China's draft corporate bankruptcylaw, which aims to put businesses of varied ownerships, whether state-owned, private or foreign firms, on equal footing, was submitted to the Chinese legislature for first hearing on Monday.

"It is high time for the draft cooperate bankruptcy law to be deliberated," said Li Shuguang, a drafter of the bill and vice-president of the Postgraduate School of the China University of Politics and Law, adding that the in-depth state-owned enterprise (SOE) reform and maturing social security system have offered a solid social and economic basis for the submission of the draft law.

Some optimistic experts even predicted that the corporate bankruptcy law draft will finally be adopted by the 10th Standing Committee of the National People's Congress (NPC) next year.

China had promulgated a corporate bankruptcy law (trial), whichonly regulated bankruptcy of SOEs as early as in 1986 and, in 1991,the NPC Standing Committee amended the relevant items of the civilprocedural law, stimulating a debt-return order for insolvent corporations with legal persons. But there were no laws and regulation to define insolvency of partnership enterprises, private enterprises and foreign enterprises in China.

According to the trial corporate bankruptcy law, money recovered from insolvent SOEs was not to pay creditors, but to settle the unemployed first and with the leftovers going to creditors, or state-owned banks. However, as banks are also state-owned, the losses have to be covered by the government coffer in the end.

The severe governmental intervention in the SOE's bankruptcy went against the rules of market economy. Especially since China'sentry into the World Trade Organization (WTO) in late 2002, a new corporate bankruptcy law, which adopted market economy, was in urgent need.

In 1994, the new corporate bankruptcy law was started to be drafted, but it failed to be submitted to NPC Standing Committee for the fear that the new law may lead to massive close-down of SOEs, leaving a large number of unemployed.

Prof. Wang Liming, vice-president of Law School under the People's University of China said that after a decade of efforts in deepening SOE internal reforms, most SOEs have become strong enough to resist their insolvency risks. Meanwhile, the country's social security system has been in initial shape, which could relieve bankrupt SOE's burden of employee settlement. Therefore, it is the time for corporate bankruptcy law to be enacted.

The new corporate bankruptcy law is applicable to various kindsof enterprises, including SOEs, private enterprises and foreign enterprises, as well as state-owned banks. However, China's 23 million individual businessmen and individuals consumption bankruptcy is not included in the law's application scope, becauseof China's inadequate individual asset reporting system, accordingto the draft.

The law has also for the first time introduced two new systems.One is trustee in bankruptcy, and another is merging system.

Source: Xinhua