First step toward personal bankruptcy system

Wenzhou Intermediate People's Court and Pingyang County People's Court released details of China's first natural person bankruptcy case on Oct 9, and this has drawn a great deal of attention.

The Enterprise Bankruptcy Law and relevant judicial interpretations limit the scope of application of the bankruptcy system to enterprises with legal personality, and ignore natural persons. Personal bankruptcy is a legal procedure in which a natural person is declared insolvent and incapable of paying his/her debts. The case concerned involved a single shareholder in a company in Wenzhou that went bankrupt, the debtor whose surname is Cai shouldered a joint liability guarantee responsibility of 2.44 million yuan ($338,400).

Considering Cai did not have the actual solvency, four creditors agreed to give up the right of recourse on the condition that Cai repays about 32,000 yuan in 18 months. This case is the pilot exploration of a personal bankruptcy system and it will play a demonstration role in the establishment of China's natural person bankruptcy system.