代做The new emerging Personal Bankruptcy legal framework in China: a comparison with the experiences o

The new emerging Personal Bankruptcy legal framework in China: a comparison with the experiences of Germany and the United Kingdom

Introduction

Chapter 1 – Bankruptcy Law in China and its new developments regarding the personal bankruptcy

1. Overview of the legal regime of bankruptcy in China 

1.1. Development of China’s bankruptcy law 

China's bankruptcy law had a late and hasty start, from the birth of the bankruptcy regulations in the Qing Dynasty to the enactment of the current Chinese enterprise bankruptcy law in a period of only 80 years, but in the meantime there have been three regime changes. These three regimes have their own different characteristics, which represent the different tendency of bankruptcy legislation.

1.1.1 Historical progress of China's bankruptcy law

The origin of the bankruptcy system in China is later than that of other countries in the world. The history of bankruptcy law in China began with the Qing Bankruptcy Regulation drafted by Mr. Shen Jiaben in 1906 as a branch of commercial regulation. In the twenty-ninth year of GuangXu (1903), the Qing government ordered the then Ministry of Commerce to formulate a commercial law. The ministry of commerce was ordered to formulate the company law first, the law was promulgated and then drafted the bankruptcy law, sent to revise the law minister, 1906, the two parties agreed upon, approved by the Qing government.

The background of the formulation of the Qing bankruptcy regulation includes two aspects: Firstly, after the formulation of the company regulation in the Commercial Regulation, the state was faced with how to blow the company's loss and closure issues such as ancillary issues; Secondly, at that time, the Shanghai area through the ''owed money, not to pay back'' in the form. of fraudulent money of the money changers, urgently in need of legal adjustments. The Qing Bankruptcy Law was approved in April 1906, becoming the first bankruptcy law in China. The law was divided into nine sections, namely, Reporting Bankruptcy, Election of Directors, Debtors' Meetings, Liquidation of Accounts, Disposal of Property, Intentional Deceit, Extension of Liquidation, Petition for Cancellation of Case, and Supplementary Provisions. In terms of the scope of application, the reform. law applies to all 'business entities', with the previously established general regulations of merchants, all business trade, trading, and trafficking in goods, are merchants. It can be seen that the Qing Bankruptcy Law does not directly distinguish between the applicable subjects of the Law though, and the existing Chinese Bankruptcy Law there is a huge difference in structure.

During the Republic of China (1912-1949), the Beijing Law Revision Institute formulated the Draft Bankruptcy Law of 1915 based on the bankruptcy laws of Germany and Japan, which was divided into three chapters, namely, the substantive law of bankruptcy, the bankruptcy procedural law and penalties, with a total of 337 articles; in 1934, the Ministry of Justice formulated the Bankruptcy Law, but due to the deficiencies at that time, it could not be put into practice, and the bankruptcy cases that occurred in the meantime were all dealt with in accordance with customary law and jurisprudence. In 1934, the Ministry of Justice and Administration drafted the Bankruptcy Law, the contents of which were mostly taken from the bankruptcy laws of Germany and Japan, but it was not submitted to the Legislative Institute for consideration. After the national government set its capital at Nanjing, it promulgated the Bankruptcy Law and the Bankruptcy Enforcement Law on 7 July 1935, which came into effect on 1 October of the same year. Compared with the Qing Bankruptcy Law, the bankruptcy law of the Republic of China changed from merchant bankruptcy doctrine to general bankruptcy doctrine, and its structure and content were very similar to the bankruptcy laws of various countries at that time. The Bankruptcy Act of 1935 of the Republic of China has been amended three times, in 1937, 1980 and 1993, which is the current precedent bankruptcy law in Taiwan, and the Consumer Debt Settlement Ordinance was enacted in 2007, which builds the consumer bankruptcy system in Taiwan in the form. of a single ordinance.

1.1.2 Enactment of contemporary existing Chinese bankruptcy laws (From 1949 to present)

Before 1949, there were three pieces of bankruptcy legislation that were enacted. Following the Communist Party's victory in 1949, the new government abolished all laws that had been passed by the old government and began to build its own legal system based on the laws passed by the previous government, and in fact most of China's laws in that process were learnt and inherited from the laws of the Soviet Union. Also, after the founding of the People's Republic of China, the planned economy system was implemented for a long time, and neither enterprises nor individuals were true market parties. Unfortunately, the occurrence of the Cultural Revolution pressed the pause button on the development of the Chinese legal system.

