Shenzhen Launches China’s First Personal Bankruptcy System

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The southern Chinese tech hub of Shenzhen has just launched China’s first system for the application and processing of personal bankruptcies.

On 1 March the “Shenzhen Special Economic Zone Personal Bankruptcy Regulations” (深圳经济特区个人破产条例) came into effect. On the same date the Shenzhen municipal government also launched the Shenzhen Bankruptcy Affairs Management Bureau (深圳市破产事务管理署) – the first personal bankruptcy agency in China.

The Bankruptcy Regulations are the first local laws of their kind in China, specifying what kinds of debtors qualify for personal bankruptcy, as well as preparatory work for bankruptcy applications and confirmation of exempt assets.

Under the Regulations debtors may submit bankruptcy applications if they satisfy the following conditions:

  • Are residents of Shenzhen;
  • Are natural persons who have made Shenzhen social insurance payments for three consecutive years;
  • Have lost the ability to repay their debts or their assets are unable to settle their full debts due to business operations or lifestyle consumption..

Article 171 of the Bankruptcy Regulations further stipulates that the spouses of such debtors may also simultaneously undertake bankruptcy, liquidation, restructure or dissolution at the same time.

Creditors may also apply for the bankruptcy and liquidation for debtors where debtors are unable to repay their debts on time, and such creditors are singly or jointly owed over 550,000 yuan in matured debts by the debtor.

Xiao Sa (肖飒), a partner at Dacheng Law Offices in Beijing, said to National Business Daily that the implementation of the Regulations will serve to make lenders more cautious and prudent when extending loans.

“In the past the idea was that compared to enterprises where shareholders bore limited liability, natural person guarantees were viewed as a more effective measure of increasing trust,” said Xiao.

“However, after winning lawsuits, creditors often discovered that courts of law found it very difficult to inspect the concealment of assets by natural persons and other such circumstances, and it was difficult to guarantee the benefits of legal victory.

“Against this background, the birth of a personal bankruptcy system can enable creditors to directly realise the limited nature of personal credit guarantees, and avoid succumbing to this customary misunderstanding.”

Xiao further points out that the personal bankruptcy system will help to better protect creditor’s rights, as creditors will be able to inspect the assets of debtors by filing for personal bankruptcy on their behalf, as well as call for third-party intervention in the disposal of assets by debtors.

The personal bankruptcy system will also help to protect the lawful rights and interests of debtors, and protect entrepreneurs from unreasonable lawsuits and efforts to expedite payment should their business undertakings fails.

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