Creditors’ Rights in China

Editor’s note: This article relies on a translation of the EBL provided by the Bankruptcy Law and Restructuring Research Center of China University of Politics and Law, as supervised by Prof. Li Shuguang, September 2006.

The Standing Committee of China’s National People’s Congress approved the Enterprise Bankruptcy Law (EBL) after 12 years of drafting and deliberation. Effective since June 1, 2007, the EBL devotes an entire section to the creditors’ meeting, established as an authority for internally coordinating and formulating the joint ideas of all creditors, and provides mechanisms to allow creditors to monitor the bankruptcy process.[1] Creditors perform several important functions at the creditors’ meeting, including determining whether to close the debtor’s business, adopt   reorganization plan or to liquidate the debtor’s property by auction or other sale.[2]

The EBL also recognizes the formation and utility of a creditors’ committee, although committees are not a compulsory organ in bankruptcy proceedings, as the EBL provides that “[t]he creditors’ meeting may decide to establish a creditors’ committee.”[3] Thus, similar to creditors’ committees in the U.S., creditors in bankruptcy proceedings involving small amounts of claims or fewer creditors may not establish a committee, although a committee is necessary for creditors to maintain a voice in the bankruptcy case because the creditors’ meeting is a single event.[4] Moreover, the court must confirm the appointment of a committee, although the EBL does not specify a remedy in the event that the court does not ratify the committee.[5] Creditors’ committees are composed of one representative from the debtor’s employees or labor union, and are limited to nine people.[6] Thus, while a bankruptcy proceeding in the U.S. may contain several creditor committees of varying sizes, the EBL limits each case to one creditors’ committee of a limited size regardless of the circumstances of any particular case.

The appointment of a creditors’ committee triggers several rights and responsibilities. For example, creditors’ committees supervise the administration and distribution of the debtor’s assets. [7] While the EBL specifies certain rights and responsibilities of committees, the law does not clarify the working mechanisms of the committees (e.g., quorum, voting rules, etc.). Thus, when the committee is established, a resolution with such details should be made clear as well.

As an additional protection for creditors, the EBL mandates that courts appoint an administrator[8] upon accepting an insolvency case to assume control of the debtor’s assets and business operations, among other functions.[9] The EBL charges the administrator with reporting to creditors,[10] and imposes fiduciary-like duties of care and loyalty on administrators.[11] If the administrator fails to uphold these duties, the EBL allows the court to impose a fine and requires the administrator to compensate creditors for losses arising thereof.[12]

Furthermore, the EBL contains provisions similar to the avoidance powers in §§ 547, 548 and 549 of the Bankruptcy Code, and requires the administrator avoid the following types of transfers: (1) payments made to a specific creditor after the case begins;[13] (2) transfers intended to conceal property or evade debts;[14] (3) within a year before the bankruptcy case, transfers for no consideration, transacting property at “obviously unreasonable prices,” providing security for unsecured debt, paying undue debts and waiving claims;[15] and (4) payments made to creditors within six months before the case begins when the debtor is insolvent.[16] Furthermore, the EBL imposes compensatory liability upon the individual(s) directly responsible for causing the debtor to engage in these avoidable transfers, presumably deterring such transactions.[17]

The EBL also contains a provision compelling the administrator to recover property that was avoided through these provisions, similar to § 550 of the Bankruptcy Code.[18] Unlike the Bankruptcy Code, the EBL requires the administrator exercise these powers, or the administrator must otherwise compensate creditors for losses incurred.[19] In addition, the EBL obliges the administrator to recover “inappropriate income [that was] acquired and property [that was] misappropriated” by the debtor’s management.[20] Even after a bankruptcy case closes, creditors may petition the court for additional repayment from assets recovered by the administrator through these powers, in addition to debtor assets later discovered.[21]


A number of provisions in the EBL emphasize creditors’ rights and embraces many internationally recognized insolvency concepts. Creditors of insolvent Chinese firms play a significant role in bankruptcy proceedings and represent a crucial organization that is independent from the court and the administrator. Together, the creditors’ meetings and committees provide an effective framework for performing the function of supervising the debtor’s property and the administrator’s conduct in order to protect the interests of creditors.


[1] EBL, ch. 7.

[2] EBL, art. 61(5), (6); 112. In addition, in a liquidation, a distribution plan is submitted to the creditors’ meeting for discussion, and the voting creditors must approve before the distribution plan reaches the court for approval. EBL, art. 115.

[3] EBL, art. 67 (emphasis added).

[4] In a reorganization proceeding, the court will convene an additional meeting within 30 days after receiving a proposed reorganization plan for the purposes of voting on the plan. EBL, art. 84.

[5] Id.

[6] EBL, art. 67.

[7] EBL, art. 68 and 69.

[8] EBL, art. 13.

[9] EBL, art. 25.

[10] EBL, art. 23, 61(3), 68 and 69.

[11] EBL, art. 27.

[12] EBL, art. 130.

[13] Similar to post-petition transfers in § 549. See EBL, art. 16 and 31.

[14] Similar to fraudulent transfers in § 548. See EBL, art. 33. See also EBL, art. 31 (making the following activities voidable if performed within one year after the case: transferring property without consideration, transacting property at obviously unreasonable prices, providing security for unsecured debt, paying undue debts and waiving claims).

[15] Similar to fraudulent transfers in § 548 and preferential transfers in § 547. See EBL, art. 31

[16] Similar to preferential transfers in § 547. See EBL, art. 32 (containing defense for payments that benefit the debtor’s property).

[17] EBL, art. 128.

[18] EBL, art. 34.

[19] See EBL, art. 31, 32 and 34 (using the language “shall”); see also EBL, art. 130.

[20] EBL, art. 36.

[21] EBL, art. 123.