Shenzhen drafts China’s first personal bankruptcy laws as virus puts pressure on economy

SHENZHEN, China (Reuters) – Shenzhen drafted China’s first personal bankruptcy laws as the southern city tackles broader economic problems resulting from the coronavirus outbreak, paving the way for others to follow suit not.

A woman wearing a face mask walks past a construction site near residential buildings in Shenzhen, following the novel coronavirus (COVID-19) outbreak, Guangdong province, China May 17, 2020. REUTERS / Martin Pollard

The rules are meant to give “honest and unhappy” debtors the chance to escape the debt quagmire and return, the city government said in an official message on Wednesday.

Despite national business bankruptcy laws since 2007, individuals are still held personally liable for business debts, making their collection particularly difficult, according to draft rules posted on a Shenzhen government website Tuesday.

The draft rules, open for public comment until June 18, allow residents of Shenzhen who cannot pay their debts to file for personal bankruptcy if they have paid social insurance in the city for at least three years.

Once approved, applicants will spend at least three years in a supervised “probation” period before any or all of their debts are written off. Meanwhile, their spending will be monitored, according to the draft regulation.

Reuters analysis showed that 76 entities filed for bankruptcy with the Shenzhen Intermediate People’s Court in May, up 85% from the previous year.

Sole proprietorships made up more than a third of the 3.3 million registered business entities in Shenzhen, many of which were involved in e-commerce or self-employment, according to official figures.

“After the epidemic, it is not known exactly how many business owners will be forced to be on the country’s default list if they fail,” said Yin Yanrong, partner at Guangdong Baocheng law firm.

Creditors who owed more than 500,000 yuan ($ 70,228.66) will also be able to apply to the court for liquidation of the debtor’s bankruptcy.

Several lawyers told Reuters they expected other regions to hold similar trials. The move is also aimed at ridding the economy of risks such as credit-fueled personal consumption and bubbles like that of Shenzhen’s boiling real estate market.

“Shenzhen, as a leading pilot area, generally prioritizes new policies,” said Chen Xiaorui, lawyer at the Guangdong Nuoming law firm.

Report by David Kirton in Shenzhen and Yawen Chen in Beijing; Editing by Clarence Fernandez

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