The Construction Of China's Cross-border Bankruptcy Law Based On The Main And Secondary Proceeding Framework

With the development of economic globalization,the dependence of economic and trade among countries has been increasing.Cross-border investment has become the main driving force of international economy.Since China promoted the "Belt and Road" initiative and the "Going Out" strategy,China has gradually transformed from a large country of capital import to a country of capital export and import in parallel.The internationalization process of state-owned capital and private capital participation has accelerated,Chinese enterprises have become more active in the international market,the scale of cross-border mergers and acquisitions has been increasing,and local enterprises in China have taken international steps in such fields as information and telecommunication,medical and health,finance,real estate,minerals and energy.However,with the restructuring of the international economy,the increase in regional economic and trade friction disputes,and the poor management of multinational enterprises,cross-border insolvency cases have increased in recent years.In particular,the global sudden spread of the COVID-19 since 2020 results that the debt burden of enterprises in various countries has increased sharply,and some countries have seen a large-scale of corporate bankruptcies.As an important part of the international supply chain,some Chinese enterprises cannot immune,cross-border insolvency incidents spread rapidly as dominoes in the world.In the 1990 s,the outbreak of the financial crisis led western countries to speed up the process of international cooperation on cross-border insolvency,the United States,the European Union,Canada,Australia,Japan,South Korea,Singapore and some Chinese main trading partners have reconstructed or improved their own cross-border insolvency rules.Due to the limited degree of internationalization of China's economy at that time,the number of cross-border insolvency cases is still small,China only adopted one article on cross-border insolvency in the Enterprise Bankruptcy Law.With reference to the general civil and commercial judgment recognition and enforcement rules,the article V sets up the recognition and enforcement rules of foreign insolvency judgments,while establishing the extraterritorial effect of China's insolvency judgment.The rule introduced the modified universalism concept of cross-border insolvency and however,it has been criticized that China's current cross-border insolvency rules have never been applied for 14 years after it comes into effect,due to lack of system,operability,efficiency,lack of equal protection mechanism of the Chinese and foreign subjects' rights,and far behind the international mainstream rules.However,with current situation changes,the construction of our cross-border bankruptcy rules has become more urgent.The construction of cross-border bankruptcy rules can make up for the deficiencies of our current rules,respond to cross-border bankruptcy risks caused by Sino-US trade frictions,industrial restructuring,and the COVID-19 epidemic,and meet the actual needs of improving China's business environment.Theoretically speaking,the construction of China's cross-border bankruptcy rules should still adhere to the current mainstream Modified Universalism.China's cross-border insolvency rules should take efficient rescue of cross-border bankruptcy debtors as the primary value objective,and treat the interests of Chinese and foreign entities fairly,while ensuring the basic interests of Chinese creditors,social and national security.Based on the analysis of the characteristics of the two main remedy procedural model,the framework based on the main and secondary proceeding is more compatible to China's current legal system.It ensures our cross-border insolvency rules not only have the functions of recognition,remedy,and cooperation,but also can protect the interests of domestic creditors when necessary,so as to achieve“ attackable and retreatable”.Under the main and secondary proceeding framework,four aspects of the rules should be defined,which is(1)the division rule,(2)the commencement rule;(3)the remedy rule;and(4)the parallel proceeding rule.Firstly,it should establish a division rule to define what is the main and secondary proceeding.The division rule is not,by nature,a jurisdictional rule but a rule to distinguish the effective scope of insolvency proceedings in different States.The division rule should take full account of the existing international rule of the center of main interests(COMI),avoiding the creation of Chinese unique rule and complex coordination process with other counties.The primary presumption of COMI is that the place of registration of the debtor,and the place of management and control of the debtor is an exception,the presumption should fully protect the reasonable trust interests of third parties.Only in exceptional circumstances should test whether COMI has transferred during the bankruptcy proceedings.Second,the commencement rules include three part: the commencement of the main,proceeding,the secondary proceeding and ancillary proceeding for recognition and enforcement of foreign main insolvency proceeding.The main and secondary proceeding is independent and comprehensive insolvency proceeding.While the ancillary proceeding is not independent one,which is a simplified court review proceeding in deciding whether to grant recognition and remedy to foreign proceeding.The commencement rule of the main and secondary proceeding is in line with domestic commencement rule basically,but because of its cross-border factors,the equal protection mechanism for domestic and foreign creditors must be added.The initiation rule of ancillary proceeding should be arranged from the perspective of the initiation subject,the proceeding object,the jurisdictional court,the application procedure,and application substantive review.Thirdly,cross border remedy rule should include the remedy conditions and remedy measures.According to the existing article V of the Enterprises Insolvency Law in China,the extension of the effect of the foreign main insolvency proceedings in China needs to meet the principle of reciprocity,not harm the public interest of our country,not harm the interests of our creditors.The article discusses how to identify and interpret these three conditions in the light of the judgment in foreign countries.The rules for remedy measures should be constructed from three aspects: the initiation,scope and proceeding.It is suggested to adopt a division model of recognition and remedy;allow the remedy to have a certain retrospective effect;the property scope of the assistive measures should be extend to all debtor's property in our country,the debtor cannot use the remedy to evade mandatory legal obligations;the method of remedy should be differentiated according to the nature of the foreign bankruptcy proceedings;remedy must be necessary,legal and consistency;introduce the temporary relief measures to strengthen the debtor's property protection.Finally,the parallel rule plays an important role in multiple cross-border proceeding management and coordination.Four parallel rule should be introduced to our system,which is cooperation rule,the virtual synthetic rule,bankruptcy agreement rule,and parallel coordination rules for the bankruptcy of multinational enterprise groups,so that we can have a mechanism to cooperate with foreign proceeding and safeguard the local creditors' interest.