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334 44 On Enterprise Bankruptcy and Capital Restructuring1 August 20, 1996 Enabling enterprise bankruptcy is a very important measure for promoting the transformation of operational mechanisms at SOEs and for developing a socialist market economy. At the same time, it is an important measure for ensuring that state-owned assets, particularly bank assets, are not continually being lost. Regarding the Pilot Projects on Enterprise Bankruptcy Through the organization of the State Economic and Trade Commission, from its inception in 1994 up to the present, this work has achieved some results and has gained some experience. However, we are constantly receiving materials indicating that in the past two years, a problem of debt evasions masquerading as bankruptcies has emerged. Many enterprises have failed to observe the relevant regulations. Instead, they have exceeded their scope and gone outside their regions, faking bankruptcy, canceling bank debts, and leading to losses of state-owned assets. Over these past two years, I’ve raised this issue many times, both in speeches and in some written instructions. Arbitrarily declaring bankruptcy without abiding by related laws and State Council regulations doesn’t do one bit of good for transforming the operational mechanisms of enterprises and can only lead to large losses of state-owned assets, particularly bank assets. In some places fake bankruptcies have become the vogue, and we must put a halt to this trend. Otherwise , SOE reform will go off track. The Legal Basis for Declaring Bankruptcy. The legal basis for an enterprise to declare bankruptcy is the “Law of the People’s Republic of China on Bankruptcy 1. On August 20, 1996, the State Council convened a special-topic conference in Beijing to look at enterprise bankruptcy pilot projects and the issue of capital restructuring. The participants were responsible members from the State Council departments concerned. This is Zhu Rongji’s speech at the conference. On Enterprise Bankruptcy and Capital Restructuring 335 of Enterprises (For Trial Implementation)” (the “Trial Enterprise Bankruptcy Law”), which was passed by the Standing Committee of the National People’s Congress on December 2, 1986. This is the only legal basis on which a court may declare an enterprise bankrupt. In 1991 the Supreme People’s Court issued an opinion2 on some questions regarding implementation of the Trial Enterprise Bankruptcy Law, but there were no new regulations. Article 4 of the Trial Enterprise Bankruptcy Law explicitly states: “The state through various means shall arrange for the appropriate employment of the staff and workers of bankrupt enterprises, and shall guarantee their basic living needs prior to reemployment; specific measures shall be separately stipulated by the State Council.” The law asks the State Council to make concrete rules for the placement of the staff and workers of bankrupt enterprises. Everyone please take note: the placement of staff and workers is the precondition . Without this precondition, how can an enterprise go bankrupt? Who would dare go bankrupt? I went over all the related documents, and the State Council still doesn’t have rules on this matter. Therefore before declaring bankruptcy on the basis of the Trial Enterprise Bankruptcy Law, a locale must first have this precondition, namely, a relatively sound social security system and a system to ensure the basic cost of living will be covered [for laid-off workers]. Some cities such as Shanghai are relatively strong economically. They established a social security system quite early on, and they have unemployment insurance, pension insurance, and assurances the basic cost of living will be covered , so of course they have met the conditions under which bankruptcies can be declared according to the law. In places without such protections, who would dare go bankrupt? That’s why in the nearly 10 years since this law was passed, not many enterprises have gone bankrupt. In light of this, beginning in 1992, at the same time that it drew up the “Regulations on Transforming the Operational Mechanisms of Publicly Owned Industrial Enterprises,” the State Council was also considering the question of bankruptcy . After over two years of research and discussions, the State Council issued the “Notice on Questions Related to the Trial Implementation of SOE Bankruptcies in Certain Cities”(the“Notice.”) This document takes into consideration the difficulty of putting the Trial Enterprise Bankruptcy Law into practice, noting that the State Council has not yet stipulated how to arrange for the reemployment of staff and workers of bankrupt enterprises and how to ensure their basic livelihood before reemployment. Therefore the document makes it clear at the...


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