THE PROMISE OF bankruptcy reform in the mainland still hangs in the air but is as yet unfulfilled. A year ago the draft bankruptcy law, which passed its ninth reading in October 2004, was expected to be approved in the second half of 2005 and to come into effect this year. Unfortunately, there has been little progress in the past 12 months.
The proposed law is to give more protection to creditors and improve China's image by having bankruptcy protection laws that foreign investors can depend on.
But practising accountants in Hong Kong say the passage of the reform into legislation is being held up by two issues. The first is the rather delicate matter of whether to give priority to secured creditors or employees of the bankrupt company.
'The authorities have come to a complete deadlock about this issue,' said Rainier Lam, a partner at PricewaterhouseCoopers.
'On the one hand, some people say that if China wants a modern insolvency regime then secured creditors should have priority over employees.
'On the other hand, some people say never forget that China is a communist country. Accordingly, the welfare of employees must come first.'