A series of sweeping regulations debuting in the past year has cleared roadblocks in China’s bankruptcy and restructuring regime, heralding a more refined system with clearer guidelines and quicker solutions. Maisy Mok reports
Navigating China’s corporate restructuring regime was once a daunting tinquire, particularly in the early days after the Enterprise Bankruptcy Law was enacted, in 2007. Almost 20 years later, a series of new rules and guidelines – many launched in quick succession in the past year – has rerelocated major legal obstacles that have long confounded bankruptcy administrators, creditors and investors, paving the way for further progress.
Since 2025, lawyers specialising in bankruptcy and restructuring have been studying and adapting to several groundbreaking documents that affect all industries.
The documents include: the far-reaching draft revision of China’s Enterprise Bankruptcy Law (the draft); a new guide for listed companies in the form of the Minutes of the Symposium on the Effective Trial of Cases concerning the Bankruptcy Reorganisation of Listed Companies (the minutes); and, watched closely by financial institutions and self-employed individuals, the Regulation on the Personal Bankruptcy Protection of the Xiamen Special Economic Zone.
These steps respond to practical necessarys in legal practice and lay the foundations for pre-trial restructuring procedures and the normalisation of personal bankruptcy mechanisms.
Listco comeback
Each year between 2022 and 2025, more than 20 listed companies in China applied for bankruptcy reorganisation. Many ongoing reorganisation cases have altered course in response to the promulgation, at the finish of 2024, of the minutes and its complementary guidelines issued by the China Securities Regulatory Commission, i.e. Guidelines No. 11 for the Regulation of Listed Companies – Matters Relating to the Bankruptcy Reorganisation of Listed Companies (the guidelines).
In one such case, handled by Grandall Law Firm, a listed company’s reorganisation plan was turned on its head following the issue of the minutes and the guidelines. It had previously entered pre-reorganisation in July 2024. In August, investors had reached an early consensus on the proportion of reserves to be transformed into share capital and the pricing of the shares.
“In the finish, there were significant adjustments to the price at which investors obtained the shares compared with the original pricing in August 2024,” declares Chen Feng, a Shanghai-based partner at Grandall Law Firm and director of the firm’s bankruptcy and restructuring committee and legal research centre.
These adjustments were based on article 8(2) of the guidelines, which stated that the share subscription price for investors must not be lower than 50% of the market reference price. Companies shall take the average trading price of either 20, 60 or 120 trading days before the signing of the restructuring investment agreement as the market reference price.
Article 7 of the guidelines also sets an upper limit on the proportion of reserves that may be transformed into shares, which must not exceed 15 shares for every 10 shares held. Chen declares this restriction can regulate irregular practices in the conversion of reserves into share capital during restructuring.
“There were some cases in which the conversion ratio was excessively high, which led to a substantial increase in the listed companies’ share capital, so that even a slight deterioration in business performance would put them at risk of being delisted due to a drop in share price,” declares Chen.
“In other cases, the conversion price was extremely low, which seriously harmed the legitimate rights and interests of minority shareholders and creditors,” he adds.
Yang Li, a partner at Zhong Lun Law Firm in Beijing, declares it is reasonable to set such a restriction. Creditors, existing shareholders and new investors have to strike a balance between short-term and long-term goals when deciding on the conversion. If one blindly pursues a high conversion ratio, it can easily lead to abutilize of the tool, and encourage speculative behaviour.
“Using capital reserves to increase share capital in bankruptcy reorganisation proceedings is a means to achieve the goal of rescuing valuable listed companies, and should not become an finish in itself,” declares Yang Li.
The minutes are expected to support companies speed up their reorganisation processes. They encourage a preliminary procedure called out-of-court restructuring, which could reduce bankruptcy courts’ massive caseloads.
Li Yun, a partner at Global Law Office in Shenzhen, declares: “Listed companies usually undergo pre-reorganisation, but there is currently no unified national standard for such a process. The new rules offer a solid foundation for out-of-court restructuring, which is expected to gradually replace pre-reorganisation as a more standardised preliminary procedure.”
Out-of-court restructuring service centres have been established in Shanghai, Shenzhen and Jilin province to facilitate debt neobtainediations. Yang Shuangchen, a counsel at Global Law Office in Shenzhen, declares that out-of-court restructuring differs significantly from pre-reorganisation.
