Applicability of the World Bank
Reports on Doing Business for
the case of bankruptcy in China
by
Mary Ip
University of New South Wales
University of Sydney
Reports’ propositions for an
efficient closure of business
1.
•
•
Appropriate institutions
Time, cost and recovery rate
Good regulatory environment
2.
•
•
•
Provision of expertise
Judiciary
Specialised courts
Administrator
3.
•
•
Involving stakeholders
Creditors
Employees
4.
•
•
Various bankruptcy mechanisms
Liquidation
Reorganisation
One size fits all approach (?)
Appropriate institutions – time,
cost and recovery rate
2.6
Time
-
Statutory time frame is
approximately 9 months and
10 days
Cost : 18% - 22%
Recovery: 35.2% - 31.5%
2.4
2.2
2004 2005 2006
40%
20%
0%
2004 2005 2006
GDP: 10.1% - 10.9%
Appropriate institutions - Good
regulatory environment
Reports claim:• Poor and civil law countries regulated the
most
– inconsistent with the case of Australia
• Cumbersome regulation  low
productivity
– questionable in Chinese case
Appropriate institutions - Good
regulatory environment
• The quality of business regulation =
prosperity
The New Bankruptcy Law in China 2006
- Shortened the statutory timeframe and simplified the
process
- Administrator – individual vs team
- Restrictive measures
: Appeal – 10 days
: Court take over creditors’ meeting in decision making
• Frequency of application
: 1986 Law
: 2006 Law
Provision of expertise
• Experienced judges
- Chinese judiciary
: young profession
: limited exposure
: independence – i) supervision & ii) personal responsibility
• Specialised courts
- Shenzhen specialised court
• Administrators
- Article 24
Involving stakeholders - creditors
• 2004
and
2006
Repo
rts
- Court
power

corrupt
ion
- Creditors
power
COURT
:Supervision & support
:lack of business
experience
ADMINISTRATORS
: receive supervision – creditors’
committee
: get support – court
: provide expertise – daily
management
CREDITORS’ COMMITTEE
: provide supervision –
administrators
: get support –
court
Involving stakeholders - creditors
2004 and 2006 Reports
Creditors power
recovery rate
China
• Secured creditors priority
• Creditors’ committee
• Registration system ?
• Appraisal system ?
• Local protectionism
• Fraudulent bankruptcy
Involving stakeholders - employees
2004 and 2006 Reports
• Creditors
China
• Employees
- Social and welfare payment
- Workers’ right – court (Article 6)
- Workers’ role in bankruptcy (Articles 59 & 67)
Various bankruptcy mechanisms
2006 Report
• Foreclosures and liquidations 
• Reorganisation 
China
• Reorganisation 
Bankruptcy – cannot afford and aftermath
Reorganisation – company’s asset worth more
-- mutual benefit
-- fair and equitable for all
stakeholders
Conclusion
• The World Bank Reports on Doing Business – are
collaborative effort
• Recommendations sweeping:: Cumbersome regulation  low productivity ?
: Application rate  legislation efficiency ?
: Expand court powers  desired goal ?
: Reorganisation  bad mechanism ?
: Judges’ business experience  recovery rate ?
Conclusion (con’t)
• One size fits all countries have varied
and distinctive circumstances
• Adapting Western ideas into a Chinese
framework (洋为中用)
• New Chinese Bankruptcy Law – timely
example to test the applicability of the
recommendations in the three Reports
Conclusion (con’t)
Chinese bankruptcy regime require
infrastructural changes in
• law
• social welfare
• economic
2006 Shenzhen Intermediate court
2006 Joint legal professional program
between Australia and China
Conclusion (con’t)
• Pension system undergoing major change
• Property law passed in March 2007
• Labour contract law was passed last
Friday
• Adaptation of foreign experience needs
modification
Acknowledgment
Judith
Vivienne