Restructuring and Insolvency in China

Restructuring in China: the landscape in 2026

Restructuring in China has moved from the margins to the centre of corporate life. Years of stress in real estate, local government financing vehicles, small and medium-sized banks, and parts of manufacturing have produced a steady flow of defaults, workouts, court reorganisations and liquidations. At the same time, lawmakers are rewriting the rules. The Enterprise Bankruptcy Law, in force since 2007, is being comprehensively revised: a draft of 216 articles in 16 chapters received its first reading in September 2025 and its second reading in August 2026, with new rules on pre-reorganisation, cross-border insolvency and small businesses.

The scale of the system is still modest compared with the economy. Official figures presented with the draft revision showed that Chinese courts concluded more than 30,000 bankruptcy cases in 2024, around 0.5% of business deregistrations, and that reorganisation and settlement made up a small share of outcomes. Lawmakers openly described market exit through bankruptcy as falling short of what is needed. For foreign creditors, investors and directors, that means most restructuring in China still happens outside court, or through a mix of negotiation, government coordination and targeted court procedures.

This page introduces TRW & Co's restructuring and insolvency practice, explains the legal and institutional framework as at November 2026, and describes each area in which we help foreign and Chinese clients. It is general information about the Chinese legal environment; where PRC legal advice or representation in mainland proceedings is required, we work with licensed PRC law firms.

The legal framework for restructuring in China

The Enterprise Bankruptcy Law provides three formal procedures for enterprise legal persons: liquidation, reorganisation and settlement. A debtor that cannot pay debts as they fall due and whose assets are insufficient, or which clearly lacks the ability to pay, may apply; creditors can apply against a debtor that cannot pay debts as they fall due. Once a case is accepted, the court appoints an administrator, usually a law firm, accounting firm or liquidation firm from a court-maintained list, or a liquidation group in some cases, to take control of the debtor's assets and affairs.

Reorganisation is the main rescue tool. The debtor or administrator must submit a draft plan within six months of the reorganisation order, extendable by three months. Creditors vote in classes, typically secured claims, employee claims, tax claims and ordinary claims, and a class approves the plan if a majority in number of those present and voting, representing at least two-thirds of the claims in the class, vote in favour. The court may approve a plan rejected by some classes where statutory protections for those classes are met. Settlement is a lighter procedure for agreements with unsecured creditors.

In liquidation, secured creditors are paid from their collateral, then bankruptcy expenses and debts for common benefit, then employee wages and related claims, then social insurance and taxes, and finally ordinary claims, with distribution pro rata within each rank. Administrators can challenge certain transactions in the year before the case was accepted, such as transfers at undervalue and new security for existing unsecured debt, and individual repayments in the six months before acceptance where the debtor was already insolvent.

Judicial guidance fills many gaps. The Supreme People's Court (SPC) has issued interpretations on the Enterprise Bankruptcy Law, minutes on bankruptcy trial work in 2018, and minutes on bond dispute cases in 2020. Specialist bankruptcy tribunals operate in major cities, including the Shenzhen Bankruptcy Court established in 2019. Shenzhen also introduced China's first personal bankruptcy regime, in force since 1 March 2021, which is relevant to founders and guarantors of private companies.

Creditor tools before and outside bankruptcy

Most recoveries begin before any bankruptcy case. A creditor with a clear claim can sue or arbitrate and apply to the people's court for property preservation, freezing bank accounts, receivables, equity interests and real estate, usually against security. Judgments and arbitral awards are enforced through court enforcement divisions, which can list defaulting debtors as dishonest judgment debtors and restrict high consumption by their legal representatives. Secured creditors can apply for a simplified procedure to realise security over collateral without full litigation, and pledges over equity interests and receivables are registered on national systems that should be searched before lending.

These tools change once a bankruptcy case is accepted. Individual enforcement is suspended, preservation measures are lifted in favour of the administrator, and interest on unsecured claims stops accruing. Secured creditors keep their priority but may find enforcement paused during reorganisation. A creditor's choice is therefore often about timing: whether to press individual enforcement, to petition for bankruptcy itself, or to support a negotiated restructuring.

