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Business Bankruptcy In China. The Five Fold Path.

By Dan Harris and Steve Dickinson

Will Lewis at Experience Not Logic dissects an Economist article to come up with four methods failing businesses in China employ when faced with having to shut down their business: 1. Informal Agreements With Employees and the Government. Work out an agreement with your employees and the relevant governmental bodies to allow you to shut down. 2. Court Supervised Bankruptcy Reorganization. The laws are too vague to give confidence to lenders seeking to lend to the troubled company, so this "relief" is virtually never undertaken. 3. Walk Away. Lock the gates and leave town and hope nobody follows. Hundreds of small Korean owned companies did this in Qingdao last year. 4. Informal Governmental Recapitalization. If you are too big or important to fail, get the local government to prop you up to save jobs and the local economy. I add my own fifth one, which is no doubt getting more difficult due to the credit crunch: 5. Get A Foreign Company To Buy You Out . Whenever a client would tell me that some local government was encouraging it to purchase or work with a local company, I would always encourage them to be wary. Many times, local governments encourage foreign companies to purchase or work with failing local companies in the hopes the foreign company's involvement will preserve local jobs.

Full post as published by China Law Blog on October 16, 2008 (boomark / email).