At that time , bankruptcy law has long been on the periphery of the field of legal research and application, and only in the last thirty years has it become a hot topic of discussion. However, like the other main stream country, by the late 1980s, China had relaunched its modernization of legal systems. In the 1990s, fierce debates about whether a bankruptcy law should be enacted had begun. Some representatives in Congress considered the introduction of a bankruptcy law too hasty, though they admitted the need for a law. During that period of time, all assets of China belonged to the nation, so bankruptcy was seen as a phenomenon that occurred only during a capitalist economy.

Therefore, there was no room for the survival of the bankruptcy system. After the reform. and opening, and the establishment of the market economy system, the prominent issue faced by the Chinese economy was the bankruptcy of enterprises rather than individuals. China's current bankruptcy law only includes the Enterprise Bankruptcy Law of the People's Republic of China, which was considered and passed for amendment by the Standing Committee of the National People's Congress in 2006, and has not been amended for more than 18 years. The law is a national law, but it only applies to the bankruptcy of enterprises, and is not applicable to the bankruptcy of individuals. Consequently, China first introduced the enterprise bankruptcy law to address the social problems at that time. This led to the long-term absence of a personal bankruptcy system.

2. The significance and function of the establishment of the personal bankruptcy system in China

With the rapid development of the market and the rapid increase in the number of business entities, the need to amend the Bankruptcy Law and to implement legislation on personal bankruptcy has gradually emerged. On 31st  August 2020, the Shenzhen Special Economic Zone (SZSEZ) introduced the Shenzhen Special Economic Zone Personal Bankruptcy Regulations(hereinafter Shenzhen Regulations), which will come into effect on 1st March 2021. The Regulations were drafted by the authorities at a time when the SZSEZ was in the process of drafting the Regulations. In drafting the Regulations, the authorities have referred to the laws of a few jurisdictions with more mature market economies, such as the United Kingdom, the United States, Japan, Germany, Hong Kong, and Taiwan. The Ordinance aims to fill the gap in China's modernized personal bankruptcy regime.

However, at present, China's law on personal bankruptcy is not yet sound, in accordance with the usual legislative law, it is through the local legislation and practice in the region, and then through the analysis of the practice of the local regulations, if the conditions are met, then through the legislative law and the Standing Committee of the National People's Congress to introduce the law. At present, the Shenzhen regulations are in the process of early and pilot implementation. But for China should be in the introduction of personal bankruptcy law and on the meaning of personal bankruptcy law, in China's academic community there is still a heated debate.

2.1 The legitimacy and necessity of China's personal bankruptcy legislation

Some scholars believe that the personal bankruptcy law is a necessary way to establish the rule of law mindset in the market economy. Whether the enterprise bankruptcy system or personal bankruptcy system are based on the market economic system, is the market economy of the law of survival of the fittest system embodiment. At the beginning of economic development, before the emergence of the bankruptcy system, the debtor malicious fraud, debt evasion occurs frequently, the interests of creditors are not protected, personal bankruptcy system is based on the maintenance of the interests of creditors. In China, the traditional concepts of debt repayment and that a father's debt is repaid by his offspring are deeply rooted, and the personal bankruptcy system is regarded by many people as a tool to help debtors evade their debts without helping creditors to realize their claims. In practice, China's existing enterprise bankruptcy system is indeed alienated, these realities have made the personal bankruptcy system in our country to implement the poor, people have resistance, do not think that it meets the rule of law system design requirements, did not really achieve the rule of law. In the absence of a sound environment for the rule of law, it is practically impossible to have a market economy. 

There are also scholars who believe that economic development is accompanied by a growing demand for capital in society, and that the state's policy of encouraging innovation and entrepreneurship has led to more and more individual entrepreneurs being eager to try their hand at the developed market. Meanwhile, the economic disputes that come with it are also gradually increasing. On the one hand, some unforeseen events may bring uncertain risks, for example, geopolitical risks have increased significantly in recent years, the globalization process is hindered, and other factors, so that the economic development of all countries in the world has been greatly impacted. Among them, some small and medium-sized enterprises and self-employed persons with weaker ability to resist debts and risks are facing the risk of closure, and a lot of business individuals have even been unable to survive and difficult to turn around. The personal bankruptcy system can help the honest debtors to free themselves from the temporary investment failures or the company's financial mix-ups and give them the most basic space for survival and room for manoeuvre, so that they can have the chance to make a fresh Starting again at the proper time.

