Since the first bankruptcy case of China in 1986¹, Chinese become more and more familiar with bankruptcy. However, due to the profession of the procedure and numerous revisions on related laws in 2006, public has very little deep comprehension on bankruptcy. For only one and a half years has The Enterprise Bankruptcy Law of People¡¯s Republic of China been enforced, the real effect of related regulations, therefore, still need testing in the future. In view of this, the instant essay will discuss the core revision of bankruptcy law so that suggestions can be proposed from a legislative angle.

According to Article 2 of The Enterprise Bankruptcy Law of China (referred as the ¡°new law¡± in the following), bankruptcy is the procedure according to which an enterprise legal person restructures or liquidates when it fails in paying back its due debts, the assets appear insufficient compared with all its debts, or it is obviously incapable of clearing off its debts. Accordingly, the bankruptcy procedure applies to enterprises, not yet to individuals at present in China mainland. Recently there is also heated discussion on a related phrase¡ªcountry bankruptcy. However after research, the meaning of bankruptcy here appears different from which we refer to in economic life.  A ¡°bankrupt¡± country, because of state sovereignty, will not disappear with exemption from the debts which the country can not afford¡ª that is what the bankruptcy procedure provides with enterprises. Actually, country bankruptcy is more of a vivid description which basically indicates insolvency of a country without the mentioned legal consequence. In short, it is beyond the present discussion on bankruptcy from a legal aspect. Due to the limited length of the instant essay, bankruptcy of a country will not be discussed any more in the following paragraphs. The present discussion focuses on the existing regulations provided by The Enterprise Bankruptcy Law of People¡¯s Republic of China (referred as ¡®the new law¡¯ in the following) which contains a large number of revisions on The Enterprise Bankruptcy Law of People¡¯s Republic of China (Tentative)(referred as the ¡°old law¡± in the following). One of the key amendments is the introduction of the bankruptcy administrator which is also a core conception through the entire new bankruptcy law. However, the public knows very little about its functions and the relation between the bankruptcy administrator and the liquidation group since the new law has been enforced for only one and a half years. In fact, the bankruptcy administrator replaces the bankruptcy liquidation group in old law, but exhibits distinctions in functions, powers, liabilities and etc. Advancement of the new institutional designs lies in the following aspects..

Above all, Article 13 of the new law indicates bankruptcy administrators (referred as ¡°the administrators¡± for short) enter into the bankruptcy procedure from the very beginning when the bankruptcy applications are accepted. The involvement of the administrators in the whole period prevents the petition enterprise (the enterprise which applies for bankruptcy procedure) from the disordered condition in operation, finance and litigations. Whereas, according to Article 24 of the old law, liquidation group is established after the declaration of bankruptcy (even not simultaneously). In other words, before the new law took into effect, no one was responsible for the daily affairs of the enterprise, leaving them in a disordered condition. The new regulation about the period during which the administrators take part in the procedure solves this problem, and offers the opportunity of revival from bankruptcy procedure.²

Furthermore, the source of the administrators is more reasonable and practical than that of the liquidation group. In accordance with Article 24 of the old law and Article 48 of Provisions on Some Issues concerning the Trial of Enterprise Bankruptcy Cases of the Supreme People¡¯s Court, members of liquidation group mainly came from government departments, which lead to several problems. 1. Relying too much on the government, selection of liquidation group members is usually made by the government, although the power was given to courts by law. The liquidation group was consequently caught in between the interests of the petition enterprise and government. Once the two conflicts, the enterprise would easily suffer unnecessary loss. 2. It was quite demanding in time and professional knowledge to conduct the liquidation procedure. Time and knowledge limitation of the liquidation group members from the government resulted in their incompetence of performing well in the job. Concerning these problems, the new law accordingly absorbed revisions. Based on Article 24 of the new law, it is the related social agencies and professions who assume the role of bankruptcy administrators, which reduces the possibility of interference by government into the bankruptcy procedure. Additionally, Article 24 of the new law lists the negative requirements of a qualified bankruptcy administrator, and Provisions on the Bankruptcy Administrator Designation in Hearing Enterprise Bankruptcy Cases issued by the People¡¯s Supreme Court defines the process in detail. Both provide detailed practice standard for courts to avoid unreasonable economic damages of the petition enterprise and its creditors.