Key reforms and developments to watch

Several developments in 2025 and 2026 are reshaping restructuring in China. The table below summarises the ones we see as most important for international clients.

The draft revision of the Enterprise Bankruptcy Law deserves particular attention. Its first draft introduced a dedicated chapter on cross-border insolvency, addressing the extraterritorial effect of Chinese proceedings, the jurisdiction of Chinese courts and the recognition of foreign proceedings, and a chapter of special rules for micro and small enterprises. The second draft added a section on pre-reorganisation consultation and refined provisions on individual bankruptcy, bankruptcy protection and reorganisation. The final text and its effective date should be checked when the law is adopted.

Where distress is concentrated

The demand for restructuring in China is uneven across the economy. Understanding where stress sits, and how the state is responding in each area, helps creditors and investors judge which tools are likely to be used and how much room there is for negotiation.

Real estate. Since 2021, many private developers have defaulted on offshore and onshore debt. Policy has prioritised the delivery of pre-sold homes, through city-level coordination mechanisms that channel bank finance to qualifying projects, local task forces and, in some cases, court procedures. Home buyers who paid in full rank ahead of contractors and mortgagees under SPC guidance, which significantly affects lenders' recoveries at project level.

Local government financing vehicles. In November 2024 the National People's Congress Standing Committee approved an increase in local government debt limits to refinance hidden debt, part of a multi-year programme to replace higher-cost financing vehicle borrowing with official bonds. For creditors, this has meant extensions, refinancing and swaps rather than formal insolvency, but restructuring of weaker financing vehicles continues on negotiated terms.

Financial institutions. Small and medium-sized banks, particularly rural banks, have been consolidated through mergers and absorption by larger institutions, and some trust companies have entered restructuring or bankruptcy following losses on real estate exposure. These cases engage financial regulators directly and follow special procedures.

Industry and technology. Overcapacity and intense price competition in sectors such as solar manufacturing, batteries and some automotive supply chains have produced distress among private companies, often with complex cross-border supply and financing relationships. Policymakers have signalled efforts to curb disorderly price competition, while courts have used reorganisation to bring in strategic investors and preserve productive capacity. Our pages on automotive and industrials discuss sector issues.

Our restructuring practice areas

Our restructuring and insolvency practice covers the full cycle of distress, from early warning signs to formal proceedings and the recovery of value. Each area below has a dedicated page.

Out-of-court and cross-border restructuring

Workouts, creditors' committees, standstills, restructuring support agreements, offshore schemes and plans, and recognition between the mainland, Hong Kong and other jurisdictions. See out-of-court and cross-border restructuring.

Court-appointed administrators and liquidators

How administrators and liquidators are appointed and supervised in the mainland and Hong Kong, their powers to investigate and claw back transactions, and how foreign stakeholders work with them. See court-appointed administrators and liquidators.

Creditor representation

Protecting foreign banks, bondholders, trade creditors and lessors: claim filing, creditors' meetings and committees, voting strategy, challenges to plans, and enforcement of security. See creditor representation.

Distressed investment and defaulted bonds

Buying debt and equity in stressed Chinese issuers, onshore and offshore bond defaults, bondholder meetings, trustee issues and litigation over credit support such as keepwell deeds. See distressed investment and defaulted bonds.

Non-performing asset disposal

Acquisition and resolution of non-performing loans and other distressed assets, the role of national and local asset management companies, pricing, transfer and enforcement. See non-performing asset disposal.

Distressed real estate

Unfinished projects, priority between home buyers, contractors and mortgagees, developer restructurings, project-level rescue and acquisitions of distressed property. See distressed real estate.

Corporate rescue and bail-outs

Strategic investor processes in reorganisation, state-supported rescues, debt-for-equity swaps, new money financing and turnaround governance. See corporate rescue and bail-outs.

The cross-border dimension

Much restructuring in China involving foreign parties is cross-border by nature. Red-chip and VIE-structured groups typically have listed holding companies in the Cayman Islands or Hong Kong, offshore bonds governed by New York or English law, and operating assets in the mainland. Offshore creditors are structurally subordinated to onshore creditors of the operating subsidiaries, and offshore court processes reach mainland assets only to the extent they are recognised there.

