First quarter 2015 bankruptcy cases in the Chinese courts

Continuing my series on bankruptcy law, this blogpost gives a quick report on 2015 first quarter bankruptcy cases in the Chinese courts, drawn from this report (including the charts used).

Bankruptcy cases accepted, by province

Bankruptcy cases accepted, by province

During that period, the Chinese courts accepted 264 bankruptcy cases.  Jiangsu, Zhejiang, and Guangdong had the top number of cases, followed by Shanxi, Anhui, and Hunan.  The top bar is cases is the rest of the country. d5015987-bb7f-4ee4-812a-e711a3264557

The piechart sets out the percentage distribution of cases by province (the largest percentage is from the rest of the country).

A listing of the courts that have accepted the most bankruptcy cases bears out earlier analysis on this blog about the Shenzhen courts (Shenzhen is the court that has accepted the most bankruptcy cases in the country, with Zhangjiagang (Jiangsu Province) in second place.

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As for the types of cases, the piechart below shows that most cases (about 2/3s) were bankruptcy liquidation cases, followed by reorganization (about 1/3), with very few settlement cases.  This article explains the three different types of cases.

d5015987-bb7f-4ee4-812a-e711a3264557On the geographical distribution of the liquidation cases.the piechat above shows that most arose in Jiangsu Province (about 23%), with Guangdong, Zhejiang, Shanxi, and Anhui Provinces following in descending order.  The 40% is from the rest of the country. Several cases involve multi-tiered, overlapping layers of complex entities (as elsewhere in the world), leading Chinese courts to consolidate the bankruptcy cases of several related companies (this Harvard Law School article gives a US bankruptcy perspective on consolidation).3be5b38d-70a0-4ebd-bdae-3472f9de09ae

On the geographical distribution of the reorganization cases, the piechart above shows that greatest proportion of reorganization cases were in Zhejiang (25%) (the site of at least one pilot court for bankruptcy cases), followed by Anhui, Jiangsu, Shandong/Shanxi) (the 30% is for the rest of the country).

As mentioned previously, the Supreme People’s Court expects to see an upturn in bankruptcy cases, and I would expect to see initiatives in transferring cases from enforcement to bankruptcy (an outstanding issue for the courts) and proposed solutions to achieve more reorganization and settlement cases. These are likely to happen because (as mentioned previously) the Chinese government has committed to reducing the number of zombie enterprises.  Early this spring, a conference will be held in China on the trial of bankruptcy cases, where these issues are likely to be discussed. If the organizers (and funding) permit, I will attend.

 

Accessing Chinese legal developments through Wechat (updated)

logoWechat, as most people with an interest in China know, has become the preferred form of social media in China.  The legal community in China has taken to it too.

Some are official accounts of government entities, including the courts and others are public accounts (公众账号) established by companies, law firms, individuals, and other organizations. Ir  Each has its benefits for the user located outside of China.

To access these public accounts, it does not matter where in the world you are located, but you need a smart phone to install the Wechat app. The accounts can be accessed through “search official accounts” or “Add contacts” and typing in either the Wechat ID or the name of the account. The accounts can also be accessed through computer or table as well, by searching for the account in question.

The official government accounts enable the user to keep current on the issues and latest government position in that area of law–new policy, new legislation, and new reforms.  The Supreme People’s Court, for example, has one, as does the Supreme People’s Procuratorate, as well as their local counterparts.

Another category is the less official public accounts.   Some are affiliated with official organizations, while others are not, while others are in a grey area. The writing tends to be aimed at the professional, with less bureaucratic language.   Some accounts are aimed at practicing lawyers, more focused on civil and commercial law than criminal law or administrative law, but both can be found. Some accounts publish writings by the account holder, while others accept articles submitted by followers.  One very popular type of article is one that reviews the law and cases in a particular area of law.

Some of the legal public accounts that I follow (or are highly recommended by those that I know) are listed below.  The list has now updated with further information provided by a 31 January article in Empire Lawyers and Lawread on the top 10 public accounts. Please use the comment function (or email me) to suggest additional accounts.

