Insolvency
Chinas insolvency regime is still developing. Insolvency remains a particularly sensitive issue in China because there many technically insolvent state-owned enterprises and financial institutions, forcing China to choose between economic inefficiency and mass lay-offs that could disrupt social stability.
Commencement of Insolvency Action
Both voluntary and involuntary actions are available (instituted by the debtor or a creditor, respectively). An insolvency action begins with an application in the Peoples Court for a declaration of insolvency; the applicant must show that the debtor is unable to repay its debts as they come due. A declaration of insolvency will stay all other proceedings against the debtor company, but usually requires the company to suspend its business operations.
Notification
The Peoples Court will notify creditors of the commencement of insolvency procedures by either written notice or public announcement. Creditors notified by written notice must claim their rights within 30 days of the date of receipt, and creditors who have not received written notice have three months from the public announcement to claim...
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