Book Description

This article examines the developments and challenges of China's new corporate reorganization law, which is enshrined in the newly-enacted PRC Enterprise Bankruptcy Law 2006. In particular, it sheds light on the difficulties of commencing formal corporate reorganisation procedures, alternative control models and formulating reorganisation plans under the new law in China.This paper investigates the corporate reorganization of the Chinese public companies listed on its Shanghai and Shenzhen Stock Exchanges, which took place between 1 June 2007 and 31 December 2013. These cases arose within the corporate reorganization regime enshrined in China's newly enacted Enterprise Bankruptcy Law 2006 (The EBL 2006). By examining forty-three listed company reorganizations, this paper challenges the assertion made in most of these corporate reorganization plans that the major beneficiaries of such reorganizations are the company's creditors, employees and general public shareholders. Through an analysis of the statistics derived from these company reorganization plans, annual reports, public notices and the media reports, this research found that creditors, employees and general public shareholders do not actually benefit much from such corporate reorganizations on the following grounds.First, the data suggests that creditors, especially unsecured creditors could have received 62.90% more if the fundamental value distribution principle - the absolute priority norm, which makes creditors be paid before shareholders - was complied with; second, on average 77.29% of employees lost jobs during and before reorganization; and third, substantial losses were incurred by general public shareholders, as they had to give up part of their shares under these reorganization plans, 85.37% of 6 them could have been avoided if the general-public-shareholder-protection scheme issued by China's Supreme People Court was rigorously applied.This paper concludes that instead of maximizing the interests of creditors, employees and general public shareholders, most of listed company reorganizations in China seemed to mainly benefit local government, controlling shareholders and strategic investors. This paper suggests that only by stringently applying basic insolvency value distribution norms and by improving transparency will the reorganization procedure involving China's listed companies be strengthened so as to ensure greater legal certainty for their stakeholders.