The Corporate Bankruptcy Substitute in China

Abstract

Fair distribution in judgment execution generally served as the de facto bankruptcy substitute from the 1980s to 2015, a time when the China Supreme People's Court partially abolished this regime in an effort to nudge more commercial judgment executions into formal bankruptcy procedures. As will be reported later in this article, in view of the insurmountable barriers to commence corporate bankruptcy procedures, even after 2015, courts still use fair distribution to pragmatically solve equal treatment between competing creditors. However, there is little research on fair distribution in judgement execution as a bankruptcy substitute in China, although there has been significant academic study of China's commercial judgment execution system per se, notably by Professors Donald Clarke, Randall Peerenboom, and He Xin. To fill this gap, this article generally asks one simple question: Is fair distribution in judgment executions effective in filling the gap left by the virtual absence of bankruptcy law in China? Under this general question, there are many specific questions that need to be answered. For example, how often is fair distribution used in the event of the bankruptcy of execution debtors? Are execution creditors treated well under the fair distribution scheme? And if not, what factors hamper the application of fair distribution? Is it the lack of bankruptcy filings, as argued by many court officials in China, the cause of the meagre use of the corporate bankruptcy law?