Building on recent judicial practice, the Draft EBL Amendment introduces a dedicated chapter on cross-border insolvency (Chapter 14, Articles 202–206)[1], replacing the 2006 EBL’s single, principle-based provision with a more structured statutory framework governing jurisdiction, recognition, and judicial cooperation.
1. Draft Article 202: Judicial Cooperation and Scope of Application
The new chapter begins with Draft Article 202, which sets out the foundational purpose and scope of China’s cross-border insolvency framework. The provision expressly authorizes Chinese courts to communicate and cooperate with foreign courts in matters concerning the recognition, assistance, and coordination of insolvency proceedings. The article also represents a conceptual shift: rather than referring, as the 2006 EBL did, to recognition and assistance of “judgments or rulings in foreign insolvency cases”, the Draft EBL Amendment adopts the Model Law’s terminology of a “foreign proceeding.”[2]
Notable, Draft Article 202 delineates the scope of application, providing that the cross-border insolvency chapter does not apply to financial institutions or debtors falling outside the substantive coverage of the Draft EBL Amendment.This exclusion reflects a cautious legislative posture toward financial-institution insolvency, an area characterized by heightened complexity and regulatory coordination and typically addressed through specialized resolution mechanisms rather than the general bankruptcy framework.
2. Draft Article 203: Jurisdiction, Non-Discrimination, and the Extraterritorial Authority of Administrators
Draft Article 203 is one of the most substantive and consequential provisions in this chapter. It expands the jurisdictional reach of Chinese courts in cross-border cases and provides an explicit statutory basis for Chinese bankruptcy administrators to seek outbound recognition and assistance.
First, Draft Article 203 establishes a clear statutory foundation for Chinese courts to exercise insolvency jurisdiction over debtors domiciled or habitually resident outside China. Under the 2006 EBL, insolvency proceedings may be initiated only with respect to debtors domiciled within China.[3] In practice, Chinese courts commonly treat the place of incorporation as the debtor’s domicile for jurisdictional purposes by default, absent evidence that the debtor’s principal business activities are located elsewhere. Where a debtor is incorporated outside China but maintains its principal place of business or main assets within China, courts applying traditional territorial jurisdiction principles may decline to accept the case. As a result, the insolvency proceeding may unfold in a foreign jurisdiction, limiting the ability of domestic creditors to participate effectively and potentially impairing their interests.[4]
In response to this structural gap, Draft Article 203 authorizes Chinese courts to assert insolvency jurisdiction where doing so would better safeguard creditor interests and assigns jurisdiction to the intermediate people’s court[5] with the closest connection to the debtor.[6] In this respect, the provision reflects a more discretionary and domestic protective jurisdictional model, one that departs from the asset- or domicile-based eligibility thresholds characteristic of U.S. bankruptcy law. Under U.S. bankruptcy law, eligibility to commence a case remains conditioned on the existence of a territorial nexus—residence, domicile, place of business, or property in the United States.[7] Although U.S. courts have acknowledged that, in modern reorganization cases, the presence of creditors in the forum and their willingness to participate may be more practically significant than the location of assets, such considerations become relevant only after the statutory eligibility requirements have been satisfied.[8]
Second, Draft Article 203 provides that if the court confirms that the foreign law does not contain discriminatory provisions, then foreign debtors and creditors may initiate or participate in Chinese insolvency proceedings, except foreign tax authorities and social insurance agencies, which are expressly excluded.[9] This limitation signals China’s intention to preserve sovereignty over fiscal claims—a familiar feature in many jurisdictions, including the U.S., where tax claims receive specialized treatment.[10]
Last, Draft Article 203 provides statutory recognition of the extraterritorial authority of Chinese insolvency administrators[11]. It authorizes a Chinese insolvency administrator to perform duties outside China, apply to foreign courts for recognition of a Chinese proceeding, seek recognition of the administrator’s own authority, and request assistance in performing duties.[12] This authority is essential for Chinese debtors holding assets abroad, where coordinated group restructuring requires international relief.