  • Arbitration:  Wechat ID: cnarb1, account of Lin Yifei, mentioned in an earlier blogpost.  I highly recommend it to both practitioners and others interested in arbitration.
  • Labor law:Wechat ID: laodongfaku (劳动法库) (with over 200,000 followers (this is mentioned in Empirelawyers top 10; Wechat ID: ldfview (子非鱼说劳动法);
  • Civil law 海坛特哥 (haitanlegal), account of Chen Te, formerly of the Beijing Higher People’s Court, now a lawyer (高衫legal) [his earlier posts focused on medical law], Wechat ID: gaoshanlegal;  审判研究, Wechat ID: spyjweixin; 法客帝国, Wechat ID: Empirelawyers; 审判研究, Wechat ID: msspck.
  • Criminal law: 辩护人 (bianhuren1993); 刑事实务, Wechat ID: xingshishiwu, with over 200,00 followers; 刑事审判参考 Wechat ID: criminailaw.
  • Judiciary: There are many, among them are: 法影斑斓 , account of He Fan, judge in the judicial reform office of the Supreme People’s Court, Wechat ID: funnylaw1978 and JunnyLaw (JunnyLaw1977) the newly established account of Jiang Qiang, a judge in the #1 Civil Division of the Supreme People’s Court, so far, articles focusing on civil law issues.
  • Civil litigation, 天同诉讼圈, Wechat ID: tiantongsusong (in the top 10), established by Tian Tong & Partners), with over 250,000 followers;
  • International law: Wechat ID: ciil 2015 国际法促进中心
  • IP law–知识产权那点事, Wechat ID: IPR888888.  The posting of 30 January, for example, includes the Supreme People’s Court judgment 11 January in its retrial of the Castel wine trademark infringement case and an article on indirect infringements of copyright on the Internet.
  • Aggregators/General–智和法律新媒体, Wechat ID: zhihedongfang; 法律博客, Wechat ID: falvboke,  法律读品, Wechat ID: lawread, 尚格法律人, wechat ID: falvren888 (followed by at least 130,000 legal professionals). 法律读库 Wechat ID: lawreaders, followed by 500,000 (in top 10); 法律讲堂, Wechat ID: yunlvshi, established by a partner with the Yingke Law Firm (also listed among the top 10).

This linked article written by Chen Te discusses how legal professionals can market themselves through a public account as well as some of the issues of having a public account.

Accessing Chinese legal developments through Wechat

logoWechat, as most people with an interest in China know, has become the preferred form of social media in China.  The legal community in China has taken to it too.  Some are official accounts of government entities, including the courts and others are public accounts (公众账号) established by companies, law firms, individuals, and other organizations.  Each has its benefits for the user located outside of China.

To access these public accounts, it does not matter where in the world you are located, but you need a smart phone to install the Wechat app. The accounts can be accessed through “search official accounts” or “Add contacts” and typing in either the Wechat ID or the name of the account. The accounts can also be accessed through computer or table as well, by searching for the account in question.

The official government accounts enable the user to keep current on the issues and latest government position in that area of law–new policy, new legislation, and new reforms.  The Supreme People’s Court, for example, has one, as does the Supreme People’s Procuratorate, as well as their local counterparts.

Another category is the less official public accounts.   Some are affiliated with official organizations, while others are not, while others are in a grey area. The writing tends to be aimed at the professional, with less bureaucratic language .   Some accounts are aimed at practicing lawyers, more focused on civil and commercial law than criminal law or administrative law, but both can be found. Some accounts publish writings by the account holder, while others accept articles submitted by followers.  One very popular type of article is one that reviews the law and cases in a particular area of law.

Some of the legal public accounts that I follow (or are highly recommended by those that I know) are listed below.  Please use the comment function (or email me) to suggest additional accounts.