Mainland China has not adopted the UNCITRAL Model Law on Cross-Border Insolvency. The current law allows recognition of foreign proceedings on the basis of treaties or reciprocity, and in practice recognition has been rare outside the Hong Kong pilot established by the SPC and the Hong Kong government in May 2021. Hong Kong itself still lacks a statutory corporate rescue procedure, so schemes of arrangement and provisional liquidation remain the main tools there. Large developer cases have tested these mechanisms: China Evergrande was ordered to be wound up in Hong Kong in January 2024 and later delisted, while Country Garden completed an offshore restructuring sanctioned by the Hong Kong court in December 2025.

For Chinese companies abroad the issues reverse. Overseas subsidiaries of Chinese groups may enter local insolvency procedures in Europe, South-East Asia, Latin America or Africa, raising questions about guarantees from Chinese parents, Chinese policy bank lending and the recognition of foreign orders in China. Our pages on overseas compliance for Chinese enterprises and cross-border litigation and enforcement of judgments cover related issues.

A practical roadmap for stakeholders

Every case is different, but experience suggests that the same questions decide most outcomes. Whether you are a lender, bondholder, investor, supplier, director or shareholder, the following sequence helps frame decisions about restructuring in China.

1. Know your claim. Identify the obligor, guarantors, governing law, dispute clause, security and its registration status, and any credit support such as keepwell deeds or equity interest purchase undertakings.
2. Map the group. Understand where assets and cash actually sit, how value can move between entities, and which regulators control those movements, especially for foreign exchange.
3. Assess the counterparty's options. Consider whether local government support, a strategic investor, a creditors' committee or a court procedure is most likely, and how each affects your ranking.
4. Protect your position. Use preservation, set-off, security enforcement and information rights early, before a bankruptcy case freezes individual action.
5. Engage collectively. Join or form creditor groups where interests align; coordinated groups have more influence on plans, valuations and governance.
6. Plan the exit. Decide whether to hold, sell, convert to equity or litigate, and model recoveries under each scenario, including liquidation.

A short example shows how these steps play out. A European equipment lessor has leased production lines to a mainland solar manufacturer, with a guarantee from the manufacturer's Hong Kong parent. Rentals fall into arrears and the manufacturer's banks form a creditors' committee. The lessor confirms that its ownership of the equipment is registered in the unified registration system for movable property and rights security interests operated under the People's Bank of China, which since 2021 has covered financial leases, preserves its rights by notice, and joins discussions with the committee.

When the manufacturer later applies for reorganisation, the lessor can argue that the leased equipment is not part of the debtor's estate, or negotiate continued use at a revised rental as part of the plan, while pursuing the Hong Kong parent under its guarantee in parallel.

The outcome in such a case depends less on the headline law than on registration, timing and coordination. Had the lease not been registered, the lessor might have been unable to assert its ownership against third parties and could have found itself treated much like an unsecured creditor in the reorganisation, and had it waited until the reorganisation order, its room to negotiate would have been narrower.

Common mistakes include waiting for formal proceedings before acting, relying on unregistered guarantees, misunderstanding the ranking of home buyers and contractors in real estate cases, and treating offshore and onshore processes as separate. Our bankruptcy and restructuring in China 2026 review looks at the year's developments in more detail.

How TRW & Co helps

TRW & Co's Shenzhen representative office advises international and Chinese clients on restructuring in China from a cross-border perspective. We advise debtors, creditor groups, investors, directors and administrators on English law, Hong Kong law and other non-PRC laws governing financing, bonds, guarantees and restructuring agreements; design workout, scheme and recognition strategies; model recoveries; and lead negotiations between onshore and offshore stakeholders. Where PRC legal advice, mainland court procedures, claim filings, regulatory approvals or representation before mainland courts and creditors' meetings are required, we work alongside licensed PRC law firms and court-appointed administrators and coordinate the overall team. To discuss a situation in confidence, please contact us.