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Understanding the Enterprise Bankruptcy Law (2006) is enhanced with awareness of pre-existing legal provisions. Two decades earlier, the Enterprise Bankruptcy Law (For Trial Implementation) 1986 (EBL 1986), had been enacted, but with a very narrow remit. This cautious approach subsequently dominated the way bankruptcy laws were implemented in China. Apart from some provincial rules, prior to the enactment of the EBL 1986 there had not been a broad-ranging bankruptcy law since the 1949 founding of the PRC;1 during this period it was left to the government’s planned economy rather than ‘market socialism’ to determine the fate of SOEs. The drafting process for the Enterprise Bankruptcy Law 2006 took almost two decadesbefore the new more comprehensive law was enacted to replace the 1986 EBL (see Shi 2007; Booth 2008; Tomasic and Wang 2006). The EBL 1986 had been amended in 1994 to better align legal provisions with the newly established socialist market economy (Booth 2008). In updating the EBL 1986, China showed a willingness to embrace international bankruptcy norms (Tomasic 1998) to improve its economy, notwithstanding the fear of massive unemployment associated with the likely rigorous enforcement of bankruptcy law upon under-performing and often insolvent SOEs (Halliday and Carruthers 2009). At the same time, to take advantage of foreign ‘best practice’ in bankruptcy law,China’s law reformers examined bankruptcy regimes in Australia, Britain, France, Germany and the United States to help fashion their own new law. This process was also used to gain time while the internal political battle was fought between law reformers responding to the rise of the market economy and more ideologically driven hard-liners who saw bankruptcy law as a foreign set of values that were in conflict with traditional socialist ideas (Tomasic and Little 1997: 48-56). During the decade or so before the enactment of the Enterprise Bankruptcy Law2006 (EBL 2006), Chinese law reformers participated in many international bankruptcy law reform meetings, including the annual meetings of a regional forum for the discussion of insolvency law reform in Asia set up by the OECD in collaboration with the Asian Development Bank, Japan and Australia (the Forum for Asian Insolvency Reform).2

(1994). Disclosure and the Regulation of Misleading and Deceptive Conduct in Relation to Prospectuses in Hong Kong. Asia Pacific Law Review: Vol. 3, No. 2, pp. 17-32.

The global financial crisis demonstrated the fragility of the widely accepted faith in prevailing corporate governance ideas and the adequacy of legal mechanisms that were available to buttress these ideas. This was very evident from the fate of British banks after the failure of Northern Rock plc in late 2007 and the subsequent government action to rescue other leading British banks (Treasury Committee, 2008b). After more than two decades of debate in regard to the improvement of corporate governance mechanisms in Britain, it became evident that many of the ideas that had been advanced during this debate have been found to be wanting and were in need of revision or even replacement; these earlier debates had largely sought to legitimize a self-regulatory approach to corporate governance and a minimal involvement of governments in markets

The recent Global Financial Crisis (GFC) threatened to bring world financial markets to a halt. It is now coming to light that in the run-up to, and at the height of, the GFC, investment banks and other participants in the financial markets acted unethically as well as imprudently. This article takes a closer look at this unethical behaviour and the way in which it constitutes a failure of trust. The article defines trust and outlines why it is important in the regulation of financial markets. It then looks at three examples of breakdowns or failures of trust in the run-up to the financial crisis. The article concludes by arguing that trust is important in commercial relationships at both the intra-firm level (the relations between the different constituents of the firm) and the inter-firm level (the relations between the firm and other firms).

On the 6th January 2011, the European Commission’s DG Internal Market and Services issued an ambitious consultation document, Technical Details of a Possible EU Framework for Bank Recovery and Resolution which elaborates further on its bank rescue proposals. This paper critically reviews these proposals. Following the receipt of responses to this consultation, the EU proposes to release draft bank rescue legislation by June 2011. A harmonised European financial institution rescue regime is proposed to build upon national laws and national supervisory bodies. The proposed resolution framework will require adherence to seven key principles, including the reduction of moral hazard and risk reduction. Other principles include an emphasis upon prevention and preparation; providing credible resolution tools, enabling fast and decisive action by authorities and contributing to a smooth resolution of cross border groups. Investment firms that are not currently subject to prudential regulation will not be covered, but there will be new group resolution procedures. Due to the influence of prevailing laissez-faire market ideas, little room seems to exist in these proposals for continued state involvement in the banking sector, even though excessive adherence to these narrowly market-oriented ideas was a cause of the recent global financial crisis; some other parts of the world were able to more effectively weathered the storm of the recent financial crisis with some degree of government involvement in markets.

PurposeThe financial crisis has been something of a turning point in the regulatory response to financial crime around the world. The failure of light‐handed regulation and risk assessment by both industry and regulators made the operation of financial regulatory agencies almost untenable, often leading to calls for their replacement by more effective agencies. The purpose of this paper is to assess the nature of this regulatory challenge.Design/methodology/approachThe paper discusses some of the case studies that have emerged from the dark side of regulatory and enforcement policies in recent times.FindingsA culture of minimal regulation of financial markets meant that many undesirable practices (such as insider trading, foreign corrupt practices, tax avoidance, money laundering and other frauds) were able to avoid detection until public outrage led to regulatory and prosecutorial agencies being prompted into action following the collapse of financial markets.Research limitations/implicationsMore detailed studies of particular institutions will be necessary; this will become possible as the current financial crisis subsides.Originality/valueThis paper explores some of the factors behind this state of affairs and makes policy recommendation in regard to the need for more effective internal controls and monitoring measures within the modern financial corporation.

