Bankruptcy in the Time of COVID-19: Special Measures Adopted by the People's Republic of China Courts During the Period of COVID-19 Prevention and Control

Abstract

Business bankruptcy in China is governed by the Enterprise Bankruptcy Law (EBL), a national insolvency code enacted in 2007. The EBL contains provisions for business liquidation, reorganization, and compromise of debt. Although adjustment of debt through bankruptcy is far less common in China than in western nations, Chinese courts have established a body of bankruptcy procedures and judicial interpretations that give insolvency in China a measure of predictability and effectiveness. Notwithstanding the EBL provisions, soon after the onset of the pandemic, PRC courts began to adopt ad-hoc rules and guidelines in bankruptcy cases for businesses whose financial woes were caused or exacerbated by coronavirus, or for enterprises that produced medical equipment and supplies to help prevent and control the virus. This paper examines these court measures, explores their political and judicial context, and demonstrates how they produced bankruptcy outcomes that were often significantly different than what would have resulted if the EBL had been applied based on pre-COVID-19 EBL practices.

Keywords: bankruptcy, COVID-19, China, PRC, People's Republic of China, courts, special measures, EBL, reorganization, liquidation

JEL Classification: G33, F52, P16, P2, P37