Shareholder primary and corporate reorganization: a comparison of US and Chinese law

This article examines shareholder participation in the corporate reorganization process in China, in general, and in the debtor-in-possession scheme, in particular, and compares China's model to the model employed in the USA. The ostensible legislative objectives of the Chinese reorganization reflect overall the aversion of the Chinese public towards risk taking and (failed) entrepreneurship and empathy towards creditors. However, the actual provisions themselves do not accord with these objectives. Under the Chinese regime, shareholders are afforded the same level of power as creditors in initiating proceedings and voting on the plan. Furthermore, the Chinese debtor-in-possession scheme is subject to the discretion of the judiciary to a greater extent than in the US model. Further, the adoption of an administration process has the effect of making it a judicially managed debtor-in-possession scheme. This article provides an analysis that accounts for this divergence from the stated legislative objectives because the various levels of the Chinese government are typically the major shareholders involved.