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Fourthly, the SPC should issue judicial interpretations or guidelines to detail the criteria of social public interest. In theory this term is rather difficult to define. But even some brief demonstration from the SPC will be far better than not issuing any instructions at all.
2. Impacts of Recent Legal Developments in China
a. The New Company Law of 2005
As mentioned above, the corporate veil may be a vehicle for some shareholders to take unjustified or illegal advantages of a company, and avoid enforcement of arbitration awards. In the new Company Law promulgated in 2005 China officially introduced the institution of “piercing the corporate veil”. It is provided that shareholders shall bear joint and several liabilities to the company’s debts if they abuse the independent personality of a company and the limited liability of shareholders so as to avoid debts and seriously harm the interest of creditors of the company.(13) For enforcement-seeking parties this is a very welcome development. Nevertheless, it remains to be seen how well such an institution will function.
b. The New Bankruptcy Law
From June 1, 2007 the Enterprise Bankruptcy Law of the PRC (hereinafter referred to as the “New Bankruptcy Law”) will take effect. The New Bankruptcy Law is wildly regarded as a milestone of China’s market economy legislation like the Contract Law in 1998. The following is a brief description on how the New Bankruptcy Law may contribute to smooth enforcement of foreign related awards.
The New Bankruptcy Law specifically addresses the issue of fraudulent bankruptcy. It provides that the bankruptcy executor may motion to the court to invalidate the debtor’s fraudulent behaviors during one (1) year prior to the filing of bankruptcy case. Such fraudulent behaviors include transferring properties for no consideration or at an unreasonably low price, provide guarantee to unsecured debts, payment of immature debts, abandon of creditor’s rights, etc. (14) Under this scenario, the enforcement-seeking party may seek assistance from the bankruptcy executor to invalidate the debtor’s illegal behaviors that harms the enforcement.
The New Bankruptcy Law also establishes a new repayment priority. In the past, bankruptcy in China is largely regarded as a serious social matter; the repayment and arrangement of employees is far more important than legally repaying creditors. As a result, unsecured debts owned to employees may enjoy a priority against secured debts owned to financial institutions or other secured creditors. Under the New Bankruptcy Law, however, secured debts will enjoy priority against unsecured debts, including the bankrupt enterprise’s debts owned to employees.(15)
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