  • Arbitration:  Wechat ID: cnarb1, account of Lin Yifei, mentioned in an earlier blogpost.  I highly recommend it to both practitioners and others interested in arbitration.
  • Labor law:Wechat ID: laodongfaku (劳动法库) (with over 200,000 followers; Wechat ID: ldfview (子非鱼说劳动法);
  • Civil law 海坛特哥 (haitanlegal), account of Chen Te, formerly of the Beijing Higher People’s Court, now a lawyer (高衫legal) [his earlier posts focused on medical law], Wechat ID: gaoshanlegal;  审判研究, Wechat ID: spyjweixin; 法客帝国, Wechat ID: Empirelawyers; 审判研究, Wechat ID: msspck.
  • Criminal law: 辩护人 (bianhuren1993); 刑事实务, Wechat ID: xingshishiwu; 刑事审判参考 Wechat ID: criminailaw.
  • Judiciary: There are many, among them are: 法影斑斓 , account of He Fan, judge in the judicial reform office of the Supreme People’s Court, Wechat ID: funnylaw1978 and JunnyLaw (JunnyLaw1977) the newly established account of Jiang Qiang, a judge in the #1 Civil Division of the Supreme People’s Court, so far, articles focusing on civil law issues.
  • International law: Wechat ID: ciil 2015 国际法促进中心
  • IP law–知识产权那点事, Wechat ID: IPR888888.  The posting of 30 January, for example, includes the Supreme People’s Court judgment 11 January in its retrial of the Castel wine trademark infringement case and an article on indirect infringements of copyright on the Internet.
  • Aggregators–智和法律新媒体, Wechat ID: zhihedongfang; 法律博客, Wechat ID: falvboke,  法律读品, Wechat ID: lawread

This linked article written by Chen Te discusses how legal professionals can market themselves through a public account as well as some of the issues of having a public account.

Shenzhen leads the way in bankruptcy law reforms

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Shenzhen’s bankruptcy information platform

This very brief blogpost is reporting on bankruptcy law developments in Shenzhen.  The Shenzhen courts are often used as a venue for piloting reforms, and bankruptcy law is no different.  It is likely that the Supreme People’s Court (SPC) is aware of this.

The Shenzhen Intermediate Court held a press conference on 21 January  to announce that they had established a bankruptcy information platform (linked here) with information case guidance, filing guidance, guidance on procedures, bankruptcy case announcements, bankruptcy judgements, etc.  The Shenzhen court also released some recent statistics on their caseload.  In 2015, the Shenzhen intermediate court accepted 131 cases, up 105% from the year before, tried 283 cases, and resolved 82 cases (up 26% from the year before). On the timing for cases to be resolved, as mentioned in a previous blogpost, bankruptcy cases tend to take a long time to be closed in the Chinese courts.

The bankruptcy platform is likely to be a model for other courts around China and fits nicely with the other “informatization” initiatives of the SPC.  Having a single platform should make it easier for bankruptcy practitioners (as well as buyers of distressed assets).  For those of outside of the Chinese court system seeking to understand what is happening, it will provide more information for us to consider.
The cases in Shenzhen accounted for 40% of the total bankruptcy caseload in Guangdong.  Although national statistics for bankruptcy cases in 2015 have not yet been released, when compared with 2014 (and presuming China had more cases bankruptcy in 2015), Shenzhen accounts for a significant proportion of bankruptcy cases. That is likely not a sign of weaker companies in Shenzhen, but that the Shenzhen government is more willing to see companies go through bankruptcy procedure.

 

Bankruptcy: What to expect in 2016 from the Chinese civil & commercial courts (II)

imgres-1As readers of this blog know, in recent years, the Chinese courts have had very few bankruptcy cases. Judges of the Supreme People’s Court (SPC) predict that will change in 2016.  Why (and where) do they say so? What guidance is the SPC giving Chinese bankruptcy judges? What else do we know about bankruptcy cases?

Why more bankruptcy cases?

At the 8th national conference for civil and commercial judges (discussed in an earlier blogpost), Judge Yang Linping of the #2 Civil Division revealed that the SPC expects an upward trend in bankruptcy cases because the Economic Work Conference at the end of 2015 called for quickening the clearance and exit of “zombie companies” through transfer of ownership and bankruptcy.

What is the guidance from the SPC?

