Are you looking into bankruptcy in China?

Bankruptcy is a complex process that can be incredibly challenging in China. Surviving bankruptcy in China requires thorough preparation and expert guidance. This article provides insights and advice for navigating the legal and financial landscape of bankruptcy in China.

If you need to speak to a lawyer in China, contact our legal consultant on WeChat: alistairvigier

Understanding the Bankruptcy Process in China

The Enterprise Bankruptcy Law governs bankruptcy procedures in China. It outlines the procedures for filing for bankruptcy, liquidating assets, and discharging debts. Reorganization and liquidation are the two types of bankruptcy procedures under this law.

While reorganization is intended to assist struggling companies in restructuring their debts and operations to avoid bankruptcy, liquidation involves selling a company’s assets to pay off its debts.

Expert Advice for Surviving Bankruptcy in China

When facing bankruptcy in China, it is crucial to seek professional advice from a bankruptcy attorney, accountant, or financial advisor who has experience with the Chinese legal and financial systems. Developing a reorganization plan to restructure debts and operations to avoid or minimize the impact of bankruptcy is also essential.

Communicating with creditors throughout the process, protecting assets, and being prepared for a long and complex process are additional tips that can increase the chances of a successful outcome.

Insights from Bankruptcy in China

According to data from China’s Supreme People’s Court, the number of corporate bankruptcies in China has increased in recent years. 2020 there were 5,857 bankruptcy cases involving companies in China, up from 5,388 in 2019.

The trend is expected to continue due to China’s evolving economy, increasing competition, and financial pressures on companies.

Surviving Bankruptcy in China: Strategies and Tips

Navigating the bankruptcy process in China requires professional expertise. Working with a bankruptcy attorney, accountant, or financial advisor with experience with the Chinese legal and economic systems can help individuals understand their legal rights and obligations and make informed decisions about their finances.

Developing a reorganization plan tailored to individual needs and goals can be helpful when facing bankruptcy in China. The plan should outline how to restructure debts and operations to avoid or minimize the impact of bankruptcy. A bankruptcy attorney or financial advisor can guide the development of an effective reorganization plan.

Communicating with Creditors

Negotiating with creditors to reduce or restructure debts or developing a payment plan can increase the chances of a successful outcome. Keeping creditors informed and involved can also prevent the escalation of legal issues.

Protecting assets during the bankruptcy process in China is essential. Transferring assets to family members or friends or setting up a trust can be helpful strategies to protect assets. However, it is essential to consult with a bankruptcy attorney to ensure that actions are legal and comply with bankruptcy laws.

Surviving bankruptcy in China can be a long and complex process. Developing a financial plan to manage finances during the process can be helpful. Seeking emotional support from friends and family can also help with dealing with the stress of the process.

Insights from Bankruptcy in China

Corporate bankruptcies in China have been increasing in recent years. In 2020, there were 5,857 bankruptcy cases involving companies in China, up from 5,388 in 2019. The trend is expected to continue as China’s economy evolves and companies face increased competition and financial pressures.

Bankruptcy in China requires careful preparation and expert guidance. Seeking professional advice, developing a reorganization plan, communicating with creditors, protecting assets, and preparing for the long haul can increase the chances of a successful outcome. Understanding the bankruptcy process in China and the trends that impact it can also provide valuable insights.

Bankruptcy In China

If you need to shut down your company, do not just run away. This can lead to China filing criminal charges against you, filing lawsuits, or bashing you via the media.

There are correct ways to do things. We have top bankruptcy lawyers in Beijing and other major Chinese cities who can handle your debts and assets.

China did not previously have bankruptcy or insolvency laws. However, It has now established a bankruptcy court. These laws apply to Chinese companies, government-owned companies, and companies from other countries doing business in China.

Closing Your Business In China

Expanding to China is a big decision, and we hope it goes well for you. Things should work out if you plan it properly and get legal advice when setting it up. Maybe you will grow from Australia to Shanghai.

You contact the Shanghai Chamber of Commerce and raise 4.5 million RMB. This money will be used to grow your marketing, technology, and sales team.

You build the product, let us say an app, but you are too late. A company from New Zealand has beaten you to market! Investors will not give you any more money, as they think you missed your chance.

You do not agree. You go to a bank and borrow another 2 million RMB so that you can aggressively promote your product on Baidu and WeChat ads.

Enterprise Bankruptcy Law

Your sales increase, but investors do not think you can beat the New Zealand company. Sadly, the rise in revenue still doesn’t lead to profits, and the bank demands that you repay the loan.

You cannot come up with the money.

What are you going to do? Some people rush to the airport and try to fly back to Australia before a lawsuit is filed. Once a lawsuit is filed, you might get exit banned.

However, doing this is not honourable, and it will likely follow you back to Australia.

The bank in China might tell the media that you engaged in fraud in China. The internet is available worldwide, including in your home country.

If you still have or plan to have a business in Australia, you do not want to be accused of fraud.

The bank in China might also contact the police. The Chinese police could issue an Interpol (international police) warrant asking for your arrest in any country that recognizes Interpol.

Our point is obvious: do not run from your problems. Contact an insolvency expert and deal with them. Do not leave a wave of destruction behind you.

