Chinese Cross-Border Insolvencies: Current Issues and Future Developments（2）


Dr. Shi Jingxia


2. Letters of Comfort

In many of the GITIC’s borrowings and capital market transactions, foreign lenders were provided with so-called comfort letters by the Guangdong provincial government. In such letters, the Guangdong provincial government typically stated that it would supply all necessary support with respect to the repayment of principal and interests of loans.[79] Thereupon, it is not surprisingly that many foreign bankers, who believed they were lending to the government other than commercial enterprise, reacted with such vehemence to the bankruptcy of GITIC.
Nevertheless, letters of comfort are not of the binding force that had been anticipated by foreign creditors in the legal sense, even though they morally bear effects to urge debtors to pay. More significantly, Chinese relevant laws and regulations have already prohibited government departments from providing guarantees on foreign debts for many years.[80] Thus, it was not easy for foreign creditors to claim on the basis of commitments indicated in these letters of comfort. This unsatisfactory situation results in part from non-normative conducts of local governments. At the same time, foreign creditors would have to pay the price for their unawareness of Chinese laws.[81]
On the other hand, when GITIC borrowed money, it was billed as a company, which had close connections to Guangdong provincial government, key credentials in China where the government had not quite separated itself from its dominant economic role.[82] But now the situation has changed a lot.[83] China is becoming an economy that is run on market principles and even a company with a strong government linkage could collapse.[84] ‘Too big to fail’ has become a fairy tale in Chinese business history. [85] In this sense, there would be many positive implications from GITIC bankruptcy.[86] At least, those investors often relying on undocumented guarantees from quasi-government sources should undoubtedly be wary after GITIC case.[87] #p#分页标题#e#

3. Liquidation Committee and Voidable Transaction

Under the EBL, the liquidation committee has broad powers in connection with the keeping, appraisal, disposition and distribution of the debtor’s property in bankruptcy proceedings.[88] In terms of the composition of liquidation committee, the People’s Court shall designate its members from among the superior departments in charge, government finance departments, other relevant departments and professional personnel. [89] In the GITIC case, the liquidation committee appointed by the Guangdong People’s High Court was made up of representatives from PBOC, GITIC, the Guangdong provincial government, the Bank of China, GuangFa Securities, Peat Marwick Huazen and a PRC law firm as well.[90] But this composition produces such problems as possible conflicts of interest and fairness of liquidation procedure.[91]
For instance, PBOC announcement ordered that the securities trading business of GITIC be transferred to GuangFa Securities, one of the leading securities firms in China.[92] But whether such transfer impaired the interests of whole creditors and then should be considered as an avoidable transaction or not remains an issue. According to the EBL, certain actions carried out during the six months period prior to bankruptcy will be deemed null and void, including private distribution or gratuitous transfer of property, irregular underselling of property and repayment of unmatured liabilities. [93] Accordingly, creditors might be able to lodge challenges against such transfer. However, given the fact that a representative of GuangFa Securities is on the liquidation committee, it was unlikely that such a challenge would be successful.[94]
In addition to GuangFa Securities, another member of the liquidation committee came from the Bank of China, one of the largest creditors of GITIC, reportedly with total loans to GITIC of over $50 million. Furthermore, the liquidation committee also includes officials from Guangdong provincial government, which is technically the owner of GITIC, as well as members of the former management of GITIC, all of whom arguably have conflicts of interest in getting repayment. This, together with the dominant role that is played by the liquidation committee, makes potential conflicts very likely to occur between the liquidation committee and the creditors’ committee. It is fair to say these latent unfair consequences are mainly attributable to the relevant provisions of the EBL, which bear the obvious imprints of a command economy and pay little attention to the requisite neutrality of the liquidation committee. [95] #p#分页标题#e#

In addition, the GITIC case poses questions over how to maximize the assets of GITIC and improve recovery for the whole body of creditors.[96] These relate to the auction of GITIC assets, maintaining the GITIC as a going-concern, even substantive consolidation of the whole case.[97] But these important issues go unanswered by the EBL, which leaves the Chinese courts at a loose end.
To include, the GITIC case demonstrates once more that Chinese bankruptcy systems are very ill-equipped and unprepared for market economy. Trial implementation is clearly no longer adequate. Chinese bankruptcy regime must keep abreast of international standards. In particular, the core issue, that is, how to realize real equality for whole creditors in bankruptcy proceedings must be considered and well dealt with. Hopefully, GITIC case could act as a catalyst for accelerating the reforms of Chinese bankruptcy systems.

IV. Future Developments: Reform and Cooperation

1. Reform of Chinese Bankruptcy Laws

(a) Necessity of reform

As mentioned above, China is devoid of a cross-border system for the time being, which is unfitting for its economic role in the international community. But in fact, the reform of bankruptcy laws has been put on the national legislative schedule for many years with China’s transition from command economy to market economy. [98] The PRC Constitution was amended in March 1999 to incorporate the rule of law as a guiding principle for governance of the country.[99] In March 2000, the drafters of new bankruptcy law were called up to prepare for a drafting work schedule. Thereafter, in February 2002, the latest edition of the draft “The Enterprises Bankruptcy and Reorganization Law of the PRC” was discussed at several workshops in which domestic and international experts participated. [100]
The scope of proposed new law covers all business entities, including state, private and foreign-related enterprises.[101] Many of its articles are drawn directly from foreign advanced bankruptcy system, with an attempt to bring China’s bankruptcy legislation in line with international standards.[102] But regretfully, cross-border bankruptcy issues are still ill-considered in this proposed new law even if it is much more comprehensive and well thought-out.[103] It is inadvisable for China to continue to neglect this important field.[104] In order to attract more foreign investment and accelerate economic growth, China wishes to maintain a favorable image in the eyes of the international community. When foreign investors decide whether or not to invest in the potentially lucrative Chinese market, it is necessary for them to analyze Chinese legal system, which to a large extent determines attractiveness of an investment market.[105] One of such considerations entails the protections offered to debtors and creditors by bankruptcy systems. [106] It is, therefore, critical for China to develop relevant laws, which are both adequate and able to deal effectively with cross-border insolvency problems for the interests of all parties involved.[107] #p#分页标题#e#

