Due to the Corona pandemic and its consequences, many Chinese companies are unable to meet their contractual obligations or are insolvent. GTAI (Germany Trade and Invest) has summarized what companies with affected business partners in China need to know about the legal basis there.
Insolvent contractual partner – insolvency law in China
- There is no obligation to file within a certain period of time
- Insolvent after bankruptcy proceedings
- Legal basis: Corporate Bankruptcy Law of August 27, 2006
- No nationwide legal regulations for private insolvency
- Bankruptcy proceedings in China also affect debtor assets abroad.
What (foreign) companies can do:
- Bankruptcy petition can also be filed by a foreign creditor/debtor
- Reorganization, bankruptcy liquidation and composition can be applied for
More info as well as useful links can be found on the GTAI website.
Non-performance of contracts due to “force majeure” in Chinese law
If a Chinese business partner can no longer fulfill its contractual obligations, it must be examined whether a release from liability due to “force majeure” can be asserted.
To do this, the contract must first be examined: Which choice of law clause is it subject to? Does it contain a force majeure clause? Has an epidemic been excluded? The “force majeure clause” has been newly introduced in this context. It regulates in which cases exemption from liability exists or not. Furthermore, evidence of the influence of force majeure must be provided. If the purpose of the contract cannot be achieved due to force majeure, the parties can terminate the contract. This is regulated by the Chinese Civil Code in Article 563 Paragraph 1 No. 1.
For more information please visit the GTAI website.
Source: GTAI
