Why do people apply for bankruptcy insolvency in China: empirical evidence and policy analysis

Abstract

ABSTRACT This article provides empirical evidence and policy analysis to investigate the rising caseloads of bankruptcy insolvency in China in recent years and the law's efficacy. It shows that creditors have more significant incentives to file for insolvency to invalidate possible fraudulent transactions, overcome limitations of judicial execution and hold relevant insiders accountable for the failure of liquidation. In addition, the state promoted bankruptcy to serve the Supply-Side Structural Reform and Cases about Transformation from Execution to Bankruptcy after 2015. Nonetheless, China's bankruptcy system failed the functions of eliminating inefficient firms and preserving insolvent assets. That people viewed bankruptcy as a last resort meant the lack of remaining distributable assets in bankruptcy enterprises, which might disenchant the perceived efficacy of bankruptcy in the long run. The effect of the liquidation duty was also limited because of legal ambiguities and the inability to prevent debtors from making unreasonable decisions.