(b) Reference for Reform

It should be helpful for China to use successful international experience for reference in preparing its cross-border bankruptcy legislation. The UNCITRAL Model Law and EU Regulation could provide fertile examples in this respect.
As the product of a negotiation process involving more than 40 countries that represent a wide spectrum of varying legal traditions,[108] The Model Law[109] comprises a well-balanced set of rules, thereby offering the best prospects of solution to the cross-border insolvency fiasco.[110] With the essential purpose of producing a uniform standard for recognizing foreign insolvency proceedings and facilitating cooperation across the borders,[111] the Model Law aspires to give rise to uniformity of approach in a range of key matters concerned with cross-border insolvency cases.[112] Enacting the Model Law by many States will greatly facilitate international trade and investment as doing so leads to more confidence among investors, traders and bankers.[113] Thus far, the Model Law is adopted in Mexico[114] and Eritrea and enjoyed widespread support in several states, including United States,[115] United Kingdom,[116] Australia,[117] New Zealand,[118] South Africa,[119] etc. In support of this effort, many jurists and attorneys have participated in the development of new bankruptcy laws and procedures, especially in Eastern Europe and the Pacific Rim.[120]
In addition to the Model Law, the EU Regulation is an important attribution for the harmonization of cross-border insolvency irrespective of its regional limitation. The predecessor of EU Regulation is EU Convention on Insolvency Proceedings,[121] which is widely viewed as a milestone of four decades’ efforts in Europe to harmonize cross-border insolvency.[122] Though stalled on the non-cooperation with Europe from the United Kingdom,[123] EU Convention has recently been resurrected as a Regulation and adopted by the EU Council of Ministers on 29 May 2000 with entry into force on 31 May 2002. [124] #p#分页标题#e#
The Model Law was designed not only for jurisdictions that currently have to deal with numerous cross-border insolvency cases, but also those that desire to be well prepared for the increasing possibility of such cases.[125] China has played a role in the negotiation of the Model Law. Although there may be a long way to go before China enacts it, it is strongly recommended that China should take the Model Law earnestly into account in preparing laws and procedures for cross-border bankruptcy. Besides, it is worthwhile to pay suitable attention to the EU Regulation since the Model Law does not purport to provide a comprehensive solution to all – or even most – of the problems encountered in this context. [126]

2. Enhancement of International Cooperation

As is commonly stated, international cooperation in cross-border insolvency is indispensable with successful solution to these cases. Such cooperation should be of paramount significance to prevent dissipation of assets and maximize the value of assets.[127] It has been observed from several cases discussed in part II, Chinese courts are currently unprepared for the consciousness of cooperation, not to mention the practice and experience in this field. Thereby, in its efforts to develop bankruptcy law infrastructure, as a critical tache, China needs to foster the spirit of cooperation with foreign courts, which has been driven by general trends in international practice. There are several basic issues regarding international cooperation in cross-border insolvency cases to be discussed here.

(a) Universality versus Territoriality

Universality and territoriality are two principal viewpoints as regards the effective way to handle cross-border insolvencies.[128] In general terms, the universality upholds that one central forum globally administers the bankruptcy of a debtor with the assistance and cooperation of foreign courts.[129] The contrasting territoriality principle, associated with the “grab rule”,[130] stresses the rights of local, creditors and follows the strict rule of sovereignty.[131] Although modern cases indicate a strong and growing advocation towards universality,[132] territoriality is historically the predominant philosophy endorsed by many States.[133] #p#分页标题#e#
So far as theoretical bases are concerned, the Model Law has a goal based on universality by promoting the recognition, assistance and co-operation between states with no reciprocity requirement.[134] But it does not strive to create a pure universality regime in which in which one insolvency proceeding necessarily dominates.[135] The Model Law can be correctly characterized as an example of “modified universalism”[136] or“cooperative territoriality”.[137] Similarly, the EU Regulation establishes a modified rather than pure universality theory, blending a “framework of member state cooperation” with recognition of the“unique aspects of member state’s laws”.[138] These two instruments conform to a recent trend, which began to emerge in the theory and practice of cross-border insolvency and could be termed ‘new pragmatism’ mainly because it has been developed from the practical insights into cross-border insolvency.[139]
Following the traditional way of thinking, it is also necessary to determine whether Chinese bankruptcy legislation adheres to the principle of territoriality, or to the principle of universality. This distinction seems so important that it is commonly considered to reflect the basic attitudes towards cross-border insolvency. [140] There are varying theoretical arguments in China, such as territoriality,[141] restricted territoriality,[142] mutual recognition,[143] and universality,[144] with a particular focus on the extraterritorial effects of bankruptcy proceedings. 2002 Draft Bankruptcy Law generally adopts the revised universality principle after lengthy discussion.[145] It may be hailed as a welcome progress, compared to relevant article in the 1995 Draft that sticks to the territoriality principle.[146] But in effect, the conditions on recognition of a foreign bankruptcy proceeding are strictly listed. It may be not easy for a foreign proceeding to obtain recognition in the PRC since one of the conditions set out in this Article 8 is easily satisfied. Therefore, it is by all means a matter of discretion for the Chinese court to decide whether to recognize a foreign proceeding or not. #p#分页标题#e#
On the whole, this kind of self-closure runs counter to the cooperation trend of modern cross-border insolvency. In devising its principle, with an eye to the disparity between idealism and realism, the new pragmatism seems calculated best to satisfy the main purpose of cross-border insolvency proceedings although the universality should ideally be the preferred solution to these cases. Indeed, for any insolvency law to function, a suitable blend of principle and pragmatism is always workable. The same degree of pragmatism should be alive and well for China. This pragmatism should lay emphasis especially on the need to facilitate the most efficient and cost-effective administration of the debtor’s estate,[147] which is most concerned by all parties in insolvency proceedings. [148] From a practical view, the notion of pragmatism offers a bridge between the competing doctrinal schools of territoriality and universality and strikes a balance between the protection of Chinese national interests and international economic cooperation. Seen from the current legislation, there should be no legal conflicts and barriers for China’s adopting this approach.