A Story About Debt And The Bankruptcy System

We know someone in real life; let us call him Steve McMullen. Steve is from Shanghai. He started a law firm, and the business did very well. His firm became one of the top business law firms in London.

However, Steve had bigger plans. He wanted to expand to other cities in China, including Beijing and Chengdu, but he did not have the cash reserves to do this.

So, Steve put out advertisements on Craigslist and other websites. It advertised that his firm, McMullen Law, would pay 12% internet on any loans.

McMullen Law wanted to raise one million dollars and would pay $120,000 on the internet annually. This sort of interest rate is more favourable than using a credit card. Banks sometimes lend unsecured business loans, but it is rare.

Bankruptcy Proceedings And Bankruptcy In China

McMullen Law was successful in raising money. All Steve had to do was earn around $300,000 in profit per year from the expansion, and it would be worth it.

$120,000 would go towards interest, and the rest would be profit. So, what was the problem?

Steve had to repay the $1,000,000 in principle at the end of three years. Instead of McMullen Law saving some of the profit money to get ready for the repayment, it reinvested everything.

It could not repay any of the loans and went bankrupt. This was a law firm meant to be knowledgeable about the law and risk management.

Sometimes, a small amount of debt can lead to a company’s downfall. It does not always have to lead to bankruptcy. For example, a restaurant borrowed $200,000 from an employee.

The loan was only meant to be for three months. At the end of the three months, the employee asked for the money back. The hot pot restaurant could not pay the money back, so the employee hired a lawyer, filed a lawsuit, and won.

The employee ended up taking over the assets of the hot pot restaurant and selling it to another person for $250,000.

File For Bankruptcy In China

Having the proper contracts when raising or borrowing money can be the difference between winning and losing a lawsuit. Do not assume you are in power just because you have the money.

If this person has enough money to give you large sums, they can afford to hire a good law firm. This law firm will hold you accountable. You might not even be able to afford a lawyer.

This is why, at the very least, a legal consultant should create a contract that protects you. How can a contract protect you? It can make the “court area” in a place that is favourable for you.

Maybe you are raising money in China, but you can write into the contract that a court in Australia can regulate the agreement.

You can also make the repayment terms very flexible. If someone asks for their money back, it can say that you have a year to repay it. That is much better than only having 30 days to repay the money.

Spend some money on legal fees to protect yourself.

Here are some of the things you can use a bankruptcy lawyer for:

• Going bankrupt by decision
• Being forced into bankruptcy
• Restructuring your debts
• Negotiating with creditors in China
• International debt disputes
• Closing down your Chinese company or company in China
• enterprise bankruptcy law
• bankruptcy liquidation
• personal bankruptcy
• bankruptcy system
• file for bankruptcy
• bankruptcy proceedings

Chinese Employment Laws And Bankruptcy

The laws of China also relate to employment law. The government of China wants to know that your employees will be taken care of. In China, employees are more critical than unsecured debt holders.

However, people with security are ahead of the employees. Remember that the new bankruptcy laws in China only apply to companies, not people. There are no laws for personal bankruptcy.

If your company can’t meet its payments and doesn’t have enough assets to cover the debts, you should speak to a legal professional.

Background On Chinese Law And Bankruptcy Liquidation

Hong Kong and Macao are outside of the powers of the Supreme Court of China. However, this may no longer be true with Hong Kong’s new security laws. Make sure you get legal advice from one of our insolvency lawyers.

Hong Kong uses British common law, and Macao uses civil law (like China.) Some high courts in China only accept cases that are over $40 million in USD. Others will deal with insolvency amounts of over $7 million. Some provinces have people with low incomes who will hear smaller amounts. Finding the proper Chinese courthouse to file in is complicated.

There are 390 intermediate courts in China. Most foreign company bankruptcy cases are heard in Intermediate Courts.

Applying For Bankruptcy In China

Your first step is to hire a bankruptcy lawyer in China. They will file forms with the “People’s Court” in the place where you do business. If the courts accept your application, someone will be appointed to administer the bankruptcy proceedings. Some law firms and companies focus on bankruptcy administration in China.

Many of the companies are full of accountants and lawyers. The court will decide for you which company is picked. The company will work for the courts, not you.

The people you owe money to will have a say in hiring bankruptcy administration. Once an administrator is hired, they will prepare financial statements. Once that is done, they will decide whether the business should continue operating, be sold, or be shut down and liquidated.

If the assets are sold, the administrator will decide which offers to accept (subject to the court’s approval). All creditors must contact the administrator within a certain period of time.

The courts will decide how long the period will be. Sometimes, it is one month. Normally, bankruptcy is advertised in the media and newspapers. A letter might also be sent to several parties.

What Debts Can Be Claimed With Enterprise Bankruptcy Law?

You can claim things like lawsuit judgments, money you owe, or secured debt. All the people who owe money will attend a meeting.

If you have applied to be allowed to submit a claim, you can attend the meeting. The meeting’s purpose is to review the submitted claims to determine which are factual. The administrator will also be evaluated.

A vote will also likely determine whether the business should continue operating or be shut down. There also might be talks about selling off all the assets.

Author: Alistair Vigier is the CEO of Clearway and can be reached on Wechat at: alistairvigier