Shenzhen drafts China’s first personal bankruptcy laws as virus strains economy

SHENZHEN, China (Reuters) – Shenzhen has drafted China’s first personal bankruptcy laws as the southern city grapples with wider economic issues stemming 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 disease (COVID-19) outbreak, Guangdong province, China May 17, 2020. REUTERS/Martin Pollard

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

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

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

Once approved, applicants will spend at least three years in a period of supervised “probation” before some or all of their debts are cleared. During this period, their spending will be monitored, according to the draft rules.

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

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

“After the outbreak, it’s unclear how many business owners will be forced into the country’s defaulter list if they fail,” said Yin Yanrong, a partner at law firm Guangdong Baocheng.

Creditors who owed more than 500,000 yuan (70,228.66 dollars) may also apply to the court for the compulsory liquidation of the debtor.

Several lawyers told Reuters they expected other regions to hold similar trials. The move also aims to rid the economy of risks such as credit-fueled personal consumption and bubbles like that of Shenzhen’s hot property market.

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

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

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