China Puts Creditors First With New Bankruptcy Law

by Mike Bevel, CollectionIndustry.com

China has some good news and some bad news for folks seeking bankruptcies there. The good news is for creditors: private creditors are at the front of the line of folks who now must be compensated when a company files for bankruptcy. The bad news is for pretty much everyone else, especially employees of bankrupt companies. Once employees were at the head of the list-to-be-compensated; however, the new ruling pushes them out of the way.

According to a MarketWatch story, the revised law was passed by the powerful Standing Committee of China’s National People’s Congress. The measure, formally called the Enterprise Bankruptcy Law, is scheduled to come into effect June 1, 2007.

At its heart, the new measure will require companies that go bankrupt to pay guarantees to creditors first, with employees’ wages outstanding and other obligations paid out of what remains.

Not only does the new law bring China into line with international standards, it also gives a modicum of reassurance to foreign investors.