Past, present and future of bankruptcy administrators

By Zhang Jie, Tian Yuan Law Firm

The first bankruptcy case in China, the bankruptcy of Shenyang Explosion-proof Equipment Factory, occurred in the early 1980s, serving as the prelude to enterprise bankruptcy practice in China. Now, 17 years have passed between the legislative proposal for China’s Enterprise Bankruptcy Law first being made and its final promulgation.

But because of this, the law’s important place was firmly established in China’s legislative history. With the implementation of the Enterprise Bankruptcy Law, China established a relatively sound legal system for a market economy, filling the legal gap for the withdrawal stage of economic entities, after establishment and operation.

The system under which professionals such as lawyers, accountants and auditors serve as bankruptcy administrators was established in 2007. However, due to historical inertia and the social environment, the work of bankruptcy administrators, at the time, mainly revolved around bankruptcy liquidation, and the number of judicial reorganisation cases could be counted on the fingers of one hand. The great majority of such reorganisation cases were accounted for by listed company reorganisations, making it impossible for reorganisations of unlisted companies, and judicial settlements involving such companies, to fully play their role in the market.

In 2014, a meeting of the Central Leading Group on Financial and Economic Affairs was held, with the adjustment of the industrial structure becoming a strategic objective of the economic work during the new stage. Against such a background, bankruptcy law practice entered a period of rapid development.

The Supreme People’s Court has resolutely adhered to a market-based and the rule of law-based work orientation, and actively promotes bankruptcy trial work. Nationwide, 14 bankruptcy courts, and nearly 100 liquidation and bankruptcy tribunals and specialised collegial benches, have been set up to centrally handle bankruptcy cases. More than 100 administrators’ associations have also been established around the country, focusing their efforts on building administrator teams.

Zhang Jie
Tian Yuan Law Firm

In 2021, we also welcomed the formulation and implementation of the personal bankruptcy regulations for the Shenzhen Special Economic Zone, breaking the zero barrier in the personal bankruptcy law field for the first time since the commencement of reform and opening-up. This signals that implementation of the bankruptcy system has become normalised and professionalised, and the work of bankruptcy administrators has been given a richer connotation by the times.

For an enterprise, entering a bankruptcy procedure means that it has entered a special moment. At such a moment, how to ensure that the interests of all stakeholders are duly realised, how to rejuvenate market entities through the bankruptcy reorganisation process, and how to ensure that the entire market economy order is effectively protected and maintained after a specific market entity has entered a bankruptcy procedure, all greatly test the administrator’s ability to control the case as a whole.

The administrator must be adept at studying the issues, resolving them, thinking creatively, and co-ordinating in an overall manner, having the vision that allows him or her to move in step with the times, duly assess the situation, and shoulder the responsibility of seeing the big picture without running counter to the purpose of bankruptcy law.

For example, in a real estate developer bankruptcy liquidation case, our team, designated by the court to act as the administrator, was faced with the difficult situation of the debtor and its legal representative facing the crime of illegal fundraising, day and night hounded by dozens of households whose homes had been demolished, and the fierce antagonism between ordinary creditors and mortgage holders. If the debtor’s property was disposed of by simply selling it off, the amount repaid to hundreds of ordinary creditors would have been zero, potentially threatening social stability.

As the administrator, we took the maximisation of creditors’ interests as a priority and actively promoted the liquidation to reorganisation procedure, going against the grain when the real estate market was at its coldest, expending our best efforts to recruit investors wherever possible and tailoring a precisely targeted reorganisation plan for the debtor.

On the one hand, it maximised the value of the restructured assets and, on the other hand, it also took into account the investment objectives and risk control requirements of the investors, thereby realising a true win-win situation for both the investors and creditors, and achieving a very good social result.

The world of debt has no boundaries. Bankruptcy law is ultimately a special system for the reallocation and reuse of social resources. By being a good steward of bankruptcy affairs, we do our best to fulfil the original intention and mission of bankruptcy lawyers, assisting People’s Courts and governments in duly rescuing distressed enterprises, cleaning up “zombie enterprises”, serving creditors, investors and debtors, realising the orderly flow of social resources and lending a helping hand for the long-term development of socio-economic development.

With the continued deepening of economic transformation, the ways in which financial risks and industry risks manifest will change continually, as will the latent risks that need to be addressed. It is foreseeable that under the guidance of the strategic objectives of accelerating the exit of “zombie enterprises”, resolving excess production capacity, promoting market clearing, optimising resource allocation, stimulating market vitality, and accelerating the building of a new development pattern with the domestic cycle as the mainstay and the domestic and international cycles promoting each other, legal practice in the enterprise bankruptcy field will remain vibrant.

With the rapid development of the pre-reorganisation system and making bankruptcies contract-based, the prospects for cross-border bankruptcy, and the breaking of the ice for personal bankruptcy and financial institution bankruptcy, will also inject market factors into bankruptcy practice.

The application of the debtor-in-possession system will continue to strengthen and the autonomy of debtor reorganisation will continue to increase. The scope of adjustment of the bankruptcy liquidation, reorganisation and settlement systems will likely continue to expand in line with the cyclical emergence of global economic crises.

Zhang Jie is a partner at Tian Yuan Law Firm. She can be contacted on +86 28 6510 5777 or by email at