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  • Writer's pictureLarry Zhou

The Basic Process of Bankruptcy Filing and Debt Settlement of Chinese Enterprises

If the Chinese company you are dealing with is declared bankrupt and liquidated, but this company still owes you money, you must wonder whether you have chance to get your money back and how to do it.

According to the Enterprise Bankruptcy Law of the People's Republic of China, when a company goes bankrupt and is liquidated, its creditors have the legal right to participate in the distribution of the company's assets through the bankruptcy proceedings of the court in order to recover as much of the debt as possible.

The basic process of bankruptcy proceedings is as follows:

1. The Court Accepts the Application of Bankruptcy

The Chinese company, your debtor, may also owe money to other creditors. According to laws, one of these creditors can file a bankruptcy petition against the Chinese company. Based on the application, the Chinese court needs to decide whether to accept the bankruptcy case within 15-20 days of receiving the petition.

2. The Court Issues a Notice to Creditors

Within 25 days after the acceptance of the bankruptcy case, the court must, as far as possible, identify all the relevant creditors of this Chinese company and notify the creditors of the case, the information of the bankruptcy administrator appointed by the court, and the time limit for the creditors to declare their claims.

The time limit for filing claims is calculated from the date on which the court issues the above notice, and is no less than 30 days and no more than 3 months.

If you are not in China, it may be difficult for the court to send you the notice. In this situation, you can check whether a Chinese company is in bankruptcy liquidation on the following website, where the court will publish the information of the bankruptcy case:

3. Creditors Declare claims

After the court has issued the above-mentioned notice, the creditors shall, within the time limit for filing claims, submit the written statement of claims and supporting evidence to the liquidator appointed by the court.

4. Bankruptcy Administrator Examines the Declared Claims

After the expiry of the time limit for lodging claims, the liquidator must complete the examination of the lodged claims, decide which of the lodged claims are admitted on the basis of the evidence, and prepare a form listing the admitted claims.

5. First Creditors' Meeting

Within 15 days of the expiry of the time limit for filing claims, the court must hold the first meeting of creditors. Only creditors whose claims have been admitted by the bankruptcy administrator (the liquidator) may attend this meeting. At this meeting, the creditors will review the form of the approved claims submitted by the liquidator.

If the bankrupt company and the creditors attending the meeting do not object to the form, the court will decide to confirm the approval of the claims included in the form.

6. Litigation to Confirm Declared Claims (if necessary)

If your claims are not accepted by the liquidator, or if you disagree with the form of the accepted claims, you can choose to lodge an objection with the liquidator, stating your reasons.

If the liquidator does not reply or rejects your objection, you have right to file an action for confirmation of your claims within 15 days of the end of the creditors' meeting referred to in point 5 above.

7. Determine the Property Distribution Plan

After confirming the approved declared claims, the liquidator must, as soon as possible, draw up the plan for the distribution of the assets of the bankrupt company and hold a meeting with the creditors to discuss and confirm the plan.

If the distribution plan is approved at the meeting, the liquidator submits the plan to the court for confirmation.

If the distribution plan has not been approved after two meetings, the court will decide directly whether to approve the plan.

8. Implement the Property Distribution Plan

After the approval of the property distribution plan is confirmed by the court, the bankruptcy administrator shall auction and distribute the property of the bankrupt company in accordance with the plan.

When distributing the property, if the lawsuit for the confirmation of the claims referred to in point 6 above has not been concluded, the liquidator shall retain the amount of the property corresponding to the claims to be confirmed in the lawsuit.

If the claim has not been confirmed two years after the termination of the bankruptcy proceedings, the court shall distribute the amount of the aforementioned retained property to other creditors.

9. Closure of the Bankruptcy Case

After the property distribution is completed, the receiver must submit the property distribution report to the court, and the court will decide to close the bankruptcy case.

For more professional information and advice on Chinese company bankruptcy, please contact Landing Law Office and speak to our experienced Chinese lawyers.


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