Moreover, the new law puts the administrators¡¯ practice standard, replacement procedure and liabilities in black and white, which fills the blank in related fields of the old law. Article 27, Article 22, Article 23 and Article 131 settle the system of bankruptcy administrators¡¯ duties, supervision, replacement and liabilities, and facilitate maximum benefit realization of the petition enterprise and its creditors.

Obvious advancement has the new law made, but drawbacks still remain. One of the most debatable regulations is that the power to select the bankruptcy administrator belongs to the courts rather than the enterprise¡¯s creditors meeting. I also quite doubt about its real effect which may contain some practical shortcomings. 1. The courts¡¯ power to designate the bankruptcy administrator excels negative influence on creditors¡¯ autonomy. Due to the delicate relation between courts and lawyers, this regulation might create corruption opportunities for courts. 2. Since lack of specific methods to select the bankruptcy administrator in law, courts in practice usually draw lots or make a shift to decide the administrator. The methods seem to be random and fair, but are apt to cause defects in reality. Outcomes of lots may not be so even in practice while a shift ignores the administrator¡¯s qualification for a specific bankruptcy case. This may restrain the competition in the bankruptcy administrator market. 3. There is possibility that the randomly designated bankruptcy administrator is not so familiar with the enterprise or the entire industry that the administrator will probably falls short of the expectation of the job.

Thus, in order to solve the above problems, I suggest that the bankruptcy administrator designation power should be bestowed on creditors¡¯ meeting. This proposition will not only reduce the corruption possibility of courts, but also bring the bankruptcy administrator market with the competition system which will speed up the development of the administrator market. Although Article 22 of the new law defines the procedure to replace the incompetent bankruptcy administrator, the decision whether to change it is made by courts. In addition, replacement of the administrator produces higher cost and lower efficiency in the bankruptcy procedure.

Of course, there is also disadvantage of the proposition above¡ªdelay of bankruptcy administrator designation by creditors¡¯ meeting. But it could be overcome by institutional designs. The detailed suggestions go this way: the court designates a temporary bankruptcy administrator when it accepts the bankruptcy application. The functions of the temporary administrator are confined to take charge of regular affairs, such as keeping corporate documents and transaction records. Never should the temporary administrator make decisions on corporate operation, debts and litigation. After creditors¡¯ meeting, an official bankruptcy administrator take over all the stuff from the temporary one, and play its role in the whole procedure according to law. The creditors¡¯ meeting is entitled to change the incompetent bankruptcy administrator. Once a disputation on bankruptcy administrator designation occurs, creditors can resort to courts for a final decision. In short, the bankruptcy administrator designation power should be authorized to the creditors¡¯ meeting, and the court comes in front only when there is a disputation. In this way, the competition of the bankruptcy administrator market could be facilitated by creditors¡¯ autonomy, and unnecessary costs in replacing incompetent bankruptcy administrator could be avoided as well.

As the key exit mechanism of enterprises from market, bankruptcy plays an important role in economic life. The Enterprise Bankruptcy Law of China establishes system of bankruptcy administrators which perform positive influence on bankruptcy efficiency. If effective competition system were brought in, the bankruptcy administrator market would have exposed to better development, the petition enterprises and their creditors would have obtained more benefit, and social resource would have suffered less loss.

Mentioned laws are attached as follows:

The Enterprise Bankruptcy Law of China (referred as ¡°new law¡± above)

Article 2 
When an enterprise legal person fails in paying back its due debts, and its assets are insufficient compared with all of its debts or it is obviously incapable of clearing off its debts, it should restructure or deal with its debts according to procedure provided by the present law.