Among the guidance from Judge Yang:

  • Make it easier for companies to go into bankruptcy proceedings, while not using the new filing system.  Shenzhen, one of the local courts that has heard a significant proportion of bankruptcy cases, issued local court guidance in May, 2015 on the filing of bankruptcy cases that the SPC is likely considering.
  • Distinguish real bankruptcies from fraudulent ones, in which the bankrupt enterprise “maliciously” seeks to defeat its creditors;
  • Courts hearing bankruptcy cases should monitor bankruptcy administrators to be sure they are recovering assets;
  • Review the reasons for the bankruptcy to see whether criminal conduct was involved in the collapse of the company;
  • Higher level court should monitor the way lower level courts handle bankruptcy cases;
  • Use bankruptcy reorganization procedures where appropriate, particularly for larger scale companies that have operational value.

It would not be surprising to see further guidance from the SPC as the year progresses.

What else?

How to deal with the collapse of real estate companies (highlighted in a previous blogpost) is likely high on the list of difficult issues for Judge Yang and her colleagues to consider.  The Zhejiang courts have already issued detailed guidance on the bankruptcy of real estate companies.  A conference on real estate companies and bankruptcy was held in Zhejiang, just after the 8th civil and commercial judges conference, attended by a senior SPC bankruptcy judge, bringing together bankruptcy judges, practitioners, academics, accountants, and financiers. The effect on migrant labor construction workers was likely on everyone’s minds as well, as bankruptcy cases must be handled with an eye to maintaining social stability.

The official media has predicted a wave of shipping company bankruptcies in 2016.Several Chinese shipping companies went into bankruptcy in 2015.

We are likely to see more bankruptcies among Chinese P2P lending platforms. According to media reports late in 2015, 270 failed in the last year.

 

 

 

 

Supreme People’s Court upgrades its database

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This short blogpost is just to bring to the attention to the world outside of China that the Supreme People’s Court (SPC) has substantially upgraded its case database, enabling users to search by keyword, cause of action, party, court, lawyer, law firm, full text (or facts, headnotes).  The database can be accessed here.  The SPC has required higher, intermediate courts and some basic level courts to upload their judgments on its database (with certain exceptions). The military courts are an exception, although senior military legal academics are advocating greater transparency for the military courts.

Basic level courts in the more developed coastal regions have gone first, with other areas following as they have the technical ability to do so.  The higher people’s courts issue their own implementing regulations to guide their local courts (see regulations mentioned by an Inner Mongolian court). Local courts issue their own guidance in implementing the SPC system, such as this guidance from an Inner Mongolian county court, where the court leadership (court president/Party secretary and the other Party group members (the leaders of divisions of the court)  is leading  the implementation.

Although judgments in sensitive cases are often not uploaded,  for the vast majority of cases (that do not fall into that category), the SPC database remains a rich source of understanding how the Chinese court system is operating, through (for example) a focused search of a  specific type of case, from rape to breach of contract to challenge of public security penalties, to enforcement of arbitral awards.

What to expect from Chinese civil & commercial courts in 2016 (I)

top-happy-new-year-2016-wallpaperIn late December, the Supreme People’s Court (SPC) held its 8th conference for civil and commercial judges, gathering together senior court leaders from around the country and from both civilian and military courts responsible for a broad range of civil and commercial issues. Speeches of two senior SPC judges responsible for civil and commercial matters, as well as a draft conference summary have been circulating among Chinese legal professionals.  What is the relevance of all of this to the world outside of the Chinese courts, particularly to the world outside of China?

It is relevant for several reasons:

  • The court conference illustrates the role of the SPC in the Chinese political legal system and its relationship with other institutions;
  • As in other legal systems, the Chinese courts are an individual or company’s  last resort for resolving disputes;
  • Those disputes highlight major issues in the Chinese economy and society.  The slowdown in the Chinese economy is already affecting the rest of the world, and the difficult issues for the courts signal where economic problems are.  Social issues have a more indirect impact on the outside world, but still affect foreign businesses and institutions.

The phenomenon of the court conference (and conference summary)

As this blog has highlighted earlier, the Chinese government regularly organizes conferences to ensure that subordinate entities are implementing the latest central policy on the matter as well as to harmonize local practice.  This is true of the courts as well as the food safety authorities.

