China's parliament adopted a long-awaited corporate bankruptcy law on Sunday, aiming to protect both creditors and workers of bankrupt enterprises, Xinhua news agency reported.
The bankruptcy law, which will come into effect on June 1, 2007, has taken 12 years to make its way through the legislative process in the National People's Congress (NPC). The new law states that all insolvent enterprises will use assets to pay creditors first, and use any remaining assets to pay laid-off workers, said Xinhua. The law will apply to state-owned and private enterprises as well as to financial institutions, it said.
"The provision is a compromise that aims to protect both creditors and workers of insolvent enterprises," Xinhua quoted Cheng Siwei, vice-chairman of the NPC Standing Committee, as saying. Wang Xin, a law professor at Renmin University, said paying creditors first in insolvency cases was common practice in market economies and would help to boost foreign investors' confidence in investing in China.