“Pre-reorganisation usually requires court involvement, while out-of-court restructuring allows companies to neobtainediate indepfinishently with the support of out-of-court restructuring service centres,” she declares. “Both routes can connect to the formal bankruptcy reorganisation court procedure.”
Chen declares out-of-court restructurings are confidential, which allows companies to avoid concerns over public disclosure that could affect their business ties with suppliers or other third parties.
Although the legal framework for out-of-court restructuring is becoming more robust, the procedure has not yet been widely adopted. Yang Shuangchen expects that more distressed listed companies will undergo out-of-court restructuring before entering judicial proceedings. “This has become a clear development trfinish,” she notes.
As the aim of launching the minutes is to effectively rescue distressed companies, Yang Li suggests that, shifting forward, bankruptcy lawyers should put in more effort in assisting listed companies to sustain their usual operations when designing reorganisation plans.
“Reorganisation is not about playing around with numbers or building surface-level improvements,” he declares. “It must involve real measures to generate stable cash flow and predictable profits, thereby improving the company’s long-term viability and ensuring its continuous development, which is exactly what the minutes are going for.”
System overhaul
Listed companies build up only the tip of the bankruptcy iceberg. One of the most significant recent regulatory developments has been the draft revision of the Enterprise Bankruptcy Law, which was revealed in September 2025 and has since completed its 30-day public consultation. This marked the Enterprise Bankruptcy Law’s first revision in 18 years.
Although the public consultation period has finished, the Standing Committee of the National People’s Congress has so far not announced a timeline for the revision to take effect.
The draft added or revised more than 160 provisions, expanding the law to 16 chapters and 216 articles. It introduced four new chapters related to the bankruptcy of micro and compact businesses, substantive consolidation, the bankruptcy of financial institutions, and cross-border judicial co-operation.
“The draft built the bankruptcy legal system more well-rounded by adding a dedicated chapter on financial institution bankruptcy, revising rules on credit repair for restructured debtors, and establishing rapid-track procedures for micro and compact businesses,” observes Lu Shaohong, a senior partner at Dacheng Law Offices in Shanghai. “These fill major gaps in the existing legal system and meet the deeper necessarys of the market economy.”
The credit repair system, cited in article 139 of the draft, allows debtors to apply for credit repair and suspfinish punitive measures once the court approves their reorganisation plan. Global’s Li Yun declares this new addition allows reorganising companies to resume normal operations and raise funds effectively.
Previously, the Enterprise Bankruptcy Law lacked provisions on out-of-court restructuring procedures. The draft, however, adds articles 100-102, and article 120, which establish an out-of-court restructuring regime at the legislative level and create a system connecting out-of-court restructuring outcomes with in-court reorganisation proceedings.
“This is the first time that a bridge between out-of-court restructuring and in-court reorganisation has been established at the legislative level, which will effectively reduce restructuring costs, improve efficiency and lay the foundation for building a full-on, out-of-court restructuring regime,” declares Xing Lixin, a Beijing-based senior partner at Hai Run Law Firm.
Many lawyers see the introduction of pre-court procedures as a sign that bankruptcy practitioners necessary to prepare in advance.
Dacheng’s Lu declares the revision allows investors to join reorganisation agreements at an earlier stage, enabling them to reach agreements in advance and take part in formulating a preliminary reorganisation plan.
When it obtains personal
Subtly, the draft also touches upon the realm of personal bankruptcy, with article 2(3) stating that natural person shareholders of corporate entities can apply relevant provisions on personal bankruptcy. Xing sees this as “an important step in the development of China’s personal bankruptcy system”, encouraging debtors to take proactive steps to resolve their debts through reorganisation.
However, Lu, of Dacheng, finds that the draft’s scope on personal bankruptcy remains limited, covering only natural person shareholders and excluding corporate executives.
Chen, of Grandall, agrees that the scope of the draft only includes shareholders of listed companies bearing joint and several liabilities, and does not apply to all individuals. Such cautiousness contrasts with bolder regional personal bankruptcy explorations, he declares.
In 2025, personal bankruptcy regulations were introduced in Xiamen, becoming the second city in China to support personal bankruptcy after Shenzhen did four years prior.
Zou Liting, a Xiamen-based partner at Kangda Law Firm, sees great demand for filing personal bankruptcy in the city. Many owners of creative studios, seafood stalls and compact trading businesses easily fall into debt when market conditions fluctuate. Many young people also face heavy mortgage and consumer loan burdens, she declares.