(b) Jurisdiction to Open Insolvency Proceedings

Jurisdiction is a very sensitive and complex issue since it is so easy to generate positive conflicts of jurisdiction in cross-border insolvency cases. Accordingly, it is a precondition of international cooperation to determine which courts and to which extent has jurisdiction to insolvency cases.
As is commonly pointed out, in the modern era of cross-border insolvency, there has been a consistent tendency favoring the grant of primary jurisdictional competence to the courts of the state where the debtor’s center of main interests is located.[149] Both the Model Law and EU Regulation establish a powerful demonstration of this worldwide trend,[150] furtherly distinguishing between main and non-main insolvency proceedings.[151] A main proceeding takes place where the debtor has the center of its main interests.[152] There being no explicit definition as to ‘center of main interests’, the Model Law and EU Regulation employ a rebuttable presumption that for a company or legal person / entity, the center of its main interests shall be the place of its registered office. [153] #p#分页标题#e#
Under the EBL, the people’s court where the registered office of the debtor is located shall have jurisdiction to open the bankruptcy proceeding.[154] But this jurisdiction can be exercised only against the SOEs. With respect to other enterprises, including foreign-related enterprises, the CPL empowers the people’s court where the debtor is domiciled to exercise jurisdiction.[155] Pursuant to article 39 of the General Principle of Civil Law of P. R. of China,[156] the domicile of a legal person shall be the location of its main office. Therefore, the basic notion of insolvency jurisdiction in Chinese laws is consistent with the Model Law and EU Regulation though the concept of main interest center has not been established in China.
However, the most important and difficult thing lies mainly in the determination of real center of debtor’s main interests, especially when the debtor is transnational corporation that invests in many jurisdictions. The registered office may be located in a sunny tax haven where the debtor has only a postbox and nothing else. The debtor’s actual center of interests may locate within other state so as to generate relevant interests and expectations wherein based upon the local law.[157] China particularly concerns about this situation. The main interest center of transnational corporation is often considered to situate in other jurisdictions but it carries on business in China. The Model Law and EU Regulation introduce the concept of establishment to solve this problem.[158] The jurisdiction to open non-main proceedings should be exercised on the basis of establishment owned by debtor.[159] The effect of the non-main proceeding is restricted to the assets of the debtor situated within local territory. This deference to local proceedings accommodates China’s concern about potentially over-intrusive foreign proceedings dominating local bankruptcy system.
Another issue may be resulted from the virtually broad jurisdiction of Chinese courts to commence bankruptcy cases. For example, the enterprises without domicile in China shall also be subject to the jurisdiction of Chinese courts on the basis of presence of assets, representative office and subject matter in China.[160] It is, therefore, relatively easy for Chinese court to exercise jurisdiction on the bankruptcy of foreign-related enterprises. But to put it in the context of cross-border insolvency, it is likely to give rise to conflicts between this broad jurisdiction and the widely recognized principles of international jurisdiction. It seems that suitable jurisdictional self-restrictions are necessary to facilitate the cooperation between Chinese and foreign courts in solving cross-border insolvency cases. #p#分页标题#e#