In addition, the indebtedness of Chinese residents is staying high in recent years, and according to the China Financial Stability Report (2023) released by the People's Bank of China, the leverage ratio of China's residential sector stood at 71.8 per cent at the end of 2022, which was 0.6 per cent lower than that of the previous year. Credit consumption has rapidly become the mainstream way of consumption in the market, and the shift in the concept of over-consumption by the younger generation groups has led to a large number of early consumption and over-indebtedness in the market. However, as long as the credit relationship exists, there is bound to be the possibility that the debt will not be fulfilled or will not be fulfilled on time; in this regard, although credit risk cannot be avoided, it cannot be avoided, and the personal bankruptcy system in such cases is conducive to broadening the channels for personal debt clearance and promoting the healthy development of the credit and consumption market.

2.2 Problems in the Construction of China's Personal Bankruptcy System

Personal bankruptcy legislation requires certain social conditions and technical support, China's current bankruptcy law does not expressly provide for personal bankruptcy is also because there are still legislative blockages. It is also because there are still blockages in the legislation. It is necessary to sort out the current difficulties in the legislation of personal bankruptcy in China, and to seek a possible path for the construction of the legislation of personal bankruptcy in China by drawing on the advanced legislative experience of the Western countries and combining with the national conditions of China.

To begin with, an unsound social credit system is dragging down the introduction of personal bankruptcy. Although China's personal credit network has been established nationwide and has made great progress compared with the past, there are still many shortcomings. For instance, there are still deficiencies in the initial stage of the personal credit system, such as the difficulty of guaranteeing the authenticity of personal credit information, the lack of authority of assessment agencies and the lack of a strong concept of personal credit.

Moreover, n the process of building China's personal bankruptcy system, China's unique consumer traditions have also placed considerable constraints on the legislative process. China's traditional credit behaviour is biased towards relationalism, for example, in the legal relationship of guarantee, the guarantor is often not based on the debtor's income level and repayment ability to provide a guarantee, but generally because of some kind of acquaintance or interpersonal relationship to issue guarantees, this kind of interpersonal guarantees is essentially a system of interpersonal guarantees, and a large number of interpersonal guarantees challenge the financial security of commercial banks and credit institutions, and fragile guarantees make the commercial operations at greater risk. In addition, although young people's awareness of credit consumption is gradually changing, the influence of China's traditional savings culture is deep-rooted and subtle, and the precautionary mentality towards major events and accidents has brought about a unique consumption culture.

However, with the development of society, the concept of personal bankruptcy has gradually undergone a transformation. Research in psychology and behavioral economics has found that people tend to underestimate the risks and difficulties they will face in the future and to overestimate the likelihood of an investment or business activity, i.e., they are often ‘optimistic bias’: even those who are aware of the facts believe that the risks will be less likely to become a reality for them than for others. This leads to an overall overconfidence in risk judgement. It is therefore necessary to adopt a limited form. of ‘paternalism’ to protect individuals from the detrimental effects of the human weakness. The aforementioned theory is mainly reflected in the personal bankruptcy system in that the attributes of status in personal bankruptcy law are increasingly vanishing, and in the modern personal bankruptcy system, since engaging in business is no longer the privilege of merchants, the investment, operation and even consumption of ordinary people beyond their personal capacity are no longer considered to be in violation of the requirement of ‘honesty’.

Furthermore, the personal bankruptcy system, which was initially designed to protect the honest and unfortunate, has nowadays seen the requirement of unfortunates further loosened and even transformed into a requirement of imprudence. The system and the law have begun to take a more tolerant attitude towards excessive risk-taking, providing bankruptcy protection not only in the event of damage from unforeseen risks, such as misfortunes or mishaps, but also in the event of hardship due to the bad judgement or improvident.

More importantly, it is important to note that the function of personal bankruptcy to morally demean debtors is increasingly weakening in China. The reasons for this can be attributed to the increasingly rational attitude of the people towards bankruptcy and the fact that the paradigm of borrowing money is, or has been, shifting. At one time, it was mostly individual to individual, or acquaintance to acquaintance, borrowing, and there was naturally more of a moral element. Nowadays, most debt relationships occur between individuals and banks (institutions). For the time being, Chinese banks have set up a credit system whereby individual borrowings, repayments, and bankruptcies are all recorded in the bank. While it is true that creditors and other rights holders still have access to information about a debtor's bankruptcy, there are few direct moral condemnation attributes left for the debtor as personal bankruptcy is becoming increasingly common and the debtor mainly faces the court and unfamiliar creditors during the procedural process.

2.3 The completion of China's market economy exit mechanism

The new Law on Enterprise Bankruptcy entered into force in 2007. As its name suggests, the new law applies only to companies with legal personality. Non-legal persons such as partnerships and sole proprietor-ships, as well as consumers, are not covered by the insolvency regime. In light of this, some scholars consider the Act to be a ‘half bankruptcy law’.

