An Overview on Shenzhen Individual Bankruptcy Regulations
China’s first regulation on individual bankruptcy, the Regulations of Shenzhen Special Economic Zone on Individual Bankruptcy, came into force on 1 March 2021. An overview on the said Regulations is enclosed hereby for your easy reference.
According to the Regulations, eligible debtors and creditors both can file bankruptcy petitions to the court.
The debtors who can file for bankruptcy shall meet the following requirements:
(1) have been living in Shenzhen and have paid social insurance for 3 consecutive years in Shenzhen;
(2) unable to pay off their debts because of business struggles or problematic consumption or their assets are insufficient to pay off all the debts.
The creditors who hold more than RMB500,000 due creditor’s rights against the debtor alone or jointly can also file a bankruptcy petition to the court when the debtor is unable to pay off the due debts.
The procedures involved in individual bankruptcy as stipulated in the Regulations can be divided into bankruptcy liquidation, reorganization and reconciliation.
(1) Bankruptcy Liquidation
The debtor shall use all of his property to pay off debts except the exempted properties retained in accordance with law after entering into bankruptcy liquidation procedure. After a three-year inspection period, the debtor who has complied with restrictions and has no bankruptcy fraud can be exempted from paying outstanding debts according to the Regulations.
If the debtor has expected revenue in the future, he/she may submit a reorganization plan to the court. The reorganization plan shall be executed by the debtor after being approved by the court. The debtor may apply for relief of the outstanding debts with the court upon completion of the execution of the reorganization plan.
If the debtor voluntarily reaches a settlement agreement on debt relief and repayment with the creditor out of court or in court, he/she may apply for ratification from the court. The debtor may apply for relief of the outstanding debts with the court upon completion of the execution of the settlement agreement.
The following properties are exempted properties according to the Regulations:
(1) Necessities and reasonable expenses of the debtor and his/her dependants for living, studying and medical treatment;
(2) Items and reasonable expenses that shall be retained for the debtor’s career development;
(3) Articles with special commemorative significance to the debtor;
(4) Life insurance without cash value;
(5) Medals or other articles for honour;
(6) Compensation for personal injury, social insurance and minimum living securities exclusively belonging to the debtor;
(7) Other properties that should not be used to pay off debts according to law or public order and good customs.
Except for item 5 and item 6 above, the total value of the exempted properties shall not exceed RMB200,000.
There are mainly three types of restrictions on the debtor during the bankruptcy proceedings as stipulated in the Regulations:
(1) Restriction on Consumption
Except for the real needs of life and work and with the consent of the court, the debtor shall not have the following consumption behaviours：
(a) buying business class or first class air tickets, soft sleeper train tickets, second class ship tickets, first class high-speed train tickets;
(b) consuming in nightclubs, golf courses and three-star or above hotels and other places;
(c) purchase of real estate and motor vehicles;
(d) building new houses, expanding and decorating houses;
(e) sending children to expensive private schools;
(f) renting offices in high-end office buildings, hotels, apartments and other places;
(g) buying insurance and financial products with high premium;
(h) other consumption behaviours not necessary for life or work.
(2) Restriction on Post-holding Qualification
The debtor shall not hold the post of director, supervisor or senior manager of a listed company, an unlisted public company or a financial institution from the date the debtor is declared bankrupt to the date the debtor’s outstanding debts are released in accordance with the law.
(3) Restriction on Loan Quota
When the debtor borrows more than RMB1,000 or applies for an equal amount of credit, he/she shall declare his/her bankruptcy status to the lender or the credit grantor during the period from the court accepts the bankruptcy petition until the date the debtor’s outstanding debts are released in accordance with the law.