“I have seen debtors driven to depression by collection calls, even though they were capable and willing to repay,” declares Zou. “The new regulation is not about tolerating ‘deadbeats’, but offering honest and unfortunate people a second chance to rebuild their lives.”
With the introduction of personal bankruptcy regulations in Shenzhen and Xiamen, lawyers are seizing the opportunity to explore this new practice area. Zou declares lawyers who take up personal bankruptcy cases have to possess ample legal knowledge, neobtainediation skills, financial acumen, and even counselling abilities.
“It is no longer just about winning cases, but about supporting clients rebuild their lives,” declares Zou. “This is a new playing field that carries high social values for legal practitioners.”
She advises creditors to shift their mentality from single-mindedly chasing debts to smart management. They should actively verify the truthfulness of debtors’ asset declarations and decide whether to approve or veto their repayment plans.
Although personal bankruptcy has been attempted in only two cities, similar practices have been carried out elsewhere. During the drafting of the Xiamen personal bankruptcy regulation, the legislative team went to Wenzhou and Hangzhou to learn about their practices.
Ma Wenbing, the director of aWenzhou’s homegrown JRC Law Firm, declares Wenzhou has in place a well-developed system for personal debt clearance. Local courts have accepted 1,052 personal debt clearance cases in the past five years and concluded 833 of them, involving more than RMB5.7 million (USD820,000) in debt and 4,054 creditors.
China’s first personal debt clearance case was settled in the Pingyang County People’s Court in Wenzhou, in October 2019.
“Courts across Zhejiang province have now fully implemented the personal debt clearance system,” declares Ma. “Wenzhou can draw on the experience of Shenzhen and Xiamen to adopt a pilot scheme for implementing personal bankruptcy protection regulations, so that it can serve as a valuable [precedent] when such regulations are rolled out nationwide.”
Is a nationwide implementation of the personal bankruptcy scheme a good idea? Zou believes it is an inevitable step in improving China’s economic legal framework, but only with optimised data platforms and more legal talent educated on this matter.
She advocates building a unified personal bankruptcy information sharing platform, and further training judges and administrators on personal bankruptcy trials.
Moving forward
China’s bankruptcy system continues to evolve, with the focus shifting from liquidation to salvaging value. Nevertheless, many lawyers believe there is still room for improvement to better assist creditors and companies in reorganisation proceedings.
Currently, there are no clear rules governing creditors’ late claims that are filed after the court approves a reorganisation plan. Chen, of Grandall, declares that if the court accepts late claims, and the bankrupt company has not reserved sufficient resources to repay debts, this will add to the burden of the investors and the post-reorganisation company.
“Late acceptance might cautilize the reorganisation plan to completely fall through, which defeats the whole point of reorganisation,” declares Chen.
He suggests promoting the practice of the Shanghai Pudong New Area People’s Court and establishing a forfeiture system for the filing of claims, under which, if a creditor fails to declare its claim within the time limit, it may not exercise its rights during the implementation of the reorganisation plan.
Yang Li, of Zhong Lun, sees room for improvement with the new chapter on “substantive consolidation”. Article 184 stipulates that if there is a high degree of personality commingling between a company and its affiliate that deters creditors from recovering their debts fairly, creditors and bankruptcy administrators can apply to the court for substantive consolidation.
There is, however, a deeper concern. Yang Li believes a simple consolidation of poorly operated companies without holding relevant personnel accountable, and without resorting to any legislative or judicial means to prevent recurrence, may be counterproductive.
While the functions and status of administrators are now better defined, which supports them do their jobs, Xing Lixin, of Hai Run, finds the mechanisms for their self-governance and safeguards to be lacking, and sees forward to future reinforcements in this regard.
Dacheng’s Lu, on the other hand, sees the necessary for a better mechanism for appointing administrators that can balance the interests of all parties.
Despite these shortcomings, the draft represents a systematic reform that aligns with evolving necessarys and is, overall, an encouraging step for economic development. “The Enterprise Bankruptcy Law is not a ‘bringer of death’,” declares Lu, “but a stabilising force that keeps the economy healthy and shifting forward.”