According to the public information provided by Wolters Kluwer, China's leading legal information database, before the Personal Bankruptcy Law came into force, there were 214 judgments that referred to ‘personal bankruptcy’. Prior to 2021, the adjudicating authority basically had no law on which to base its decision in the face of a personal bankruptcy petition filed by a party. Only the centralized personal debt settlement system, which is similar in function to the personal bankruptcy system, can be applied.

On the basis of the implementation of the reconciliation and participation in distribution system, and drawing on the system relating to corporate bankruptcy, work is carried out on the appointment of administrators, the verification of claims declarations and property investigations. Debtors with personal incomes in excess of those required to maintain a basic standard of living are required to produce debt settlement plans for submission to a meeting of creditors for a vote.

The liquidation plan and credit restrictions are also made public on the public credit platform. to accept supervision of the debtor by all sectors of society. The personal debt liquidation procedure provides a vivid practical sample for the legislation of the personal bankruptcy system, and also plays a pioneering and enlightening role in creating a social atmosphere that tolerates failure and encourages innovation, and at the same time, it can greatly narrow the scope of application of the enforcement of the end-of-course procedure, and return the enforcement of the end-of-course procedure to objectivity, truthfulness and science. As a result, the introduction of a personal insolvency law was in fact long awaited. It puts an end to the long-standing situation that personal bankruptcy applications can only refer to the enterprise bankruptcy law to deal with the specific process and adjudication, and avoids the embarrassing situation where adjudication has no basis.

2.4 Activation of entrepreneurial enthusiasm in the market

The personal bankruptcy system is very relevant to entrepreneurs, as debts are often personal for sole traders and partners in partnerships. The existence of a system of personal bankruptcy helps to change the perception of fear of investment and entrepreneurial failure and maximizes the incentives for entrepreneurs to participate in investment. Some scholars have likened the system of personal bankruptcy and debt forgiveness to an insurance policy against business risks.

Relevant empirical studies have also provided verification: some scholars have studied the relationship between the ratio of the number of independent operators and the personal bankruptcy system in fifteen European countries over the past thirteen years, and found that the correlation between the ratio of the number of independent operators and the debt forgiveness rate of the personal bankruptcy system in these countries is much greater than that of the GDP and other economic indices. And the amount of bankruptcy exemption is positively correlated with the self-employment rate of entrepreneurs.

From the economic point of view, the entrepreneurial factor has not been regarded as a factor of production for quite some time. In the view of the traditional school of economics, the three basic factors that play an active role in production are mainly land, capital and labor. The research of the economist Alfred Marshall changed this basic conception by introducing entrepreneurial talent as a fourth factor in addition to the three factors of production.

Nowadays, human resources have become the most important and valuable resources in the market. Indeed, China's key experience over the past 40 years of reform. and opening up has been the realization that stimulating people's enthusiasm for entrepreneurship and innovation, that is, encouraging entrepreneurship, is the basis for rapid and healthy economic development. An enterprise bankruptcy system that makes bankruptcy as non-existent as possible, if possible, and allows entrepreneurs the opportunity to make a fresh start, will help to further promote economic development.

Moreover, more lenient personal bankruptcy laws are also likely to enhance efficiency and social welfare. Forgiving bankruptcy rules encourage experimentation by entrepreneurs: They make it easier to close an unsuccessful business and start a new one.

Chapter 2 - Personal Bankruptcy Law in China: the Shenzhen Special Economic Zone  Personal Bankruptcy Regulations

In China's legislative history, the Personal Bankruptcy Law has never become an independent law until the emergence of the Shenzhen Special Economic Zone Personal Bankruptcy Regulation (hereinafter ‘Shenzhen Regulations’ ), but so far the regulation is still only a local statute, for the national personal bankruptcy legislation, is still in the experimental stage. For the personal bankruptcy program, it will enable honest and unfortunate debtors to have a fresh start, and it will encourage more entrepreneurs to venture into business and trial and error. This system provides expectations for market players involved in business. For self-employed persons, even if they make mistakes in business, the big deal is to live a hard life for a while, the pressure of debt will not be with them for the rest of their lives, and the personal bankruptcy system will provide them with the possibility of making a fresh start.

Shenzhen's personal bankruptcy legislation is a major step forward in the history of China's bankruptcy legislation, but with it comes a lot of trouble. The single-region ten-point will face the problem of whether the debts of debtors in different regions can be exempted, which will lead to the unequal status of debtors and creditors within the same country, as well as how the debtor's property outside of Shenzhen will be enforced. For the time being, these are issues that need to be resolved urgently, and the pilot in Shenzhen provides an important demonstration value for national legislation on personal bankruptcy law.

