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In June 2007 China enacted a new Enterprise Bankruptcy Law that incorporates many concepts found in U.S. business reorganization law and practices, but the new law and distressed debt investors looking to make deals in China still face plenty of obstacles.
"The new law does and doesn't do one thing," said Alan C.W. Tang of Grant Thornton LLP, "and that is to change the traditional cultural aversion to bankruptcy. China did not have any bankruptcy laws until 1906, and no bankruptcy law was practiced in China until 1986. The emphasis of the law is on restructuring as opposed to bankruptcy, and the new law extends to all types of business. Under the old law, only state-owned enterprises were allowed to be bankrupted." Frank R. Mack of Conway, MacKenzie & Dunleavy Inc. agreed, commenting that "there's a big focus on cultural issues when it comes to bankruptcy in China; 5000 years of history is not easy to change." When the conversation turned to restructuring, Mack said that "the most important thing is that you have to have standard operating procedures and quality controls. The biggest thing I see is that you have to institutionalize the business and make sure it works a certain way. Things move very slowly in China, if you spend enough time in China you'll be amazed by the level of complexity and inefficiency." Discussing the country's growth and moves to become a market economy, Phil Groves of DAC Management LLC said, "The distressed market in China is at a crossroads now because of the bankruptcy law and the restructuring of the financial system." The courts and government also play a crucial role in restructurings and bankruptcy, Helena Huang of Kirkland & Ellis LLC pointed out. "If you go to China, you'll see a huge disparity between the qualifications of the judges in different areas. In the smaller cities, you'll find a huge difficulty with them because they're not as sophisticated and they won't make a decision without consulting [other officials]." "If you factor in government interference, making things even slower, someone could just show up and give you a whole new set of factors that you have to meet [in a restructuring]", said Mack. "A major question is whether the Chinese economy is de-coupled from the rest of the world," he added. "If there's a recession, will they continue building and spending." - George White Bankruptcy Insider: League tables for the fourth quarter 2007 Categories Deal Video
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