Article 13 
When the people's court accepts an application for bankruptcy, it shall designate a bankruptcy administrator in the meanwhile.

Article 22 
A bankruptcy administrator shall be designated by the people's court.

When it is decided by the creditors¡¯ meeting that a bankruptcy administrator fails in performing or fulfilling its duties and functions in a lawful and impartial manner, the creditors may apply with the people's court for alteration.

The procedures for designating bankruptcy administrators and defining payment of the bankruptcy administrators shall be made by the Supreme People¡¯s Court.

Article 23 
A bankruptcy administrator shall, according to the provisions of the present Law, performs its functions and duties, delivers the working report to the people¡¯s court and is under supervision of the creditors¡¯ meeting and the creditors¡¯ committee.

The bankruptcy administrator shall attend the creditors¡¯ meeting, reports the performance of its duties and functions and answers the relevant inquiries.

Article 24 
The bankruptcy administrator can be designated from a liquidation group comprised of the relevant departments and organs or from related social intermediary agencies as a law firm, an accounting firm, a bankruptcy liquidation firm that have been established according to law.

The people's court may, according to the real status of the debtor, after consultation with the relevant social intermediary agencies, designate the relevant person with relevant specialties and qualification for bankruptcy administrators.

Under any of the following circumstances, one shall not assume the post of bankruptcy administrator:
(1) Ever been given a criminal punishment for deliberate crime;
(2) Ever been deprived of the relevant practice qualification certificate of related specialty;
(3) With any interest relation to the case; or
(4) Being under any other circumstance where the people's court deems it improper to act as a bankruptcy administrator.

When an individual assumes the post of bankruptcy administrator, he shall assume the responsibility insurance.

Article 25 
A bankruptcy administrator shall perform the following functions and duties:

(1) Taking over the assets, seals as well as the account record and documents of the debtor;
(2) Investigating into the financial status of the debtor and formulating the financial statements;
(3) Deciding the internal management of the debtor;
(4) Deciding the daily expenditure and other necessary expenditures of the debtor;
(5) Deciding, before the first creditors¡¯ meeting is held, to continue or suspend the debtor¡¯s business;
(6) Managing and disposing of the debtors¡¯ assets;
(7) Participating actions, arbitrations or any other legal procedures on behalf of the debtor;
(8) Proposing to hold creditors¡¯ meetings; and
(9) Performing any other functions and duties that the people's court believes it should perform.

In the case of any separate provision on the bankruptcy administrator¡¯s functions and duties in the present Law, the provision shall prevail.

Article 130 
Where a bankruptcy administrator fails in performing its functions and duties in a diligent and faithful manner according to the provisions of the present Law, the people's court can impose upon it a fine according to law. Where any loss is incurred to a creditor, a debtor or a third party, the bankruptcy administrator shall be subject to the liabilities of compensation according to law.

The Enterprise Bankruptcy Law of China (Tentative) (referred as ¡°old law¡± above)
Article 24
People¡¯s court should establish the liquidation group within 15 days after it declares bankruptcy of an enterprise to take over the bankrupted enterprise. The liquidation group takes in charge of keeping, clearing off, estimating, disposing and distributing the enterprise¡¯s assets.

Members of the liquidation group can be designated from professional persons and the superior supervision department, financial department and related department of the government. The liquidation group is entitled to employ necessary staff.

The liquidation group is supervised by people¡¯s court which listens to its reports.

Provisions on Some Issues concerning the Trial of Enterprise Bankruptcy Cases of the Supreme People¡¯s Court
Article 48
Members of the liquidation group can be designated from the enterprise¡¯s superior supervision department of government, liquidation agencies, accountants, lawyers, and also from the government financial department, administrations of industry and commerce, planning commission, economic commission, taxation department, planning commission¡¢audit department, taxation department, price department, social security department, land resource department, state-owned assets supervision department and  personnel department.