1. Subjects of Application and Specific Procedures of the Shenzhen Regulations

Before understanding the specific procedures of the Shenzhen Regulation, it is necessary to understand the basic concepts such as the subjects and circumstances to which the Shenzhen Regulation applies, and to compare the differences between the Shenzhen Regulation and the Enterprise Bankruptcy Law.

1.1 Subjects and objects to the application of the Shenzhen regulations

1.1.1 Subjects to the application of the Shenzhen Regulations

The most distinctive feature of personal bankruptcy lies in the subject, which is emphasized as 'individual', and the definition of 'individual' has been highly controversial. At present, there are two legislative models for personal bankruptcy laws in countries around the world. One is general insolvency doctrine, i.e., all individuals are capable of insolvency, without distinguishing whether the individual has the capacity to act or not, and regardless of whether the individual is a businessman or not. The other is merchant bankruptcy doctrine, i.e., only merchant natural persons are recognized as having bankruptcy capacity.In the author's opinion, China's personal bankruptcy system should belong to the general bankruptcy doctrine, shenzhen regulations mentioned since the 'natural person', often will be interpreted as the civil law sense of the natural person and business natural person. Among them, the natural person mainly refers to ordinary consumers, business natural person refers to all individuals involved in economic activities, also that independent participation in economic activities of individuals, including enterprise shareholders, business partners, as well as individual entrepreneurs and so on.

For instance, according to the Shenzhen regulations Article 2: ‘Natural persons who live in the Shenzhen Special Economic Zone and have participated in Shenzhen social insurance for three consecutive years and have lost the ability to settle debts or have insufficient assets to settle all debts as a result of their production and operation or consumption of life may be subject to bankruptcy and liquidation, reorganization or reconciliation in accordance with these regulations. The article delineates that it applies only to persons living, producing and operating within the city of Shenzhen, but does not make a clear distinction as to whether the provisions are directed only at natural persons or whether they also apply to commercial natural persons. Given this ambiguity, it is reasonable to infer that the provisions may apply to both categories of individuals belonging to the broader category of “natural persons”.

In addition, since it is only local legislation, the population to which it applies is not able to target individual insolvent debtors nationwide. However, in order to solve the problems brought about by the household registration system, the Shenzhen Regulations also introduced that ''individuals who have participated in social insurance for three consecutive years'' can also apply for personal bankruptcy proceedings. In the author's opinion, the legislation takes into account some systems unique to China and is more in line with Chinese national conditions. Debtors living in Shenzhen, the relevant departments, such as banks, real estate trading centers, etc., and their related property registration, social security and other information has been basically collected, more conducive to the court review of personal property, and more importantly, also more conducive to the implementation of the judgment after the trial.

Furthermore, with the introduction of the Shenzhen Regulations, the gap in the bankruptcy system for individual business has also been filled. In accordance with the General Principles of the Civil Law and the provisions of the Civil Code, individual business are natural persons registered in accordance with the law to engage in industrial and commercial operations, and although they may be given a name, they are essentially the same as individuals in terms of the scope and manner of assuming debts, and therefore the applicable object of the Regulations includes individual business. Therefore, individual business legally, at least in Chinese jurisdictions, belong to the category of natural persons and are numerous. According to statistics from the Chinese government website, by the end of 2023 China's individual businesses amounted to 124 million, accounting for 67.4% of the total number of business entities, supporting the employment of nearly 300 million people. Although, individual business account for two-thirds of the market entities, they are more likely to face bankruptcy due to smaller in volume and less risk-resistant than enterprises. Individual business do not have legal personality in China and therefore cannot apply for bankruptcy under the Enterprise Bankruptcy Law. For a long time, it has been unwise and inconsistent with the modernization of the rule of law to regulate only the market entry mechanism and neglect the development of exit mechanisms for market entities.

1.1.2 Objects to the application of the Shenzhen Regulations

The Shenzhen Regulations represent a pioneering effort in China's legal landscape, aiming to address the financial distress of individuals in a structured and compassionate manner. However, the legislative journey to this point has not been without its challenges and debates, particularly concerning the scope of the regulations and the types of insolvency causes they should cover.

For instance, as to whether or not to include the causes of bankruptcy arising from daily consumption in the personal bankruptcy system, mainly because of the concern as to whether or not such legislation would give rise to misinterpretation and lead the public to over-consumption. The final Regulations undoubtedly reflect Shenzhen Regulation’s more determined spirit of innovation and more far-sighted vision, seeking to establish a more comprehensive and systematic personal bankruptcy system. At the same time, in order to guide the establishment of a healthy concept of consumption, according to the Shenzhen Regulations, a person who has incurred significant debts or caused a significant reduction in his property as a result of extravagant consumption or gambling shall not be exempted from the payment of outstanding debts, and the Shenzhen Regulations impose certain limitations on the handling of malicious evasion of debts and the abolition of debts.