(c) Recognition and Assistance in Insolvency Proceedings

Given the Model Law and EU Regulation do not adopt pure universality, it is essential to devise a framework under which cooperation among different proceedings could be run well. The Model Law seeks to achieve this purpose mainly by focusing on procedural matters such as recognition, access and cooperation between courts and representatives but no reciprocity requirements.[161] In particular, The ease of court access by both foreign representatives and creditors constitutes a commendable aspect of the Model Law.[162]
The Model Law provides under which circumstances a foreign proceeding shall be recognized.[163] Accordingly, it comprises two types of effects upon recognition. The first type is automatic from recognition itself,[164] which is necessary to organize an ordered and fair cross-border insolvency proceeding. The second type of effect only occurs upon court order.[165] When concurrent, fully-fledged local insolvency proceedings exist,[166] the Model Law mandates judicial cooperation rather than merely encourages it.[167] The Model Law addresses cooperation of courts of the enacting State with foreign courts or foreign representatives,[168] the cooperation of domestic representatives with foreign courts and foreign representatives,[169] and the forms through which cooperation can be implemented.[170]
When a cross-border insolvency involving China arises, there are at least two probabilities concerning recognition and cooperation. Firstly, a Chinese court may seek assistance from a foreign court for the purpose of enabling the liquidation committee to fulfil duties under Chinese laws. Secondly, a foreign court might request assistance from a Chinese court with similar purposes. Once China enacts the Model Law, Chinese courts will be required to recognize and --subject to their discretion-- to give assistance to a foreign representative, with a number of significant effects following automatically upon such recognition.[171] #p#分页标题#e#
This recognition and assistance relates to the basic attitudes of China towards foreign-related civil procedures. The 1991 Civil Procedure Law and accompanying judicial interpretation devote several provisions to this issue. [172] According to relevant provisions, Chinese current civil procedures actually interpose some obstacles in respect of the cooperation between courts at home and abroad. For instance, when there exists an effective bankruptcy judgment made by a foreign court, but without judicial assistance agreement and reciprocity relations among the said foreign States and China, the foreign liquidator should approach a competent Chinese court and file a separate case. Chinese courts shall then review and examine the foreign judgments in order to decide whether it is contrary to Chinese public interests or not to recognize its effects. Strictly speaking, this is a sort of separate adjudgment made by Chinese courts, not involving recognition foreign proceedings. The foreign bankruptcy judgment actually plays a role as a cause of action for the lawsuit of a foreign liquidator before the Chinese courts. [173]
In addition, it should be noted that the principle, which shall be abided by the Chinese courts for its examination of foreign judgment, involves reciprocity requirements. In the event that a court of a foreign state which has no relation with China based on treaties of judicial assistance involving, reciprocity, requires direct assistance and cooperation from a Chinese court, it shall not be sanctioned unless these requirements are conducted by suitable diplomatic measures.[174] These provisions show unarguable disparities between Chinese current legislation and the framework of the Model Law. There should be necessary revision to be made correspondingly so as to adapt Chinese domestic laws to the Model Law.

V. Conclusion

As the largest emerging market in the world, China has attracted numerous investors from many developed countries.[175] Consequently, at a practical level, it is more likely that Chinese entities become more and more embroiled in cross-border insolvencies with a robust growth of foreign-related enterprises in China, especially in southern China. The Chinese bankruptcy laws in their current state, however, are vague and underutilized, so are cross-border bankruptcy aspects. Historically, the EBL and relevant regulations were tailored exclusively for the requirements of a command economy instead of a market economy. None the less, it is necessary that bankruptcy legislation shall be at the forefront of the change, given that China now continues on a path toward deepening economic reform and marketization.[176] #p#分页标题#e#
Internationally accepted cross-border insolvency norms by all means should be needed urgently in China. Moreover, it is preferable for China to enact modern cross-border insolvency laws before major problems occur. But in any case, it is also very crucial to strike a necessary balance between the need for China to regulate economic activity within its territorial boundaries and the need to create a positive environment in which international trade and investment can operate. Or else, a modern bankruptcy law may be just nominal presence and will not work well in actual cases.
The golden ages come with the increasing popularity of current initiatives on cross-border insolvency, especially the Model Law and EU Regulation. The Model Law and EU Regulation are designed to serve separate but compatible objectives,[177] reflecting the modern trend on the cross-border insolvency. They deserve to be employed as helpful reference for China to prepare its own bankruptcy law. Firstly, it is recommended that China should give every consideration to the possibility of incorporating the provisions contained within the Model Law into its future bankruptcy law.[178] Secondly, regards may be given to the suitability of the provisions found within the EU Regulation, to serve as a basis for possible adaptation into Chinese framework of rules for use.[179] More importantly, China should be aware of the potential problems and ensure the Model Law has the maximum effect in China’s context. In achieving this goal, it is necessary for China to examine closely its existing bankruptcy-related legislation so as to eliminate potential conflicts with the Model Law.

