcy creditor rights.

[Article 50] The liquidation committee shall, after disposing of the bankruptcy assets, report to the Court.  The Court shall then issue the adjudication concerning the bankruptcy and a proclamation concerning the termination of the bankruptcy procedure.  The Court's ruling is final and no appeal shall be accepted.

[Article 51] The Court may, upon application by the bankrupt company and consent of all creditor(s), adjudicate the bankruptcy procedure terminated.

[Article 52] In the event that any disposable property of the bankrupt company has been discovered within two years of the bankruptcy procedure has been declared terminated - counting from the first day after such a declaration - the said property shall be distributed to creditor(s) of the bankrupt company subsequently.

[Article 53] The bankrupt company shall be free from any further obligation to settle (or to repay) those creditor rights which have, in the course of the bankruptcy procedure, not already been settled at time.

CHAPTER VII PENALTY

[Article 54] A penalty of Rmb500-5,000 shall be imposed on any legal representative, member of the board of directors and senior management personnel of the bankrupt company (hereinafter referred to as bankruptcy responsible persons) who are found to be in violation of the present Regulations, or not attending the creditors' meeting without a justifiable reason, or refusing to answer or explain inquiries from the liquidators or creditor(s) or his/her answers and explanations to the inquiries from the liquidators or creditor(s) are found to be untrue.

[Article 55] A penalty of Rmb5,000-10,000 shall be imposed on a bankruptcy responsible person in addition to the damage compensation that he/she is liable to pay in the event he/she has committed any one of the following actions within one year before the company is declared bankrupt or during the bankruptcy procedure.  In the event he/she has committed any criminal offence in the same period, he/she shall be prosecuted in accordance with the relevant criminal laws:

(1) Embezzling, concealing or hiding, assigning and destroying the property of the bankrupt company;

(2) Forgery of debts or confirmation of any debt which is not true; and

(3) Destroying or falsifying any related financial accounts or documentary evidence.

[Article 56] A penalty or Rmb500-5,000 shall be imposed on a liquidator in addition to the damage compensation that he/she is liable to pay the creditor(s) concerned in the event he/she is found to have accepted bribes or involved in dereliction of duties and his/her actions have caused damage to the creditor(s).  The liquidator shall be prosecuted in accordance with the criminal laws in the event criminal offence is found to have been involved.

[Article 57] A penalty of Rmb5,000-10,000 shall be imposed on any creditor who is found to have been involved in the concealment of property for the bankrupt company, in addition to having that property recovered.  In the event of existence of criminal offences, the person(s) who is directly responsible for such offences shall be prosecuted in accordance with the relevant criminal laws.

CHAPTER VIII SUPPLEMENTARY GUIDELINES

[Article 58] The present Regulations shall be applicable to bankruptcy cases concerning companies invested and established by economic entities organized by any individuals who are overseas Chinese or Chinese from Hongkong and Macao and Taiwan.

[Article 59] The present Regulation shall come into force on July 1, 1987.