New bankruptcy law got passed on August 27th 2006 and took effect on June 1st 2007. It is composed of following 12 chapters: general provisions, the submission and acceptance of bankruptcy application, administrator, debtor’s assets, administrator’s commission and priority debts, creditors application, creditor’s meeting, restructuring, settlement, liquidation, legal responsibility and supplementary provisions. The laws mainly solve two problems: one is focus on the debt settlement issues; the other is to help enterprises realize survival of the fittest.

Compared with old Bankruptcy law, the new one is more comprehensive and applicable. Following will outline several key changes to the old law:

a.This Law applies to enterprises of all kinds not only those owned by the whole people. Before the implementation of new law, there are no relevant laws and regulations dealing with market-oriented bankruptcy for more than 4.9 million privately owned business. These reforms meet the demand of re-allocation of resources among all enterprises involved.

b.The adoption of administrator system. The original bankruptcy says that only liquidation team organized by government can be involved in the bankruptcy issues. The new one says administrator should be designated by the people's court and supervised by creditor’s meeting. These administrators could be qualified liquidation team composed of people from certain organizations, or intermediary organizations, which include legally registered lawyer office, accounting office and liquidation office.

c.The adoption of reorganization process
Restructuring means not to perform immediate liquidation for insolvent debtors,

But the creditors and debtors reach an agreement under the auspices of the court, develop restructuring plan. During this period debtors repay all or part of the debts in certain ways, meanwhile debtors can continue to operate its business.

d.Secured claims prior to staff claims
Between the secured claims and staff claims, the old bankruptcy says staff claims rank the first among all creditors. The new one reorders this and says secured claims prior to staff claims.

e.The first question to cross-border insolvency issues
China originally said no to all bankruptcy laws of other countries. The debtor’s property outside the territory of china will take effective in case of bankruptcy based on new laws. At the same time, under the principle of mutual benefits or international conventions, Chinese courts admit and execute arbitraments of other countries. This would prepare well for our integration with international bankruptcy laws in the near future.

Within this mentioned main changes from the previous trying-out law, some are especially noticeable. For instance is the change in the sequence of discharging. In the past, the employees possessed a priority than warrantors, which meant that, if the welfare and salaries of the bankrupt’s employees failed to be paid off by the unsecured property, secured property would be used to compensate them. Then as a result, the warrantors’ property inside the bankrupt enterprise would surely be decreased. However, under the new law, this will be a different story. The right of warrantors has precedence over that of the employees. In other words, the salaries and other welfare of employees can be compensated by those unsecured property, leaving those secured property belonging to warrantors not influenced in such a circumstance.

Taking into account the existing practice, bankruptcy occurred before the promulgation of the new law will be applied to the old law, whereas those occurred later than the promulgation will be according to the guidance within the new law.

This is a thought-provoking difference from previous since it involves many significant topics, such as how to deal with the enterprise when it meet its bankruptcy, how to protect the employee’s benefit and what the impact is towards investors. Above all, an idealistic turnaround to bankruptcy is obvious. In the past the word “bankruptcy” might point to the closure of an enterprise, and the bankrupt enterprise is considered to meet its termination of operating life. But now, bankruptcy contains more meanings.

Traditionally, bankruptcy means the corporation that has been declared insolvent through a court proceeding and is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee. It has to meet a procedure of liquidation, i.e. be asked to sell all of its assets, pay outstanding debts, and distribute the remainder to shareholders, and then go out of business. Nevertheless, building efficient reorganization system of the bankrupt enterprise is believed to be better in treatment nowadays, which has been introduced into practice in China by the new law as well.

Reorganization refers to the process directed by the court that the debtor can maintain his going-concern status but is demanded to pay back part or all of the debts within a certain period, under the agreement and schedule stipulated with the creditor. As to creditor and investor, more future benefits might be promised by reorganizing a bankrupt enterprise than liquidating the enterprise at once, in that profit can be made in its future operating.

Moreover, the protection of employees’ economic rights and interests is always being in public attention. One innovation related to this matter is the introducing of the administrator system. Under the system, professional institutions such as law firm and accounting firm etc participate in the bankruptcy matters as independent administrator, which will improve the efficient and transparence and thus, to some extent, avoid peculating so as to ensure the merited portion of employees. Meanwhile, as some expert has pointed out, the protection of employees’ right calls for the improvement of other relevant laws and regulations. It must be solved by a multi-law security, rather than only by the law of bankruptcy.

In addition, because of the endowing of precedence with creditors and the adoption of new system such as reorganization and administrators, foreign investment will grow, due to the investors’ optimism in respect that in their opinion, the Chinese market becomes more and more regular and efficient, in accordance with an investigation report issued by Deloitte Chine and CPA Australia.

As Xixiaoming said , vice president of Supreme People’s Court, courts totally accepted and hear 64311 bankruptcy cases during the period between 1998 and 2008, and only 3817 cases occurred in 2007, which means new bankruptcy law didn’t invite more cases in China.