Apart from that, the most important aspect of the Shenzhen regulations is to deal with the situation where production and operation lead to loss of ability to settle debts or where assets are insufficient to settle all debts.

1.1 The procedures of the personal bankruptcy system

The procedures initiated by China's bankruptcy law, whether it is the Enterprise bankruptcy Law or the Shenzhen Regulations, contain three procedures: reorganization, liquidation and settlement. It is stipulated in the Enterprise Insolvency Law that different causes of bankruptcy will correspond to different bankruptcy procedures.

Articles 2 and 7 of the Chinese Enterprise Bankruptcy Law provide for the causes of bankruptcy. Taken together, the causes of the commencement of bankruptcy provided for in the Chinese Enterprise Bankruptcy Law are:(i) Failure to pay debts as they fall due and insolvency; (ii) Failure to pay debts as they fall due and an obvious lack of solvency; (iii) Failure to pay debts as they fall due;(iv) Insolvency; and(v) Possibility of an obvious loss of solvency. Of these, subparagraphs (i) and (ii) apply to the debtor's application for insolvency liquidation and insolvency settlement; subparagraph (iii) applies to the debtor's application for insolvency liquidation and reorganization; and subparagraph (iv) applies to the application for insolvency liquidation by a legal person that has been dissolved but is in liquidation or is in the process of being liquidated. Sub-paragraphs (i), (ii) and (v) in turn apply to the debtor's application for reorganization.

In contrast, the Shenzhen Regulations simplify the reasons for applying for bankruptcy proceedings considerably: 'If a person loses the ability to settle debts or has insufficient assets to settle all debts as a result of production, operation or consumption, he or she may be subjected to bankruptcy liquidation, reorganization or reconciliation in accordance with these Regulations.' The reason for the relative simplicity of the reasons for personal bankruptcy filing is that the debts of individuals are often small compared to those of businesses, and the personal bankruptcy regulations are only aimed at production and consumption, which are applicable to a smaller number of subjects and situations. The enterprise bankruptcy law, on the other hand, has a broader scope and is directly applicable to all corporate entities.

As noted above, like the enterprise bankruptcy system, the personal bankruptcy system consists of three types of proceedings: liquidation, reorganization and settlement. Also like the Enterprise Bankruptcy Law, the Shenzhen Regulations adopt a general structure, with chapters VII, VIII and IX providing for liquidation, reorganization and settlement respectively, and the other chapters applying to the three procedures.

1.1.1 Liquidation Procedure

Bankruptcy liquidation proceedings, through which the debtor distributes all of its property to creditors to satisfy its debts, except for exempt property retained by law. After a inspection period, an "honest and unfortunate" debtor who has complied with behavioral restrictions and has not committed bankruptcy fraud may be legally discharged from his or her outstanding debts.

As a matter of fact, not all assets will be dealt and disposed of. In order to protect the basic livelihood and rights of the debtor and his defendants, the Shenzhen Regulations specifies in an enumerated form. the property that can be retained by the debtor (i.e. exempted property). In order to strike a balance between the interests of creditors and the interests of debtors, the Shenzhen Regulations, on the basis of fully absorbing advanced overseas legislative experience, synthesize the strengths of enumeration and general legislation, enumerate the property that should be included in the scope of the exempted property, and delineate the scope of the exempted property around the following basic principles:

Serial Number	Basic Principles	Article 36
1.	Property necessary to safeguard the right to life of the debtor and members of his family	Paragraph1, subparagraph 1
2.	Property necessary to safeguard the debtor's right to development	Paragraph 1, subparagraph 2
3.	Necessary property with full personal attributes	Paragraph 1, subparagraph 4 and 6
4.	Property embodying the moral attributes of the debtor	Paragraph 1, subparagraph 3 and 5
5.	Other necessary property	Paragraph 1, subparagraph 7

The Shenzhen Regulations give full consideration to the debtor's present needs and respect the debtor's future development possibilities, focusing on the retention of necessary capital goods (i.e. for production and subsistence) without neglecting the care of the spiritual dimension. It can be said that the Shenzhen Regulations reflect the multi-level, multi-dimensional humanistic care for the debtor, but also reflects the entrepreneurial spirit of "encouraging innovation and tolerating failure", which is rich in Shenzhen characteristics.