[79]See “Reexamination if GITIC Bankruptcy Case”(n. 59 above), p. 3; See also T K Chang (n. 54 above), p. 46.
[80]In accordance with the Notice of the State Council Regarding the Strengthening of Control over the Borrowing and Using of International Commercial Loans, issued on 12 January 1989, no governmental agency or institution shall provide foreign exchange guarantees to any foreign party. Moreover, pursuant to art. 8 of the Security Law of People’s Republic of China (adopted at the 14 th. Meetning of 8 th. Standing Committee of National People’s Congress, effective as of 1 October 1995), governmental units shall not provide guarantee for economic activities. #p#分页标题#e#
[81]In fact, China’s central government never provided any explicit guarantees for GITIC, although local government in China in the past often interfered in the financial arena. See “Nothing Could Help GITIC But Bankruptcy,”(1999) Special Information (China), p. 6.
[82]The bankers felt specially comfortable with GITIC, where the ultimate borrower was a big provincial government, Guangdong no less, with its proximity to Hong Kong and its breakneck growth rate. See, eg “The Spectacular Rise and Fall of GITIC”, n. 46 above.
[83]See, eg Jiang Zemin, “Hold High the Great Banner of Deng Xiaoping Theory for an All-Round Advancement of the Cause of Building Socialism with Chinese Characteristics to the 21st Century” (Report Delivered at the Fifteenth National Congress of the Communist Party of China on 12 September 1997), Part V, ‘Economic Restructuring and Economic Development Strategy’.
[84]The Chinese government’s current major reform move to allow bankruptcy of enterprises that fail to restructure, is proof that the government is standing by its policy. See, eg “What did GITIC Bankruptcy Signify?”(1999) Special Information (China), pp. 7-8; See also “Q&A: Guangdong Deputy Governor Speaks on GITIC and Guangdong Enterprise”, n. 48 above.
[85]Though it has not been widely published inside and outside China, but in the long term, China has clearly established that it will not fall into the moral hazard trap of rescuing badly run companies just because they are too big to fail. Chinese companies will no longer be able to obtain easy credit on the basis of opaque financial statements, personal connections (Guanxi) and vague comfort letters from their parent governmental authorities. See T K Chang (n. 54 above), p. 43; See also “What did GITIC Bankruptcy Signify?”, ibid.
[86]See Vivian Chu, “China Starts Long March to Securitization”, Emerging Market Debt Report, 6 March 2000, available at ‘2000 WL 3958353’. #p#分页标题#e#
[87]See Stephen H. Willard & Jr. Bonnie Weinstein, “International Legal developments in Review: 1998 Business Regulation -- International Investment, Development and Privatization,”(1999) 33 Int’l Law, pp. 232-233.
[88]Enterprise Bankruptcy Law, art. 24(1).
[89]Enterprise Bankruptcy Law, art. 24(2).
[90]See, eg Chang TK (n 53 above), p. 45.
[91]Ibid.
[92]See “Commentary Analysis: China’s Task Is Economic”, The Straits Times (Singapore), 25 January 1999, ‘available at: 1999 WL 8244807’.
[93]Enterprise Bankruptcy Law, art. 35(1).
[94]Pursuant to 35(2) of the EBL, should bankruptcy enterprises have committed voidable transactions listed in the 35(1), the liquidation committee has the right to apply to the people’s court to recover the property, which shall be added to the bankruptcy property.
[95]The Supreme Court Bankruptcy Opinions, note 12 above. These Opinions set forth many details on bankruptcy procedures and was explicitly cited by the chief judge in his statement that there would be conflicts between the liquidation committee and the creditors’ committee. For example, according to art. 31 of the Opinion, should the plan for the distribution of assets proposed by the liquidation committee is not approved by the creditors’ committee, the matter would be decided by the people’s court.
[96]As far as the methods of realizing assets are concerned, whether through auction on the open market or maintaining GITIC as a going-concern, difficulties would raise due to the restriction or prohibition of foreign ownership of GITIC’s assets and shares because GITIC was a state-owned enterprise. GITIC held shares in numerous Chinese companies in the form of state or legal person shares, which generally may not be transferred to foreign parties. Under the existing regulations, it is also generally not possible for foreign parties to hold GITIC shares, because the state must hold an absolute majority or relative majority in all state-owned companies. See Peter P Farkas, “Discipline in the marketplace”, CA Magazine, 1 October 1999, ‘available at 1999 WL 13692026’; See also T K Chang (n. 54 above), p. 46. #p#分页标题#e#
[97]GITIC headquarter and its three subsidiaries had been carried out by four bankruptcy proceedings separately. At a practical level, it is likely that substantive consolidation might be able to benefit the whole creditors since it removes all inter-company claims. For the elaboration of substantive consolidation in insolvency proceedings, See Christopher K. Grieson, “Shareholder Liability, Consolidation and Pooling”, in Current Issues in Cross-Border Insolvency and Reorganization (1994, n. 40 above), pp. 217-224.
[98]In order to implement the legislation plan of the Standing Committee of the 8th National People’s Congress, the Fiscal and Economic Committee of the NPC has organized the drafting work for renewing bankruptcy law since March 1994. The Draft Bankruptcy Law containing 10 chapters and 193 articles was proposed to the higher authority in autumn 1995, but was unluckily shelved due to some reasons in 1996. See, eg Wang Weiguo, “Institutional Reasoning in Drafting New Bankruptcy Law”, unpublished paper presented at Chinese Insolvency Law Symposium: Developing an Insolvency Infrastructure, Hong Kong, 17-18 November 2000, p. 1.
