1. Enhancing China’s Nascent Corporate Rescue Regime — A Case Study of Zhejiang Province Zinian Zhang ( 张子年 ) under supervision of Prof. Roman Tomasic Durham University Law School 1

2. 1. History of China’s bankruptcy Law 1906 bankruptcy law by Qing Dynasty. 1935 Bankruptcy law by Nationalist Govt. 1986 Bankruptcy Law by Communist Govt. 2006 China Enterprise Bankruptcy Law 2

3. 1. History of China’s bankruptcy Law China Enterprise Bankruptcy Law 1986 - applying to state-owned enterprises (SOEs) - served as a government tool to reform SOEs - a chapter in Civil Procedure Law for non-SOEs 3

4. 1. History of China’s bankruptcy Law Radically changed economy in recent decades - accession to WTO - growing private sectors - foreign investment - global trade 4

5. 1. History of China’s bankruptcy Law China Enterprise Bankruptcy Law 2006 - embracing international insolvency principles - applying to all enterprises - rescue-oriented - insolvency practitioner, moratorium, cram-down, etc. 5

6. 2. Implementation of rescue in China 105 rescues reported from 2007 to 2010 Payment to unsecured creditors at 21% 175 days on average to complete a rescue Big-firm-first rescue approach Nearly a quarter of rescues conducted in Zhejiang 6

7. 3. Corporate rescues in Zhejiang Zhejiang Province Shanghai 7

8. 3. Corporate rescues in Zhejiang Zhejiang Economy in China - the 4 th in GDP among 31 provinces - 94% of GDP contributed by manufacture and service - 82% of industrial-added value from private sectors 8

9. 3. Corporate rescues in Zhejiang 20 reorganizations dealing with 35 debtor companies 91% of debtors are totally private Big-firm-first approach £130,538,690 debt per debtor 9

10. 3. Corporate rescues in Zhejiang 260 days on average to complete a rescue Absolute priority principle largely complied with Special protection to general public shareholders 10

11. 3. Corporate rescues in Zhejiang All secured and preferential creditors fully paid Unsecured claims 36% satisfied on average - national figure at 21% - liquidation at less than 10% 75% of rescues are company sales 11

12. 3. Corporate rescues in Zhejiang Cram-down against shareholders in 44% of rescues No cram-down against creditors in Zhejiang Cancellation of old shares under consent of shareholders 12

13. 4. Courts’ acceptance of rescue Court’s hesitation in hearing corporate bankruptcy Corporate bankruptcy – controlled by Govt, in history, Inaction of court leads to few company bankruptcies 13

14. 4. Courts’ acceptance of rescue Difficulties of court in dealing with corporate rescues - courts inferior to other government bodies - lack of cooperation from government institutions - in fear of collective protest 14

15. 4. Courts’ acceptance of rescue The usual route to formal rescue - company collapse - social crisis by unpaid employees or creditors - protest - government intervention - court ordered to commence a rescue 15

16. 5. Administrators in Zhejiang Zhejiang Bankruptcy Administrator List 2007 - made in September 2007 - by Zhejiang High Court - 34 law firms and 14 accountant firms included - no training and examination before and after 16

17. 5. Administrators in Zhejiang Law firms appointed in 45% of reorganizations Accountant firms: 20% Government-organized liquidation committee: 35% Lawyers included in most of above committees 17

18. 5. Administrators in Zhejiang The roles of administrator in rescue - taking control - verifying debts - instigating agreement between investors and creditors - initiating a reorganization plan Debtor-in-possession vs. practitioner-in-possession 18

19. 6. Challenges of early rescue The debtor: in fear of losing control - especially disclosure of tax evasion No wrongful trading mechanism in China Punishment from market: - 50% chief executives absconding Social attitude hostile to a second chance 19

20. Conclusions Optimism: - rescue aligned with local government’s interests - fast growing private sectors - prospective economic recession - lowered economic growth target less than 8% 20

21. Conclusions Pessimism: - a lack of rule of law - poor record in enforcing commercial law - corrupted judges and courts 21

22. Thanks you 谢谢 22

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