Article 1. This Law is formulated in order to suit the development of the
planned socialist commodity economy and the needs of the reform of the economic
structure， to promote the autonomous operation of enterprises owned by the whole
people， to strengthen the economic responsibility system and democratic
management， to improve the state of operations， to increase economic efficiency
and to protect the lawful rights and interests of creditors and debtors.
Article 2. This Law applies to enterprises owned by the whole people.
Article 3. Enterprises which， owing to poor operations and management that
result in serious losses， are unable to repay debts that are due shall be
declared bankrupt in accordance with the provisions of this Law.
Enterprises for which creditors file for bankruptcy shall not be declared
bankrupt under any of the following circumstances：
（1） public utility enterprises and enterprises that have an important
relationship to the national economy and the people's livelihood， for which the
relevant government departments grant subsidies or adopt other measures to
assist the repayment of debts；
（2） enterprises that have obtained guarantees for the repayment of debts
within six months from the date of the application for bankruptcy.
With respect to enterprises for which creditors file for bankruptcy，
bankruptcy proceedings shall be suspended against those for which the superior
departments in charge have applied for reorganization， and if the enterprise and
the creditors have reached a settlement agreement through consultation.
Article 4. The state through various means shall appropriately arrange for the
reemployment of the staff and workers of bankrupt enterprises， and shall
guarantee their basic living needs prior to reemployment； specific measures
shall be separately stipulated by the State Council.
Article 5. Bankruptcy cases shall be under the jurisdiction of the people's
courts in the location of the debtor.
Article 6. Where this Law has not stipulated the procedures for bankruptcy
cases， the legal provisions for civil procedures shall apply.
第二章 破產申請的提出和受理CHAPTER II THE SUBMISSION AND ACCEPTANCE OF BANKRUPTCY
Article 7. Where the debtor is unable to repay debts that are due， the
creditors may file to declare the debtor bankrupt.
When the creditor is submitting the bankruptcy application， it should provide
relevant evidence relating to the amount of the claim， whether or not it is
secured with property， and to the inability of the debtor to repay debts that
Article 8. The debtor， upon the agreement of its superior departments in
charge， may apply for the declaration of bankruptcy.
When the debtor is submitting the bankruptcy application， it shall explain the
circumstances of the enterprise's losses and deliver relevant accounting
statements， a detailed list of debts and a detailed list of claims.
Article 9. After the people's court has accepted a bankruptcy case， it shall
notify the debtor within ten days and make a public announcement. Within ten
days after receiving the detailed list of debts delivered by the debtor， the
people's court shall notify known creditors. The public announcement and notice
shall stipulate the date of the first convening of the creditors' meeting.
Creditors who have been notified shall， within one month after receiving the
notice， and creditors who have not been notified shall， within three months
after the date of the public announcement， report their claims to the people's
court and explain the amount of the claims， as well as whether or not they are
secured with property， and also deliver relevant materials of proof. Creditors
who do not report their claims during these periods shall be deemed to have
automatically abandoned their claims.
The people's court shall register separately claims that are secured with
property and claims that are not secured with property.
Article 10. Where creditors have made the bankruptcy application， the debtor
shall， within 15 days after receiving the notice of the people's court， deliver
to the people's court the relevant materials described in the second paragraph
of Article 8 of this Law.
If the debtor is a guarantor for another unit， it shall， within five days
after receiving the notice of the people's court， in turn notify the relevant
Article 11. After the people's court has accepted a bankruptcy case， other
civil enforcement proceedings against the property of the debtor must be
Article 12. After the people's court has accepted a bankruptcy case， payment
by the debtor to only some of the creditors is null and void， with the exception
of payments required for the normal production and operations of the debtor.
Article 13. All creditors are members of the creditors' meeting. Members of
the creditors' meeting enjoy the right to vote， provided， however， that
creditors with claims secured with property which have not abandoned their
priority right to be repaid are excepted. Guarantors of the debtor， after having
repaid debts on behalf of the debtor， may be deemed creditors， and enjoy the
right to vote.
The chairman of the creditors meeting is designated by the people's court from
among the creditors with the right to vote.
The legal representative of the debtor must attend the creditors' meetings and
answer the creditors inquiries.
Article 14. The first creditors' meeting is called by the people's court， and
shall be convened within 15 days after the expiration of the period for
reporting claims. Subsequent creditors' meetings are convened at such times as
the people's court or the chairman of the meeting deems them necessary， and may
also be convened on the request of the liquidation committee or of creditors
whose claims comprise more than one fourth of the total amount of claims not
secured with property.
Article 15. The functions and powers of the creditors' meeting are：
（1） to examine materials of proof relating to the claims， and to confirm the
amount of such claims and whether or not the claims are secured with property；
（2） to discuss and adopt a draft settlement agreement； and
（3） to discuss and adopt a plan for the disposition and distribution of
Article 16. Resolutions of the creditors meeting are adopted by a majority of
creditors with the right to vote present at the meeting； the amount of their
claims must comprise more than half of the total amount of claims that are not
secured with property， however， with respect to a resolution adopting a draft
settlement agreement， such amount must comprise more than two thirds of the
total amount of claims not secured with property.
