Tribunal to improve liquidations and reduce number of 'zombie' firms

A special bankruptcy court in Beijing established just over two weeks ago to promote high-quality economic development in the capital and create a better business environment accepted its first case on Friday.

The filing of the case means it is now in the legal process, beginning the formal operation of the Beijing Bankruptcy Court at the Beijing No 1 Intermediate People's Court, which was established on Jan 30.

It is a compulsory liquidation case involving a machinery manufacturing enterprise affiliated with a State-owned group.

"Solving this problem, I believe, will be effective in helping the group optimize allocation of resources and contribute to its further high-quality development," said Ma Lina, vice-president of the intermediate court.

The enterprise, founded in 1989, mainly developed, manufactured and sold machine tools and household appliances, but ceased business in 2010 with debts of 61.78 million yuan ($9.1 million) because it was operated poorly, said Ma, the chief judge for the case.

To help the enterprise clean up the debts and guarantee the healthy development of the group it was affiliated to, "we decided to hear the case, and we hope to ensure the enterprise can quit the market in a legal way, more efficiently," she said.

In her eyes, better liquidation of such enterprises will help deepen the country's supply-side structural reform and reduce the number of "zombie companies"－those that are heavily in debt or that rely on bailouts to survive.

Yin Xiuchao, an attorney from Dentons Beijing who is representing the group applying for the liquidation, said a bankruptcy is sometimes not a bad thing.

"It may be a restructure for a defective enterprise and be helpful for economic vitality," Yin said.

He said his firm has seen a surge in bankruptcy-related disputes in recent years, with the Beijing branch alone handling more than 500 last year.

In the past three years, China has strengthened efforts to apply rule by law to accelerate bankruptcies of zombie enterprises and help struggling companies restructure.

Besides the Beijing Bankruptcy Court, two other such courts have been established in Shenzhen, Guangdong province, and Shanghai this year, focusing on handling company bankruptcies, compulsory liquidation cases and cross-border bankruptcy cases.

In August 2016, the Supreme People's Court opened an online platform to collect information about zombie companies nationwide, offering legal guidance for enterprises and helping judges handle a boom in such cases.

Data from the top court show Chinese courts received 9,542 new corporate bankruptcy cases in 2017, an increase of 68.4 percent compared with the previous year.