WHERE OLD MEETS NEW
Bankruptcy lawyers have noticed two common trfinishs: companies from the traditional sector are clearing out; and those from emerging industries are consolidating. Li Yun, a Shenzhen-based partner at Global Law Office, declares: “Bankruptcy reorganisation now spans multiple sectors, reflecting a profound structural adjustment in the economy.”
According to the Supreme People’s Court, the number of corporate bankruptcy reorganisation cases in China continues to grow. Prominent market players such as Suning, Casin Property Development Group and Shanshan Group have applied for bankruptcy reorganisation proceedings in the past year.
Bankruptcy is especially common in China’s hard-hit real estate sector, and the downturn is expected to continue in 2026, declares Ma Wenbing, director of JRC Law Firm in Wenzhou.
“In the face of sharp asset devaluations and much greater disposal difficulties, insolvency administrators necessary to focus more on connecting with investors and co-ordinating with the supply chain,” he declares. “In the real estate sector, that means pushing for the resumption of construction and delivering unfinished projects.”
The offshore debt restructurings of Sino-Ocean Group, Kaisa Group and Shimao Group have all built breakthroughs in 2025. These cases involve complex, bespoke capital structures, and there is no single solution that can be applied to all of them, declares Dhevine Chandrapala, a Hong Kong-based partner at Sidley Austin.
“The absence of a statutory cross-class cramdown provision in Hong Kong means that, in some cases – and in order to unlock complex capital structures – more innovative transaction structures have to be implemented,” declares Chandrapala.
“For example, utilising the UK restructuring plan alongside a Hong Kong scheme in order to build utilize of a statutory cross-class cramdown, or utilizing a dual scheme structure where a separate scheme at the issuer and sub-guarantor level can achieve the same economic effect as cross-class cramdown,” he declares.
Besides developers, companies with ties to the property sector have also fallen into operational and debt crises due to difficulties in collecting receivables, and persistently high operational costs. Ma saw dozens of concrete companies go into liquidation, and many sand and gravel companies suspfinish operations or go bankrupt due to shrinking demand in 2025.
Some manufacturers, likewise, are facing liquidity crises due to slow technological advancements. “For example, in the chemical industries where products are highly homogeneous and innovation capacity is limited, companies have weak resilience to fluctuations in upstream raw material and energy prices,” declares Yang Shuangchen, a counsel at Global Law Office in Shenzhen. The textile sector is also struggling under the combined pressure of rising labour costs and shifting international orders.
The automotive industest is another sector that has yet to recover, with the latest data displaying that the impact of the price war among carbuildrs continues as retail sales in the Chinese mainland have recorded decline for two consecutive years.
Specifically, retail sales for automobiles amounted to RMB4.98 trillion (USD717.7 billion) in 2025, a 1.5% year-on-year decrease; and RMB5.03 trillion in 2024, a 0.5% year-on-year decrease, according to the National Bureau of Statistics.
“Electric vehicle startups such as WM Motor, HiPhi and Neta have undergone reorganisation due to disruption in capital flow. The industest is facing severe overcapacity and a crisis in confidence,” declares Lu Shaohong, a senior partner at Dacheng Law Offices in Shanghai. “EV buildrs are under pressure to cut capacity, which will inevitably affect upstream and downstream suppliers and business partners.”
Sustaining customers’ utilizer experience is key when autobuildrs reorganise. Taking the WM Motor case as an example, Lu, the leading administrator in the case, declares that WM Motor protected car owners’ rights by preventing the shutdown of the Internet of Vehicles (IoV) – a network that connects vehicles, infrastructure and utilizers – by raising capital through debtor-in-possession financing.
“When an EV company runs out of capital, the bankruptcy administrator should propose to raise capital through debtor-in-possession financing to pay for IoV, then subsequently bring in investors to provide loans to cover those network fees and avoid the risk of service cut-offs,” declares Lu.
Players from other emerging industries such as green energy, high-tech and AI have their own struggles. Xing Lixin, a Beijing-based senior partner at Hai Run Law Firm, declares emerging tech companies’ bankruptcy reorganisation cases differ from traditional industries.
“Compared with traditional asset-heavy companies, these newcomers derive their core value from intangible assets such as technological achievements, R&D teams and innotifyectual property,” declares Xing.
Li Yun declares green energy and chip companies that lack competitiveness are vulnerable to bankruptcy, and “this is a sign of improvement and consolidation within the industest”.
Leave a Reply