context: Bankruptcy legal systems act as a bedrock for market economy functioning. Though the PRC introduced its Enterprise Bankruptcy Law in 2007, the country lacks personal bankruptcy provisions, whilst 'zombie enterprises' linger in markets. Acknowledging that legal structures fall short, the National People's Congress added Enterprise Bankruptcy Law revision to both its 13th and 14th legislative schedules. An initial draft emerged for public feedback in September 2025.
Even though the 2007 Enterprise Bankruptcy Law introduced the restructuring system as a corporate rescue mechanism, remarks Zhong Lun Law Firm, legislative supply lagged behind market demand for reorganisation.
According to data disclosed by the National People's Congress Financial and Economic Affairs Committee in the draft explanation, only 4.6 percent of concluded bankruptcy cases involved restructuring and settlement. The revision was partly designed to tackle restructuring insufficiency.
Major changes include
- reducing the difficulty of restructuring and incentivise company application
- optimise creditor grouping and voting rules for reorganisation
- resolve restrictions on share transfers during plan execution
- address hidden debt risks and tax issues relating to debt waivers
- build credit restoration systems for reorganised companies
- adopting the concept of bankruptcy prevention—encourage earlier intervention
- support a bankruptcy early-warning system
- identify and assist distressed companies at an earlier stage
- create simplified restructuring (hybrid reorganisation) linking out-of-court workouts with in-court reorganisation
- draw on international legislative practice
- reform the ‘pre-organisation’ concept in judicial practice
- make out-of-court workouts more flexible and expansive
- enable distressed companies to achieve early rescue
- support a bankruptcy early-warning system
- adjusts the rights and obligations of participants
- further clarify the trustee’s duties
- enhance creditor rights to information and participation via disclosure
- relax conditions for debtor-in-possession
- build systems to safeguard its operations
- lowers the influence of debtor shareholders in reorganisation
- sets out rules for the participation of reorganisation investors
- specify their rights and obligations
- emphasises the value of efficiency and prevents prolonged delays
- set deadlines for second-round voting on draft reorganisation plans
- create limits on plan execution extensions
- reduce the waste of social resources caused by stalled proceedings
To sort out conflicts of interest between stakeholders, the draft absorbed developing practices on hearings and disclosure in the restructuring procedure. While the 2007 law does not provide for hearings, the SPC (Supreme People's Court) bankruptcy minutes introduced such an element, which is consolidated in two ways
- hearings can be held in all restructuring cases at the application review stage
- not only for major or complex cases as per SPC minutes
- hearing time does not count toward the statutory review period
- hearings may also be held when courts are compelled to approve reorganisation plans