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Title: Understanding the constraints on the operation of corporate insolvency law in the economic transition of developing countries : the case of China
Author: Mrockova, T. Natalie
ISNI:       0000 0004 7232 1399
Awarding Body: University of Oxford
Current Institution: University of Oxford
Date of Award: 2017
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This thesis seeks to contribute to our understanding of why creditors and debtors do not ordinarily use China's reformed Enterprise Bankruptcy Law ('EBL'), whether the low use of the EBL is problematic, and if so, what can be done to ensure a more efficient resolution of corporate insolvencies and corporate financial distress in China. The EBL has been lauded – domestically and internationally – as a major legislative success. However, despite the rapidly growing number of companies, level of corporate indebtedness and non-performing loans – which should, one might expect, lead to an increase in the use of the EBL – the number of court-run insolvency cases has in fact been decreasing since the law was implemented in 2007. The thesis draws on newly collected insights from a series of interviews in China - to supplement the scarce and often incoherent data that is available - to determine what motivates debtors and creditors not to use the EBL. The findings are presented as four complementary constraints on a more effective and efficient operation of the EBL. First two constraints relate to the low payoffs under the EBL that debtors and creditors expect to receive due to (i) flaws in the EBL itself and (ii) problems in surrounding non-bankruptcy rules and practices that reduce or prevent recoveries under the EBL. A third constraint affects those debtors and creditors who wish to use the EBL despite the low expected payoffs – for example to avoid directors' liability for corporate insolvency – but are prevented from doing so due to (iii) potential enforcers' limitations and biases. A fourth and final constraint on the use of the EBL that reinforces debtors' and creditors' unwillingness to use the EBL is (iv) the parties' (often inaccurate) perception that alternative debt enforcement mechanisms may offer comparatively higher payoffs (v. the EBL). Building on this discussion, the thesis then considers the desirability of, and options for, reform. It argues that reform and subsequent greater use of court-enforced insolvency law are desirable in China because the (reformed) EBL has the potential to contribute to economic development through more efficient resolution of complex financial distress; better control of bad debt; easier and cheaper corporate financing; more efficient allocation of resources; and more entrepreneurial activity. However, because the necessary changes to deliver this are likely to be slow in coming, it proposes a dual-track reform encompassing (i) substantive reform of the EBL and select non-bankruptcy laws and practices; accompanied by (ii) the introduction of a new speedy, independent and confidential mechanism for insolvency resolution, 'MedArb'.
Supervisor: Armour, John Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available
Keywords: insolvency law ; China ; transition economy ; law reform