3. Draft Article 204: Recognition of Foreign Proceedings and Judicial Assistance
Draft Article 204 is the core operative provision governing the recognition and assistance of foreign proceedings under the Draft EBL Amendment. It authorizes interested parties to apply for recognition of a foreign proceeding that has been commenced in the debtor’s COMI.[13] Although the Draft EBL Amendment does not define COMI, its adoption marks the first time that the concept has been incorporated into Chinese insolvency legislation. Draft Article 204 further provides that applications for recognition must be filed with the intermediate people’s court where the debtor’s principal assets within China are located.
Carrying forward the basic recognition framework of the 2006 EBL, Draft Article 204 sets out the substantive conditions governing the recognition of foreign proceedings. Recognition is permitted only where the court determines that (a) the foreign proceeding does not violate Chinese laws, administrative regulations, or public policy; (b) recognition does not undermine national sovereignty, security, or social public interests; (c) recognition does not prejudice the lawful rights and interests of domestic creditors; and (d) the principle of reciprocity is satisfied.[14] Taken together, these requirements establish a multi-layered screening standard that is considerably broader than the Model Law’s narrow “manifestly contrary to public policy” exception[15] and affords courts substantially greater discretion than the recognition frameworks in jurisdictions that have adopted the Model Law.
Notably, conditions (b), (c), and (d) largely restate the recognition criteria already found in the 2006 EBL. The principal development lies in condition (a). Whereas the 2006 EBL required only that a foreign judgment or ruling not violate the “fundamental principles of the laws” of China, the Draft Article 204 expands the inquiry to encompass compliance with Chinese laws, administrative regulations, and public policy more generally. This expansion signals a more cautious approach to reviewing foreign proceedings.
Equally significant, Draft Article 204 adopts a discretionary approach to post-recognition relief.[16] Although Chinese courts are required to recognize a foreign proceeding once the statutory conditions are satisfied, the provision of relief remains discretionary. Moreover, the scope, content, and intensity of such relief are left largely undefined. As a result, the practical effectiveness of recognition may ultimately depend on how individual courts exercise this discretion, raising concerns about predictability and consistency.
Last, Draft Article 204 governs the distribution of the debtor’s assets located within China following recognition of a foreign proceeding. Upon recognition, such assets must first be applied to satisfy a defined hierarchy of locally privileged claims, including secured claims to the extent of collateral value, personal injury claims, consumer claims, employee wage claims and social insurance contributions, and outstanding tax liabilities.[17] Only after these priority claims have been fully satisfied may any remaining assets be distributed in accordance with the applicable rules of the foreign proceeding.
4. Draft Article 205: Prevention of Overpayment
Draft Article 205 establishes a statutory rule governing the treatment of unsecured creditors who have already received partial distributions in a foreign proceeding. Its core objective is to prevent overpayment, preserve pari passu treatment among creditors of the same priority, and mitigate distortions that may arise from parallel proceedings in multiple jurisdictions.
The operative rule is straightforward. Where a debtor is subject to insolvency proceedings both in China and abroad, and an unsecured creditor has received a percentage distribution in the foreign proceeding, that creditor may participate in distributions in the Chinese proceeding only after unsecured creditors of the same rank in China have received an equivalent percentage distribution.
5. Draft Article 206: Priority of International Treaties
Draft Article 206 provides that where an international treaty concluded or acceded to by China contains provisions inconsistent with the Draft EBL Amendment, the treaty shall prevail, except where China has entered a reservation. Although China has not concluded treaties specifically dedicated to cross-border insolvency, many of the bilateral treaties on civil and commercial judicial assistance that China has entered into with over thirty countries contain provisions on the mutual recognition and enforcement of civil and commercial judgments without excluding insolvency-related matters. These treaties have therefore provided an existing basis for judicial cooperation in cross-border insolvency cases.[18]Against this background, Draft Article 206 both affirms the primacy of applicable treaty obligations and clarifies their relationship with domestic bankruptcy law, while the reservation clause preserves China’s sovereign discretion to limit the application of treaty norms where necessary.