Resolutions of the creditors' meeting shall have binding force on all the
Creditors who consider the resolutions of the creditors' meeting to be
contrary to the provisions of law may， within seven days after the creditors'
meeting has made such resolutions， apply to the people's court for judgment.
Article 17. With respect to enterprises for which the creditors apply for
bankruptcy， the superior departments in charge of the enterprise that is the
subject of the bankruptcy application may， within three months after the
people's court has accepted the case， apply to carry out reorganization of the
enterprise； the period of reorganization shall not exceed two years.
Article 18. After an application for reorganization is submitted， the
enterprise shall propose a draft settlement agreement to the creditors' meeting.
The settlement agreement shall stipulate the period in which the enterprise
shall repay the debts.
Article 19. After the enterprise and creditors' meeting have reached a
settlement agreement which has been recognized by the people's court， the
people's court shall make a public announcement and suspend the bankruptcy
proceedings. The settlement agreement shall have legal effect from the date of
the public announcement.
Article 20. The reorganization of the enterprise shall be supervised by its
superior departments in charge.
The reorganization plan of the enterprise shall be discussed by the congress
of the staff and workers of the enterprise. The circumstances of the
reorganization of the enterprise shall be reported to the congress of the staff
and workers of the enterprise and its opinion shall be heeded.
The circumstances of the reorganization of the enterprise shall be
periodically reported to the creditors' meeting.
Article 21. During the period of reorganization， an enterprise in any of the
following circumstances shall， upon judgment of the people's court， terminate
reorganization and declare its bankruptcy：
（1） not implementing the settlement agreement；
（2） continued worsening in its financial condition， for which reason the
creditors' meeting has applied for the termination of reorganization； and
（3） committing any of the acts listed in Article 35 of this Law and seriously
harming the interests of creditors.
Article 22. With respect to an enterprise that has undergone reorganization
and is able to repay debts in accordance with the settlement agreement， the
people's court shall terminate the bankruptcy proceedings for such enterprise，
and also make a public announcement thereof.
With respect to an enterprise that， on the expiration of the period of
reorganization， is unable to repay debts in accordance with the settlement
agreement， the people's court shall declare such enterprise bankrupt， and shall
re-register the claims in accordance with the provisions of Article 9 of this
第五章 破產宣告和破產清算CHAPTER V BANKRUPTCY DECLARATIONS AND BANKRUPTCY LIQUIDATIONS
Article 23. In any of the following circumstances， after the judgment of the
people's court， an enterprise shall be declared bankrupt：
（1） if， in accordance with the provisions of Article 3 of this Law should be
（2） if， reorganization has been terminated in accordance with the provisions
of Article 21 of this Law； and
（3） if， upon the expiration of the period of reorganization， is unable to
repay debts in accordance with the settlement agreement.
Article 24. The people's court shall， within 15 days after the date the
enterprise is declared bankrupt， establish a liquidation team to take over the
bankrupt enterprise. The liquidation team shall be responsible for the keeping，
putting into order， appraisal， disposition and distribution of the bankruptcy
property. The liquidation team may carry out necessary civil actions in
accordance with law.
The members of the liquidation team shall be designated by the people's court
from among the superior departments in charge， government finance departments，
and other relevant departments and professional personnel. The liquidation team
may hire necessary work personnel.
The liquidation team is responsible to， and shall make report on its work to，
the people's court.
Article 25. No unit or individual may illegally dispose of the property，
account books， documents， materials， seals， etc. of a bankrupt enterprise.
The debtors of a bankrupt enterprise and persons holding the property of a
bankrupt enterprise can repay debts or deliver property only to the liquidation
Article 26. The liquidation team may decide to terminate or to continue to
perform the contracts that have not yet been performed by the bankrupt
If the liquidation team decides to terminate a contract， and the other party
to the contract suffers harm as the result of the termination of the contract，
the amount of compensation for the harm constitutes a bankruptcy claim.
Article 27. Before the legal representative of the bankrupt enterprise has
handled the procedures for transfer to the liquidation team， he shall be
responsible for the keeping of the property， account books， documents，
materials， seals， etc. of such enterprise.
Before the conclusion of the bankruptcy proceedings， the legal representative
of the bankrupt enterprise shall carry out work according to the requirements of
the people's court or the liquidation team， and may not leave his position
Article 28. Bankruptcy property comprises the following property：
（1） all property that the bankrupt enterprise operated and managed at the time
bankruptcy was declared；
（2） property obtained by the bankrupt enterprise during the period from the
declaration of bankruptcy until the conclusion of the bankruptcy proceedings；
（3） other property rights that the bankrupt enterprise should exercise.
Property that already constitutes security collateral is not bankruptcy
property； the portion of the value of the security collateral exceeding the
amount of the debt that it secures is bankruptcy property.