But the Shenzhen Regulations is not a tendency to the interests of the debtor, taking into account the reality of the particularity and complexity of the debtor's property, the Shenzhen Regulations based on the principle of fairness of the exempted property to make an exception to the provisions of the exemption, that is, exempted from the scope of the property of a greater value, not used to settle the debt is clearly a violation of the principle of fairness, is not considered exempted from the property; at the same time, in addition to medals or other recognition of the honor of the goods and special At the same time, with the exception of medals or other articles of recognition and honor, as well as personal injury compensation, social insurance and minimum subsistence allowance belonging exclusively to the debtor, the cumulative total value of the exempted property shall not exceed two hundred thousand yuan.

1.1.2 Reorganization Procedure

The reorganization proceedings are financed by the debtor's future income as the main source of debt repayment, provided that the percentage of liquidation is not lower than the percentage of liquidation in the state of bankruptcy and that, with the exception of the Family Home Mortgage Settlement Program, the period of implementation of the reorganization plan may not exceed five years, with an interval of no more than three months between each debt settlement. Where the above conditions are met, whether or not to dispose of the debtor's property may be determined by agreement between the debtor and the creditors.

In addition, upon completion of the implementation of the reorganization plan, it is possible to apply for forgiveness of outstanding debts. The execution of the reorganization plan may be extended or terminated earlier. If the reorganization plan cannot be implemented as scheduled due to reasons not attributable to the debtor, the implementation period may be extended for a maximum of two years. However, if due to force majeure, unforeseen events and other causes can not be implemented, as long as the debtor in accordance with the reorganization plan to liquidate all types of debt are more than three-fourths of the termination of the implementation of the reorganization plan, and forgiveness of outstanding debts. It is worth noting that in reorganization proceedings, compared with bankruptcy liquidation proceedings, the debtor is subject to more lenient restrictions and limitations. For example, restrictions on consumer behavior, exit from the country and other acts can be lifted when the court approves the reorganization plan, and there is no restriction on holding office in the reorganization proceedings.

1.1.3 Settlement Procedure

According to the Shenzhen regulations, settlements are categorized into in-court and out-of-court settlements, and a commissioned settlement system has been introduced. In-court settlement is to reach a settlement agreement with creditors after the court accepts the settlement application, while out-of-court settlement is understood to be a settlement agreement reached between the debtor and the creditors on their own prior to the commencement of the insolvency proceedings by the court, in which case it is possible to directly request the court to rule on the endorsement of the settlement agreement. Entrusted settlement refers to entrusting the people's mediation committee, invited mediator, invited mediation organization or bankruptcy administration department to organize the settlement. Entrusted settlements can exist in both in-court and out-of-court settlements; in in-court settlements, the party entrusted with the settlement is the court, and in out-of-court settlements, the parties entrusted with the settlement are the debtor and the creditors.

Whether or not to establish settlement procedures in the personal bankruptcy system is more controversial in the legislative process. Perhaps for this reason, compared with the completeness of the rules on insolvency liquidation and reorganization, the relevant rules on settlement procedures are deficient in this respect. For example, the duties of the meeting of creditors in the Shenzhen Regulations do not include the adoption of the settlement agreement, and the Shenzhen Regulations do not provide for the voting rules of the settlement agreement; for example, the Shenzhen Regulations stipulate that when the court accepts the bankruptcy application, it shall at the same time make a decision on restricting the behavior. of the debtor, and the bankruptcy liquidation procedure and reorganization procedure stipulate when the behavioral restriction shall be lifted, but the settlement procedure does not have such a stipulation; for example, whether the debts which are absolutely non-dis-chargeable shall not be the same in the settlement procedure; and whether the debts which are absolutely non-dis-chargeable shall not be the same in the settlement procedure. Whether the debt should also be non-dis-chargeable in the settlement procedure. The effective operation of the settlement procedure in the future depends on the promulgation of relevant implementation rules.

1.1.4 Commencement of personal insolvency proceedings

 Like other civil and commercial procedures, bankruptcy procedure is commenced on the principle of no hearing without complaint. If no one has filed a bankruptcy petition, then the court cannot initiate bankruptcy proceedings on its own initiative. In accordance with article 7 of the Enterprise Bankruptcy Law, those who can file for bankruptcy in China include creditors, debtors and liquidation obligors. Article 9 also provides that an applicant may withdraw his or her application before the court accepts the bankruptcy application. The Shenzhen Regulations do not make much difference to the applicants, besides deleting the liquidation obligor. As can be seen, in the area of personal insolvency, both creditors and debtors are able to initiate insolvency proceedings. This also reflects the eclecticism of China's bankruptcy law, which seeks to protect the debtor from excessive debt collection by his creditors, as well as to protect the legitimate rights that creditors are entitled to have.

