Bankruptcy in China

Bankruptcy in China

Are you looking into bankruptcy in China? If you need to shut down your company, do not just run away. This can lead to China filing criminal charges against you, filing lawsuits, or bashing you via the media. There are correct ways to do things. We have top bankruptcy lawyers in Beijing and other major Chinese cities that can deal with your debts and assets.

China did not use to have any bankruptcy or insolvency laws. However, China has now set up a bankruptcy court. These laws apply to Chinese companies, government-owned companies, and companies from other countries doing business in China.


Closing your business in China


Expanding to China is a big decision, and we hope it goes well for you. If you plan it properly and get legal advice when setting up, things should workout. Maybe you grow from Australia to Shanghai. You reach out to the Shanghai Chamber of Commerce, and you end up raising 4.5 million RMB. This money is to be used to grow your marketing, technology, and sales team.

You end up building the product, let us say an app, but you are too late. There is a company from New Zealand that has beat you to market! Investors will not give you any more money, as they think you missed your chance. You do not agree. You go to a bank and borrow other 2 million RMB so that you can push your product aggressively on Baidu and WeChat ads.


Enterprise bankruptcy law


Your sales increase, but investors still do not think you can beat the New Zealand company. Sadly, the increase in revenue still doesn’t lead to profits, and the bank demands that you repay the loan. You cannot come up with the money.

What are you going to do? Some people rush to the airport and try to fly back to Australia before a lawsuit is filed. Once a lawsuit is filed, you might get exit banned. However, doing this sort of thing is not honourable, and it will likely follow you back to Australia.

Enterprise bankruptcy law


Chinese Bankruptcy liquidation


The bank in China might release a story to the media that you engaged in fraud in China. The internet is available around the world, including in your home country. If you still have, or plan to have a business in Australia, you do not want to be accused of fraud.

The bank in China also might contact the police. The Chinese police could issue an Interpol (international police) warrant, asking for your arrest in any country that recognises Interpol.

Our point is obvious, do not run from your problems. Contact an insolvency expert and deal with them. Do not leave a wave of destruction behind you.


A Story About Debt And The Bankruptcy System


We know someone in real life, let us call him Steve McMullen. Steve is from London England. He started a law firm, and the business did very well. His firm became one of the top business law firms in London. However, Steve had bigger plans. He wanted to expand to other cities in England. These cities included Canterbury, Essex, and Birmingham. Steve did not have the cash reserves to do this.

So, Steve put out advertisements in places like Craigslist and on other websites. It advertised that his firm, McMullen Law, would pay 12% internet on any loans. McMullen Law wanted to raise one million dollars and would pay $120,000 on the internet per year.

This sort of interest rate is more favourable than using a credit card. Banks sometimes lend unsecured business loans, but it is rare.


Bankruptcy Proceedings And Bankruptcy in China


McMullen Law was successful in raising the money. All Steve had to do was earn around $300,000 in profit per year from the expansion, and it would be worth it. $120,000 would go towards interest, and the rest would be profit. So, what was the problem?

At the end of three years, Steve had to repay the $1,000,000 in principle. Instead of McMullen Law saving some of the profit money to get ready for the repayment, it reinvested everything.

It could not repay any of the loans, and it went bankrupt. And this was a law firm that was meant to be knowledgeable about the law and risk management.

Sometimes a small amount of debt can lead to lead to the downfall of a company. It does not always have to lead to bankruptcy. For example, there was a restaurant that borrowed $200,000 from an employee. The loan was only meant to be for three months.

At the end of the three months, the employee asked for the money back. The hot pot restaurant could not pay the money back, the employee hired a lawyer, filed a lawsuit, and won. The employee ended up taking over the assets of the hot pot restaurant and selling it to another person for $250,000.


File for bankruptcy In China


File for bankruptcy In China


Having the right contracts when raising money or borrowing money can be the difference between winning a lawsuit or losing it. Do not assume that just because you have the money, you are in the power position. If this person has enough money to give you large sums of money, there can afford to hire a good law firm. This law firm will hold you accountable. You might not even be able to afford a lawyer.

This is why at the very least, you should have a legal consultant put together a contract that protects you. How can a contract protect you? It can make the “court area” in a place that is favourable for you. Maybe you are raising money in China, but you can write into the contract that a court in Australia has the power to regulate the agreement.

You can also make the repayment terms very flexible. If someone asks for their money back, it can say that you have a year to repay it. That is much better than only having 30 days to repay the money. Spend some money on legal fees to protect yourself.


Here are some of the things you can use a bankruptcy lawyer for:

  • Going bankrupt by decision
  • Being forced into bankruptcy
  • Restructuring your debts
  • Negotiating with creditors in China
  • International debt disputes
  • Closing down your Chinese company or company in China
  • enterprise bankruptcy law
  • bankruptcy liquidation
  • personal bankruptcy
  • bankruptcy system
  • file for bankruptcy
  • bankruptcy proceedings

Chinese Employment Laws And Bankruptcy


The laws of China also relate to employment law. The government of China wants to know that your employees will be taken care of. In China, employees are most important than unsecured debt holders. However, people with security are ahead of the employees.

Keep in mind that the new bankruptcy laws in China only apply to companies, not to people. There are no laws for personal bankruptcy.

If your company can’t meet its payments, and if it doesn’t have enough assets to cover the debts, then you should speak to a legal professional.


Background On Chinese Law And bankruptcy liquidation


Hong Kong and Macao are outside of the powers of the Supreme Court of China. However, with Hong Kong’s new security laws, this may no longer be true. Make sure you get legal advice from one of our insolvency lawyers. Hong Kong uses British common law, and Macao uses civil law (like China.)

Some high courts in China only accept cases that are over $40 million in USD. Others will deal with insolvency amounts over $7 million.

Some provinces that have people with low incomes will hear smaller amounts. It’s really complicated to find the right Chinese courthouse to file in.

There are 390 intermediate courts in China. Most foreign company bankruptcy cases are heard in Intermediate Courts.


Legal Services In China | Bankruptcy in China


Starting a company:

Legal paperwork:

  • Employment contracts
  • Shareholder agreements
  • Joint venture agreements
  • China company due diligence (is the company a scam?)

Dealing with problems:


Applying For Bankruptcy in China

Applying For Bankruptcy in China


Your first step is to hire a bankruptcy lawyer in China. They will file forms with the “People’s Court” in the place that you do business. If the courts accept your application, then someone will be appointed to administer the bankruptcy proceedings. There are a number of law firms and companies that focus on doing administration for bankruptcies in China.

Many of the companies are full of accountants and lawyers. The court will decide for you which company is picked. The company will work for the courts, not you. The people you owe money to will have say in which bankruptcy administration is hired.

Once an administrator is hired, they will prepare financial statements. Once that is done, they will decide if the business should keep running, if the company should be sold, or if the company should be shut down and liquidated.

If the assets are sold, the administrator will decide which offers to accept (subject to the court’s approval.) All creditors must reach out to the administrator within a certain period of time. The courts will decide how long of a period it will be. Sometimes the period is one month. Normally the bankruptcy is advertised in the media and newspapers. A letter might also be sent out to a number of parties.


What Debts Can Be Claimed With enterprise bankruptcy law?


You can claim things like lawsuit judgments, money that is owed to you, or secured debt. There will be a meeting where all the people that are owed money get together. If you have applied to be allowed to submit a claim, then you can attend the meeting.

The point of the meeting is to go over the claims that have been submitted to see which claims are real. The administrator will also be evaluated. There will also likely be a vote to determine if the business should continue operating or if it should be shut down.

There also might be talks about selling off all the assets.