[99]The Constitution Law of the People’s Republic of China (adopted on 4 December 1982, amended on 15 March 1999), art. 5(1). This article provides that the People’s Republic of China implements the rule of law and builds socialism nomocracy.
[100]This edition includes 170 articles in 13 Chapters, once supposed to submit to the higher authority not later than April. But due to the substitution of National People’s Congress in early 2003, this work was shelved once more.
[101]Art. 2 of the 2000 Draft Business Bankruptcy and Reorganization Law reads: “This law shall apply to the following civil forms: (1) Enterprise legal persons; (2) Partnership enterprises with their partners; (3) Sole proprietorships with their investors; (4) Other profitable economic organizations established in accordance with the Chinese laws. Thus, it can be seen that this Draft does not intend to cover the bankruptcy of natural persons. For the reason of this, see Wang weiguo (n. 98 above), p. 2. #p#分页标题#e#
[102]Vivien Pik-Kwan Chan, “NPC Date for Bankruptcy Legislation”, S. China Morning Post, 11 October 1995, p .10.
[103]In the 1995 Draft, there is only a principle article providing that “no procedure of liquidation, composition or reorganization opened outside the domain of the PRC shall have any effect upon a debtor’s assets located within the territory of the PRC”. This provision clearly falls into the doctrine of territoriality. Besides, this is uncompleted article since it remains silent on the effect of Chinese procedures on the debtor’s assets abroad. See art. 7 of the 1995 Draft.
[104]In the 2002 Draft, the author contributed an article on cross-border insolvency. Art. 8 of this Draft reads:
“The liquidation, reorganization and composition proceedings commenced by the People’s Courts under this law shall have effect on the whole assets of the debtor (excluding the exempted assets), wherever they located.
The liquidation, reorganization, composition and similar proceedings commenced outside the Mainland China (including the Hongkong, Macao and Taiwan) may have effect upon the debtor’s assets located within the Mainland China. But the People’s Court may deny the recognition of the effect of foreign proceeding commenced by the debtor’s domiciliary court upon the assets located within the Mainland China should this proceeding satisfies the following conditions:
(1) Chinese creditors will not be given fair and equitable treatment if they participate in this proceeding;
(2) There are significant differences among the substantive provisions embodied in the insolvency law of the relevant jurisdiction and this law;
(3) The recognition of this foreign proceeding will violate the public interests of China”
But this Draft is still subject to the approval from the higher authority before it could become into the law.
[105]See Richard C. Breeden, “The Globalization of Law and Business in the 1990’s,”(1993) 28 Wake Forest L. REV., p. 515. #p#分页标题#e#
[106]Ibid.
[107]See Ronald Winston Harmer, “Insolvency Law and Reform in the People’s Republic of China,”(1996) 64 Fordham L. Rev., p. 2574.
[108]World Bank Consultation Draft, “Effective Insolvency Systems: Principles and Guideline”, Part III: International Considerations, p. 127.
[109]The United National Commission on International Trade Law adopted the Model Law on Cross-Border Insolvency on 30 May 1997, after spending lots of time in debating and refining the draft produced by the Working Group. See, eg “Report of the United Nations Commission on International Trade Law on the Work of Its Thirtieth Session”, U. N. Gaor, 52 nd Sess., Supp. No 17, p. 5.
[110]See Ian F. Fletcher, Insolvency in Private International Law (1999) p. 369; See also Claudia Tobler, “Managing Failure in the New Global Economy: The UNCITRAL Model Law on Cross-Border Insolvency,”(1999) 22 B. C. Int’l & Comp. L. Rev., p. 384.
[111]See UNCITRAL Model Law on Cross-Border Insolvency: Guide to Enactment of the UNCITRAL Model Law on Cross-Border Insolvency’ (hereinafter ‘Guide to Enactment of Model Law’), 1997 XXVII UNCITRAL Y.B. pt. 3, 2, UN Doc. A/CN. 9/442, available at http://www.uncitral.org/english/texts/insolven/ml+guide.htm; See also Andre J. Berends, “The UNCITRAL Model Law on Cross-Border Insolvency: A Comprehensive Overview,”(1998) 6 Tul. J. Int’l & Comp. L., p. 311.
[112]See Ian F. Fletcher (n. 111 above), p. 330.
[113]See Andre J. Berends (n. 111 above), p. 399.
[114]On 26 April 2000, Mexico adopted the new Bankruptcy Law in which the UNCITRAL Model Law was enacted.
[115]In the USA, the text of enacting the Model Law has been proposed as a new chapter, Chapter 6 to the Bankruptcy Code. The bill containing these changes was the “Bankruptcy Reform Act”, which failed to be passed in 1998 and 2000 by the Congress. Now, it is more likely that the enactment of the Model Law will be submitted as a separate bill to the Congress for passage in the near future. #p#分页标题#e#
[116]In the United Kingdom, the Insolvency Bill 2000 includes an enabling clause to authorize the Secretary of State to give effect to the Model Law by regulations. For this purpose, the application of insolvency law and any provision of S 426 Insolvency Act 1986 should be amended. See Clause 14 of the text of the Insolvency Bill [H.L.], as amended in the Committee of the House of Commons and printed on 7 November 2000, available at .