Article 29. Property in the bankrupt enterprise that belongs to other persons
shall be retrieved by the persons with the right to such property through the
means of the liquidation team.
Article 30. Claims not secured with property and claims secured with property
for which the priority right to receive repayment has been abandoned， which are
established before bankruptcy is declared， are bankruptcy claims.
The expenses of creditors for participating in the bankruptcy proceedings may
not constitute bankruptcy claims.
Article 31. Claims that are not due when bankruptcy is declared shall be
deemed to be claims that have already become due， provided， however， that the
interest that is not yet due shall be deducted.
Article 32. With respect to claims secured with property that are established
before bankruptcy is declared， the creditors enjoy the right to receive
repayment with priority with respect to such security.
With respect to claims that are secured with property whose amount exceeds the
value of the security collateral， the part that is not repaid constitutes a
bankruptcy claim， and will be repaid in accordance with the bankruptcy
Article 33. Creditors which owe debts to the bankrupt enterprise may offset
them before the bankruptcy liquidation.
Article 34. Priority shall be given to saving the following bankruptcy
expenses from the bankruptcy property：
（1） the expenses needed for the management， sale and distribution of the
bankruptcy property， including the expenses of hiring work personnel；
（2） the litigation expenses of the bankruptcy case； and
（3） other expenses paid in the course of bankruptcy proceedings for the common
interest of the creditors.
With respect to enterprises whose bankruptcy property is insufficient to cover
bankruptcy expenses， the people's court should declare termination of bankruptcy
Article 35. During the period from six months before the people's court
accepts the bankruptcy cases until the date that bankruptcy is declared， the
following actions of a bankrupt enterprise are null and void：
（1） concealment， secret distributions or transfers of property without
（2） sale of property at abnormally depressed prices；
（3） securing with property of claims that originally were not secured by
（4） early repayment of claims that are not yet due； and
（5） abandonment of the enterprise's own claims.
With respect to bankrupt enterprises which have committed acts listed in the
previous paragraphs， the liquidation team has the right to apply to the people's
court to recover the property， which shall be added to the bankruptcy property.
Article 36. Complete sets of equipment in the bankruptcy property shall be
sold as a whole， and that which cannot be sold as a whole may be sold in parts.
Article 37. The distribution plan for the bankruptcy property shall be
proposed by the liquidation team， adopted by the creditors meeting and submitted
to the people's court for judgment before implementation.
After the prior deduction of bankruptcy expenses from the bankruptcy property，
repayment shall be made in the following order：
（1） wages of staff and workers and labour insurance expenses that are owed by
the bankrupt enterprise；
（2） taxes that are owed by the bankrupt enterprise； and
（3） bankruptcy claims.
Where the bankruptcy property is insufficient to repay all the repayment needs
within a single order of priority， it shall be distributed on a pro-rata basis.
Article 38. Upon the completion of the distribution of the bankruptcy
property， the liquidation team shall apply to the people's court for the
conclusion of the bankruptcy proceedings. After the termination of bankruptcy
proceedings， claims that have not been repaid shall no longer be repaid.
Article 39. After the conclusion of the bankruptcy proceedings，the liquidation
team shall handle the procedures for the cancellation of registration at the
original registration authorities of the bankrupt enterprise.
Article 40. With respect to bankrupt enterprises that are discovered within
one year after the date of the conclusion of the bankruptcy proceedings to have
committed any of the acts listed in Article 35 of this Law， the people's court
shall recover the property and order repayment in accordance with Article 37 of
Article 41. With respect to bankrupt enterprises that have committed any of
the acts listed in Article 35 of this Law， the legal representative and the
directly responsible personnel of the bankrupt enterprise shall be subject to
administrative sanctions； where the acts of the legal representative and the
directly responsible personnel of the bankrupt enterprise constitute crimes，
criminal responsibility shall be investigated in accordance with the law.
Article 42. After an enterprise is declared bankrupt， the government
supervisory departments and audit departments are responsible for pinpointing
the responsibility for the bankruptcy of the enterprise.
Where the legal representative of the bankrupt enterprise bears the major
responsibility for the bankruptcy of the enterprise， administrative sanctions
shall be applied.
Where the superior departments in charge of the bankrupt enterprise bear the
major responsibility for the bankruptcy of the enterprise， administrative
sanctions shall be applied to the leaders of such superior departments in
With respect to the legal representative of the bankrupt enterprise and the
leaders of superior departments in charge of bankrupt enterprise who， due to
neglect of duty， cause the bankruptcy of the enterprise that result in the major
loss of state property， criminal responsibility shall be investigated in
accordance with Article 187 of the Criminal Law of the People's Republic of
第六章 附 則CHAPTER VI BANKRUPTCY DECLARATIONS AND BANKRUPTCY LIQUIDATIONS
Article 43. This Law is to be implemented on a trial basis three full months
after the Law on Industrial Enterprises with Ownership by the Whole People comes
into effect， and the specific plans and steps for the trial implementation shall
be stipulated by the State Council.