Because the SPC is one of several central political legal institutions, the speakers included Meng Jianzhu, head of the Central Political Legal Committee, and participants included representatives from the Central Political Legal Committee, the Legal Work Commission of the National People’s Congress, the Legislative Affairs Office of the State Council, and other central legal institutions.

The conference summary, now circulating in draft form, is a type of SPC official document (see the SPC’s regulations on the subject), classified as a “normative document” and often address new issues or areas of law in which the law is not settled.  Under SPC rules, it can not be cited as the basis  of a court judgment but guides how lower courts consider the issue.

As to why the SPC organized the conference, the vast majority of Chinese court cases are civil and commercial. At the conference it was revealed that 80% of cases resolved by the Chinese courts since 2008 are civil and commercial cases. For that reason, if the goal of the SPC is to make every person feel fairness and justice in every case (under Party leadership), the focus must be on doing a good job in hearing civil disputes.

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Judge Cheng Xinwen interviewed in 2014

What are the issues facing the Chinese courts?

Judge Cheng Xinwen, the head of the #1 Civil Division spoke about the issues civil  court judges need to monitor in 2016 (some of which have been mentioned in earlier blogposts) and the current official thinking on them (set out in the conference summary):

  1. Real estate, property and construction;
  2. Family;
  3. Torts;
  4. Labor;
  5. Agriculture;
  6.  Consumer protection;
  7. Challenges to enforcement action;
  8. Private lending.

This blogpost looks at some of the issues relating to real estate, property, and construction cases.

Real estate, property and construction cases

Real estate cases account for a substantial part of the caseload of the Chinese courts.  Trying them properly, according to the SPC leadership, is linked to implementing the government’s macro-economic policies. Cases are on the increase, particularly in third and four tier cities.  The market has switched from a seller’s to a buyer’s market in some second and third tier cities:  Some of the problems include:

  • developers suing to invalidate grant contracts (under which they purchase land for development) and seek the return of the land grant fees (upon which local governments depend);
  • Developers who are short of funds and are unable to hand over properties on time;
  •  Declines in property prices causing “mass incidents.” Local courts are directed to liaise with local Party and government authorities, and take steps to prevent chain reactions.  This 2014 article mentions incidents in Taizhou, Zhejiang province, a province where many cities have seen a deflating property market;
  • Many cases involve both real property and private lending, and include developers illegally fundraising, mortgaging or selling the same property several times;
  •  Property registration, ownership in common, and bona fide purchases, are difficult issues for the courts, and the SPC will issue further guidance in the form of a judicial opinion on these soon.

Construction cases account for a relatively small number of cases (about 100,000 annually), but they tend to be complex and involve large amounts of money. Issues with construction cases indicate big problems in the industry because of funding problems, causing quality problems in construction, many unpaid migrant construction workers and an increasing number of disputes. Among the problems:

  • construction contracts that should have been let out for bidding that weren’t;
  • construction contracts illegally subcontracted;
  • construction contracts illegally subdivided;
  • contracts in which a contract party should have had a construction qualification or planning permit.
  • Contract parties to these invalid contracts that seek to minimize their payouts under these contracts and seek to avoid the payment clauses (but the SPC states that those should be respected);
  • Unless a subcontractor’s migrant construction workers remain unpaid, courts shouldn’t disturb liquidated damage clauses to expand a project owner’s liability. With unpaid laborers, the project owner’s lability could be expanded to cover the amounts owed to the actual unpaid workers.

Courts are directed to balance individual and societal interests, to uphold social public interests and an orderly construction market.

At the conference, the SPC leadership promoted six slogans (i.e.principles) of:

  • protection of  property rights;
  • respect for freedom of contract;
  • upholding equal protection;
  • upholding the unity of rights and duties;
  • maintaining honesty and keeping promises;
  • promoting procedural and substantive justice;

Litigants of all types, domestic and foreign, corporate and individual will be able to come to their own conclusions about how well the Chinese court system delivers on these broad principles.