[117]Australia has contributed to the relevant UNCITRAL deliberations and is considering possible adoption of the Model Law. See Rosalind Mason, “Implications of the UNCITRAL Model Law for Australian Cross-Border Insolvencies,”(1999) Int. Insol. Rev., Vol. 8: 83-108, p. 83.
[118]The Model Law has already been adopted by New Zealand (although not implemented).
[119]South Africa Law Commission drew out the Interim Report on Review of the Law of Insolvency (The Enactment in South Africa of UNCITRAL Model Law on Cross-Border Insolvency) for the legislative consideration of adoption. See South Africa Law Commission, project 63, June 1999, ISBN: 0-621-29300-8.
[120]See Christopher J. Redmond, “Offshore Estate Planning: Haven for International Insolvency Litigation,” (1998) 17-OCT Am. Bankr. Inst. J., p. 12.
[121]The European Union Council of Ministers established a working group to propose an insolvency Convention in 1989. As the production of this group, EU Convention opened for signature on 23 November 1995. The text of EU Convention can be found at (1996) 35 I. L. M,. p. 1223. EU Convention has been considered as a continuation of the earlier EEC Draft Convention. See, eg Ian F. Fletcher, “International Insolvency: A Case for Study and Treatment,”(1993) 27 Int’l Law., p. 439.
[122]In fact, various European countries have been struggling for more than 40 years to establish an insolvency treaty. See Leslie A. Burton (n. 44 above), p. 217.
[123]The reason for the UK’s rejection to be member state of EU Convention mainly exists in two aspects: one is“Mad Cow Disease”, the other is the debate between Spain and United Kingdom about the public authority in Gibraltar. See generally, Andre J. Berends (n. 111 above), pp. 317-318; See also Bob Wessels, “Primer on the New European Insolvency Framework,”(1998) 17-AUG Am. Bankr. Inst. J., p. 12. For more details about the Gibraltar syndrome, See Ian F. Fletcher (n. 110 above), pp. 298-300. #p#分页标题#e#
[124]See Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings, Official Journal of the European Communities, L 160, available at ‘http://europa.eu.int/eur-lex/en/dat/2000/1-160/1-16020000630en/00010018.pdf’.
[125]See Guide to Enactment of Model Law, n. 111 above, para. 3.
[126]World Bank Consultation Draft, n. 108 above, p. 125.
[127]Today, there are not many legislative systems that provide legal bases for cooperation. The aim of Chapter IV is to fill this gap. See Andre J. Berends (n. 111 above), p. 378.
[128]See, eg Ian F, Fletcher (n. 110 above), p. 10; See also Blom-Cooper, Bankruptcy in Private International Law (1954), pp. 11-12, 14-17; John D. Honsberger, “Conflict of Laws and the Bankruptcy Reform Act of 1978,”(1980) 30 Case W. Res. L. Rev., pp. 633-635; Timothy E. Powers & Rona R. Mears, “Protecting a Debtor’s Assets in International Bankruptcy: A Survey and Proposal for Reciprocity,”(1985) 10 N. C. J. Int’l & Com. Reg., pp.305-307; Barbara K. Unger, “United States’ Recognition of Foreign Bankruptcies,”(1985) 19 Int’l Law, pp. 1154-1155; Jay L. Westbrook, “Choice of Avoidance Law in Global Insolvency,”(1991) 17 Brook. J. Int’l L., pp. 512-519; Jay L. Westbrook & Emmanuel Gaillard, “Four Models for International Bankruptcy,”(1994) 41 Am. J. Comp. L., p. 573.
[129]See, eg The American Law Institute, Transnational Insolvency Project: Principles of Cooperation in Transnational Insolvency Cases Among the Members of the North American Free Trade Agreement, Tentative Draft (2000), p. 11.
[130]The principle of territoriality might motivate “diligent” creditors to grab the debtor’s assets situated in foreign countries. See Junichi Matsushita, “Present and Future of Japanese International Insolvency Law,”(1998) 33 Tex. Int’l L. J., p. 75; See also Barbara K. Unger (n. 128 above), p. 1155; John D. Honsberger (n. 128 above), pp 634-635. #p#分页标题#e#
[131]See Harold S. Burman, “Harmonization of International Bankruptcy Law: A United States’ Perspective,”(1996) 64 Fordham L. Rev., p. 2552; See also Daniel M. Glosband & Christopher T. Katucki, “Claims and Priorities in Ancillary Proceedings under S 304,”17 Brook. J. Int’l L., p. 480.
[132]See Jay Lawrence Westbrook (n. 3 above), pp 750-751.
[133]See Harold S. Burman (n. 131 above), pp. 2551-52; See also Jay Lawrence Westbrook (n. 3 above), p. 748. There is a recent vigorous defense of a cooperative form of territoriality as well. See Lucian Arye Bebchuk & Andrew T. Guzman, “An Economical Analysis of Transnational Bankruptcies,”(1999) 42 J. L. & Econ., p. 806. This paper has identified the winners and losers from territoriality. The author came to the conclusion that even though territoriality reduces overall global welfare, a country may benefit from territoriality at the expense of foreign firms. In another article, the author examined five kinds of system for international insolvency cooperation and concluded that universalism is unworkable. Rather, territorialism provides the best foundation for international cooperation. See Lynn M. LoPucki, “Cooperation in International Bankruptcy: A Post-Universalist Approach,”(1999) 84 Cornell L. Rev., p. 696.
[134]See New Zealand Law Commission (NZLC) Report 52, “Cross-Border Insolvency: Should New Zealand Adopt the UNCITRAL Model Law on Cross-Border Insolvency?”Part 1: Para. 8, available at .
[135]This deference to local proceedings was a political necessity. See New Zealand Law Commission (NZLC) Report 52, ibid., Part 1: Para. 27; See also Glosband and Tobler, “Cross-Border Insolvencies,”in Bankruptcy Court Judicial Forum ’98 (Massachusetts Continuing Legal Education), p. 12.
