The measure is aimed at protecting creditors and workers of insolvent firms China's top legislature yesterday announced passage of the much-anticipated Corporate Bankruptcy Law, which legislators said would provide protection to both creditors and workers of insolvent companies. The law, which took 12 years to make its way through the legislative process in the National People's Congress, will take effect on June 1 next year. It will replace the Interim Enterprise Bankruptcy Law, which was primarily applied to state-owned enterprises. The new law will apply to state-owned enterprises, private companies, financial institutions and foreign-invested companies. Members of the Standing Committee of the NPC, speaking at a news conference in the Great Hall of the People, said any enterprise declaring bankruptcy would pay its creditors first, and could then use any remaining assets to pay laid-off workers. 'The provision is a compromise that aims to protect both creditors and workers of insolvent enterprises,' Cheng Siwei, a vice-chairman of the Standing Committee, told Xinhua. Jia Zhijie , a member of the Standing Committee, said: 'The new law embodies the notion of putting people first, as it fully considers workers' interests. At the same time, it accords with standard international practice in better protecting lenders' interests.' The new law makes an exception for about 2,000 ailing state-owned enterprises, which will be allowed to declare a 'policy bankruptcy', in which laid-off workers will be paid first. Xinhua said 'policy bankruptcy' means that under a State Council stipulation these 2,000 state-owned enterprises which announce bankruptcy before June next year can be closed down with the aid of government funds and could pay laid-off workers first. All other companies are supposed to fall under the new rules. The bankruptcy law also puts more responsibility on the shoulders of senior management for bankruptcies, and restricts senior managers from taking senior positions in other companies for three years following a declaration of bankruptcy. Xinhua said under the new law, state regulators would be able to apply for bankruptcy for troubled financial institutions. Reports said that under certain circumstances, financial institutions could also apply to the courts for suspension of the bankruptcy process of such institutions. In earlier versions of the draft law, Xinhua said, only creditors and debtors could implement bankruptcy proceedings. NPC legislator An Jian said there was also a new provision for financial institutions with major financial difficulties, allowing them to qualify for either a trusteeship or takeover measures. 'Financial regulatory authorities may resort to a takeover or trustee measures during this process to guarantee that the process will be smoothly executed and to prevent a situation where a creditor may seek bankruptcy assets,' said Mr An. The new law also allows for the reorganisation of failing companies that could possibly be saved. Mr An said the reorganisation scheme applied to those companies that were insolvent and which had major financial difficulties, 'but whose fortunes may be revived'. Mr An said a reorganisation could help companies avoid the effects of a liquidation, such as unemployment and loss of income. THE MAIN POINTS The law applies to state-owned enterprises, private businesses and foreign firms. Insolvent firms will be required to use their assets to pay creditors first, and use the rest for laid-off workers. But about 2,000 state-owned enterprises declaring bankruptcy by next June can be closed under old rules State regulators are authorised to seek bankruptcy for failed banks, insurers and securities firms. Directors and managers of bankrupt companies can face charges for failing in their responsibilities.