For the study of bankruptcy applicants, we must clarify the difference between personal bankruptcy and other non-business bankruptcy. Natural person bankruptcy, that is, we are talking about bankruptcy proceedings in the narrow sense of having only natural persons as the subject of the bankruptcy petition, can be divided into three main categories. First, consumer bankruptcy, second individual businessman bankruptcy, and third, investor bankruptcy.Briefly speaking, natural person bankruptcy includes two categories of natural person bankruptcy caused by business behavior. and bankruptcy caused by consumer behavior. In the Shenzhen Regulations, 'personal bankruptcy' in most cases means that it occurs because of an individual's inability to pay as a result of poor business practices.

From a comparative law perspective, both creditors and debtors in bankruptcy proceedings have the right to file an application for bankruptcy pursuant the provisions of section 13, paragraph 1, of the German Bankruptcy Act (Gesetz zur Verwaltungsgesetz, GVG). The respondent (debtor) may not request the withdrawal of the bankruptcy petition, but may prevent the commencement of the bankruptcy proceedings by honoring its debts, but in this case the debtor is liable for the corresponding bankruptcy costs. An insolvency petitioner may also voluntarily withdraw its petition before the court makes a decision on the commencement of insolvency. In contrast to China and Germany, U.S. bankruptcy law has always had a debtor-led tradition, with more mandatory requirements for creditors to file bankruptcy petitions.

In the legislative history of U.S. bankruptcy law, voluntary bankruptcy versus involuntary bankruptcy has been an important topic of legislative debate in the first half of the First half of 19th Century. After repetitive argument, the current U.S. bankruptcy law can be said to be a combination of voluntary bankruptcy and mandatory bankruptcy rules, but there are statistics show that voluntary bankruptcy cases account for the vast majority of the proportion. Relative to voluntary bankruptcy, the original form. of bankruptcy law - involuntary bankruptcy is based on the idea of the realization of claims and debtor protection. It follows that in understanding the causes of bankruptcy and the conditions for its commencement, it is also important to clarify the background of the establishment of the relevant system. The provisions of United States law on involuntary bankruptcy are primarily designed to limit excessive creditor recourse to the debtor rather than to prevent the debtor from abusing the bankruptcy process (evasion and cancellation of debts). Compared with the United States bankruptcy law, which is dominated by the idea of debtor protection, the bankruptcy laws of China and even Germany, for example, are more creditor-driven or eclectic in orientation.

In addition, from the point of view of personal bankruptcy, what we need to understand about the applicant for bankruptcy proceedings is the concept of "individual". As a result of the recent development of Chinese bankruptcy law, two definitions of bankruptcy in the field of non-enterprise bankruptcy, namely personal bankruptcy as well as natural person bankruptcy, have become more common in recent years. A natural person is a concept corresponding to a legal person, and natural persons and legal persons are the two basic categories of civil subjects. As a theoretical matter, the parties of insolvency proceedings, as well as the subjects of litigation proceedings, may include unincorporated groups such as partnerships and sole proprietor-ships, and bankruptcy of these unincorporated groups usually leads to the insolvency of the natural persons in the group who are the subject of civil rights claims. This is particularly important for the application and definition of personal insolvency. The most distinctive feature of personal bankruptcy is its subject matter, which is emphasized as an individual. The definition of the concept of the individual has been the subject of much debate. Currently, personal insolvency laws in countries around the world are divided into two legislative models. One category is general insolvency doctrine, which means that all individuals are capable of bankruptcy, without distinction as to whether or not an individual is capable of acting, and regardless of whether or not the individual is a commercial person. At present, the vast majority of countries in the world, including the United Kingdom, Germany and the United States, have adopted this legislative example. The other is merchant insolvency doctrine, i.e., only natural persons with commercial rights and commercial capacity, independently engaging in commercial behaviour, and exercising commercial powers and assuming obligations in accordance with the law are recognized as having the capacity to become bankrupt. However, as far as the current legislation on  Shenzhen Regulations are concerned, personal bankruptcy in China follows the definition of a natural person as defined in the Chinese Civil Code, i.e. personal bankruptcy is the bankruptcy of a natural person. Natural person bankruptcy is used with effect from the birth of the natural person to the death of the natural person, as is the case with the most common civil law concepts.

This is the most appropriate for the fledgling Chinese personal bankruptcy legislation because the applicable concepts are broader, the problems encountered in the course of practice are more referential, and it is easier to promote the continuous development of the legislation in the course of practice and use it for applying the more complex and specialized practical cases that may arise in the future.