[136]See New Zealand Law Commission (NZLC) Report 52, ibid., Part 1: Para. 17.
[137]See Matthew T. Cronin, “UNCITRAL Model Law on Cross-Border Insolvency: Procedural Approach to A Substantive Problem,”(1999) 24 J. Corp. L., p. 711. #p#分页标题#e#
[138]See Leslie A. Burton (n. 43 above), pp. 217-19; See also Bernard Schollmeyer, “The New European Convention on International Insolvency,”(1997) 13 Bankr. Dev. J., p. 437.
[139]World Bank Consultation Draft, n 108 above, p. 126.
[140]See Manfridi Burgio, “Cross-Border Insolvency – An Italian Approach,”(1999) Int’l Insol. Rev, Vol. 8: 39-47, p. 40.
[141]See Zhang Weiping, Introduction to Bankruptcy Proceedings (Chinese, China Politics and Law University Press, 1993), p. 189.
[142]See Hu Zeen, “Bankruptcy Legislation for Foreign-Related Enterprises and Extraterritoriality Effect of Bankruptcy Declaration,”(1989) Legal World (China), No 2, p. 23.
[143]See Tang Weijian, “On Cross-Border Insolvency,”(1995) Journal of Comparative Law (China), Vol.2, p. 124.
[144]See Ke Shanfang, Introduction to Bankruptcy Law (Chinese, Higher Education Press, 1988), p. 167.
[145]The Draft Bankruptcy Law of the People’s Republic of China (2002), art. 8; See also note. 104 above.
[146]The Draft Bankruptcy Law of the People’s Republic of China (1995), art. 7; See also note. 103 above.
[147]World Bank Consultation Draft, n. 108 above, p. 127.
[148]See Thomas M. Gaa & Paula E. Garzon, “International Creditor’s Rights and Bankruptcy,”(1997) 31 Int’l Law, p. 273; See also Charles D. Booth, “A History of the Transnational Aspects of United States’ Bankruptcy Law Prior to the Bankruptcy Reform Act of 1978,”(1991) 9 B. U. Int’L. J., pp. 36-37.
[149]World Bank Consultation Draft, n. 108 above, p. 128.
[150]See Ian Fletcher & Hamish Anderson, “Cross-border Security and Insolvency: The Insolvency Issues,” unpublished paper presented at The Oxford Law Colloquium 4-6 April 2000, p. N18.
[151]See UNCITRAL Model Law, art. 2(c) (“foreign non-main proceeding”); art. 2(b) (“foreign main proceeding”). This distinction reflects the underlying goal of resolving cross-border insolvency by establishing one primary proceeding that is accompanied by various secondary, or ancillary, proceedings in other jurisdictions. See also Guide to Enactment of Model Law, n. 111 above. #p#分页标题#e#
[152]UNCITRAL Model Law, art. 2(b).
[153]UNCITRAL Model Law, art. 16(3); EU Regulation, art. 3(1).
[154]Enterprise Bankruptcy Law, art. 5.
[155]Civil Procedure Law, n. 11 above, art. 205.
[156]The General Principles of Civil Law of P. R. of China was adopted by the National People’s Congress on 12 April 1986, effective as of January 1, 1987. China now is on the way of preparing a new Code of Civil Law.
[157]See Andre J. Berends (n. 111 above), p. 330.
[158]UNCITRAL Model Law, art. 2(f) (definition of “establishment”); art. 17(2)(b) (stating that the foreign proceeding shall be recognized as a foreign non-main proceeding if the debtor has an establishment in the foreign state).
EU Regulation, art. 2(h) (definition of “establishment”), art. 3(2) (stating that the courts of another Member States shall have jurisdiction to open insolvency proceedings against that debtor only if he possesses an establishment within the territory of that other Member State).
[159]UNCITRAL Model Law, art. 17(2)(b).
[160]Civil Procedure Law, n. 11 above, art. 243.
[161]See Guide to Enactment of Model Law, n 111 above. (stating that the Model Law does not attempt a substantive unification of insolvency law); See also Matthew T. Cronin (n 137 above), p. 710; Andre J. Berends (n. 111 above), pp. 321-322.
[162]The Model Law allows a foreign representative to directly apply for recognition of a foreign insolvency proceeding. UNCITRAL Model Law, art. 15(1). See Thomas M. Gaa & Paula E. Garzon, “International Creditors’ Rights and Bankruptcy,”(1997) 31 Int’L Law, p. 275; see also Claudia Tobler (n. 104 above), pp. 421-422.
[163]UNCITRAL Model Law, art. 17 (“decision to recognize a foreign proceeding”).
[164]UNCITRAL Model Law, art. 20(1).
[165]See Andre J. Berends, n. 111 above, p. 350.
[166]Concurrent proceedings can have many forms. For a list of various types of concurrent proceedings, See Andre J. Berends (n. 111 above), pp. 385-387. #p#分页标题#e#
[167]See Guide to Enactment of the Model Law, n. 111 above, para. 173-174.
[168]UNCITRAL Model Law, art. 25.
[169]UNCITRAL Model Law, art. 26.
[170]UNCITRAL Model Law, art. 27.
[171]UNCITRAL Model Law, art. 17, art. 20-24.
[172]Civil Procedure Law, n 11 above, art. 268; The Supreme Court CPL Opinions, n. 12 above, art. 318.
[173]See Shi Jingxia (n. 43 above), p. 122.
[174]The Supreme Court CPL Opinions, n. 12 above, art. 319.
[175]See Steven L. Seebach (n. 17 above), p. 351.
[176]See Shirley S. Cho (n. 15 above), p. 762.
[177]See Ian F. Fletcher (n. 110 above), p. 370.
[178]Maybe it is not suitable moment for China to enact the Model Law now for two reasons: firstly, more time is needed to have the Model Law known and understood in China, especially by the law circle and the law-making related officials. Secondly, the Chinese legislative design in this regard is not still ripe. See Wang Weiguo (n. 97 above), pp. 17-18. The drafting group of the new bankruptcy law does not think that China should step too fast with respect to the cross-border insolvency.
[179]Although the EU Regulation is regionally-based instrument, it is intended to operate in a cross-border environment between jurisdict, ions which belong to different legal traditions, and which quite possibly subscribe to different philosophical and policy approaches to matters of insolvency.