Although the Draft EBL Amendment does not adopt the Model Law, the cross-border insolvency chapter reflects a measured movement toward international practice. Draft Articles 202–206 incorporate several structural features commonly associated with modern cross-border insolvency regimes, including formal mechanisms for judicial cooperation, a COMI-based framework for recognizing foreign main proceedings, and rules that prevent double recovery by creditors. Nevertheless, the Draft EBL Amendment preserves a distinctly domestic orientation through strict and cumulative recognition conditions, continued reliance on reciprocity, and broad judicial discretion. This combination of convergence and constraint marks a significant departure from the largely principle-based approach of the 2006 EBL, while also framing the institutional and practical limitations.
[1] Draft EBL Amendment arts. 202–206.
[2] UNCITRAL Model Law, art. 2(a).
[3] 2006 EBL art. 3.
[4] Li Shuguang, New Trends in Cross-Border Insolvency and the Amendment of China’s “Enterprise Bankruptcy Law”, Shandong Univ. J. (Philos. & Soc. Sci.), 2025, no. 4, at 142 (China).
[5] Renmin Fayuan Zuzhi Fa (人民法院组织法)[Organic Law of the People’s Courts] arts. 2–3 (amended 2018) (establishing a four-tier people’s court system consisting of basic people’s courts, intermediate people’s courts, high people’s courts, and the Supreme People’s Court).
In practice, complex bankruptcy cases involving intricate creditor–debtor relationships and heightened adjudicatory difficulty are, as a general rule, subject to centralized first-instance jurisdiction in intermediate people’s courts, with basic people’s courts exercising jurisdiction only by exception. See 2018 SPC Minutes. In addition, to promote the professionalization of bankruptcy adjudication, specialized bankruptcy divisions have been established within intermediate people’s courts in major cities, including the Beijing Bankruptcy Court within the Beijing No. 1 Intermediate People’s Court.
[6] Draft EBL Amendment art. 203, para. 1.
[7] 11 U.S.C. § 109(a)
[8] See In re Aerovias Nacionales de Colom. S.A. Avianca, 303 B.R. 1 (Bankr. S.D.N.Y. 2003) (noting that, in reorganization cases, the presence of creditors and their submission to the court’s jurisdiction may be more practically significant than the presence of assets, provided that the eligibility requirements of 11 U.S.C. § 109(a) are met).
[9] Draft EBL Amendment art. 203, para. 2.
[10] See In re BearingPoint, Inc., 2010 Bankr. LEXIS 3964, 2010 WL 4622458 (Bankr. S.D.N.Y. Nov. 5, 2010) (holding that, under the revenue rule, two tax claims asserted by the Republic of Indonesia were disallowed in a Chapter 11 proceeding).
[11] In China, insolvency proceedings are administered by a court-appointed bankruptcy administrator, which may take the form of a professional intermediary institution (such as a law firm or accounting firm), a liquidation group composed of relevant stakeholders, or, in limited cases, an individual administrator. See 2006 EBL arts. 13, 22. The administrator is responsible for taking over and preserving the debtor’s assets, investigating the debtor’s financial affairs, managing and disposing of estate property, representing the debtor in litigation and arbitration, and proposing liquidation or reorganization plans, subject to court supervision. Id. arts. 25–27.
[12] Draft EBL Amendment art. 203, para. 3.
[13] See id. art. 204, para. 1.
[14] Draft EBL Amendment art. 204, para. 2.
[15] UNCITRAL Model Law, art. 6.
[16] Draft EBL Amendment art. 204, para. 2.
[17] See id. para. 3.
[18] Gao, supra note 20.