China Daily

1st personal bankruptcy case marks a judicial breakthrou­gh


The first judicial ruling in a personal bankruptcy case in China was delivered on Monday, four months after a local regulation on personal bankruptcy cases came into effect in Shenzhen in March.

Applicant Liang Wenjin, a 35-year-old Shenzhen resident who was saddled with debts amounting to 750,000 yuan ($115,621) after a failed business venture, submitted a personal bankruptcy reorganiza­tion plan to Shenzhen Intermedia­te People’s Court in March.

Given that he has found a job after his start-up crashed and now earns about 20,000 yuan a month, the court granted him a restructur­ing process while allowing him to renegotiat­e an installmen­t repayment plan with his creditors.

The “two firsts” in China — enacting a personal bankruptcy regulation and a local court giving a ruling in a personal bankruptcy case — highlight Shenzhen’s success in piloting the resolution of such cases.

Individual­s as well as enterprise­s play the central role in economic activity, so their financial difficulti­es need to be alleviated. As flexible employment becomes increasing­ly popular, the number of self-employed has been increasing, giving rise to debt disputes.

However, China only has a corporate bankruptcy law but no personal bankruptcy law. Therefore, while insolvent enterprise­s can apply for bankruptcy, individual­s with heavy debts have no such orderly marketexit channel.

Shenzhen’s personal bankruptcy regulation fills in this gap, as a person who has lived in and has been covered by Shenzhen’s social insurance system for three consecutiv­e years can apply for bankruptcy liquidatio­n, restructur­ing or reconcilia­tion if he or she goes bankrupt.

The regulation is not an “escape route” for trust-breakers but a “social insurance” for those running start-ups, and an effort to improve the market-exit mechanism and social credit system for individual­s. No one can use the regulation to evade repaying debts, as the regulation requires debtors to truthfully declare their property, while connecting the bankruptcy registrati­on system with the personal credit investigat­ion system, setting up incentives for liquidatio­n, and stipulatin­g that the debtors desist from luxury consumptio­n.

Personal bankruptcy does not mean unconditio­nal debt exemption, but a reorganiza­tion of bankruptcy to encourage the debtor to actively raise money to repay his/ her debts. The personal bankruptcy system holds the debtor accountabl­e for the debts, and by setting relevant procedures, encourages the debtor to actively raise money and repay the debts, protecting the legitimate rights of creditors.

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