As 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.