Introduction, Guanghua Yu Part 1: Public Law 1. Constitutional Judicialisation and Popular Constitutionalism in China: Are We Ready Yet?, Jianfu Chen 2. Institutionalizing Criminal Process in China, Hualing Fu Part 2: Civil Law 3. Public Regulation of Private Relations: Changing Conditions of Property Regulation in China, Pitman B. Potter 4. The Law of Property and the Evolving System of Property Rights in China, Albert H.Y. Chen 5. The Role of Mortgages: A Case for Formal Law, Guanghua Yu 6. Transplantation and Transformation: 30-Year Development of China's IP System, Yahong Li Part 3: Corporate Law 7. Who Writes Corporate Law Rules? The Making of the Piercing the Corporate Veil Rule as a Case Study, Chao Xi 8. Looking at Corporate Governance in China's Large Companies: Is the Glass Half Full or Half Empty?, Roman Tomasic Part 4: The Regulation Of Banking And The Stock Market 9. China's Banking Reforms at the Time of Global Economic Recession, Yuwa Wei 10. The Political Logic of Securities Regulation in China, Jiangyu Wang Part 5: Procedural Law 11. Civil Justice Reform with Political Agendas, Xianchu Zhang 12. China's Arbitration: Restricted Reform, Weixia Gu Part 6: Law And Regulation With International Implications 13. Environmental Law and Policy in China: Responding to Climate Change, Jolene Lin 14. WTO and Developing Countries: The Case for Liberalization of Telecommunications Services in China, Yun Zhao

This chapter considers the transaction avoidance laws contained in the Enterprise Bankruptcy Law 2006, 'EBL 2006'. It presents the transaction avoidance laws that were applicable under previous Chinese law before concentrating on the provisions of the EBL 2006. It then examines each type of voidable transaction in turn, with some brief comparisons to provisions to be found in insolvency systems in other countries where appropriate. The transaction avoidance laws, if properly enforceable, may enable the administrator to restore the estate to a value approaching that which it would have had if the transaction had not taken place. Mechanisms to support the fair distribution of the assets of insolvent companies were an area in which the Chinese law was hitherto largely ineffective. The provision of transaction avoidance laws is one thing; their effective enforcement is another and this is likely to be a key test of the effectiveness of the new system.

This paper examines insolvency law and practice in six Asian jurisdictions and is based on a socio-cultural study of the perceptions and practices of leading insolvency practitioners, officials and business people. The paper explores specific manifestations of “rule of law” as reflected in the character and operation of insolvency regimes in six Asian legal systems. We look in particular at insolvency practice in China, Taiwan, Hong Kong, Singapore, Malaysia and Indonesia; the research involved the conduct of fieldwork in each of these six legal systems. This consisted in the collection of relevant legal materials on each jurisdiction and the conduct of interviews with key insolvency practitioners and officials; a total of 115 in-depth interviews were conducted (see further, Tomasic and Little, Insolvency Law & Practice in Asia, Hong Kong, FT Law & Tax, 1997). It is clear from this research that the rule of law has a wide variety of meanings and that legal practices in the six legal systems studied, often depart from Western notions of the rule of law in many significant respects. In some jurisdictions, insolvency law forms part of a new commercial law which justifies executive control and management of the economy and private business activities. In most jurisdictions, judicial independence is not securely institutionalised, there is a high level of avoidance in recourse to formal insolvency law by indigenous businesses, and there is widespread reliance on extra-legal, informal and even illegal processes to resolve corporate insolvencies. This paper seeks to explain the conceptual diversity of the rule of law as found in Asia and the resort to practices not in keeping with the Western concept of the rule of law. This reflects the impact of Asian legal ideologies, cultural values and social and governmental institutions on an essentially Western legal doctrine. This has often meant that the idea of the rule of law has been reformulated in Asia into rule by law or a less nuanced version of the rule of law, as has most clearly happened in China and Singapore. The paper further suggests that any analysis of the rule of law in Asia must take into account the diversity of Asian cultural, social and political contexts and the legally pluralistic character of these jurisdictions. Sometimes, local cultural values, such as the Confucian ethic, run counter to values inherent in the rule of law idea.

The ownership and control of government owned companies presents a major challenge for the integrity of established corproate law ideas regarding accountability of directors and the independence of government owned companies. Drawing upon experience from China and Australia, this article discusses some of the key corporate governance tensions that have emerged from the corporatisation of state owned assets. The attempt to uncritically apply private sector ideas to the corporatisation of state owned and controlled companies is fraught with difficulties that are discussed in this article. The article also examines attempts to place state owned companies on a sounder conceptual footing through changes in their culture brought about by adopting and embedding guidelines and standards, such as the recent OECD Guidelines on the Corporate Governance of State-owned Enterprises.

This paper reports on a comparative study of insolvency law administration in six Asian legal systems. This project draws upon empirical methods and seeks to locate different bodies of corporate insolvency law within particular cultural traditions and cultural responses to business debt in six Asian legal systems: China, Hong Kong, Indonesia, Malaysia, Singapore and Taiwan. This project was funded by the Australian Research Council. Face to face interviews were conducted by team members in all six jurisdictions. This paper is part of a larger study (Tomasic and Little, Insolvency Law & Practice in Asia, Hong Kong, FT Law & Tax, 1997) which seeks to contribute to an understanding of the theory and practice of insolvency law in various Asian legal systems. As companies increasingly undertake business activity across the Asian region they need to be sensitive to different approaches to corporate insolvency in different legal systems. The effects of cultural diversity are considered given the differing social contexts in which sometimes similar insolvency law rules operate in the Asian region. The research examines how local legal culture, such as Confucian and Islamic traditions, shape national approaches to corporate insolvency law and practice in transitional and more advanced economies.

The decision of the England and Wales Court of Appeal (Civil Division) dismissing the appeal by Northern Rock plc shareholders following the nationalization of Northern Rock and the subsequent compulsory acquisition of their shares is an important statement of the role of legal mechanisms in periods of major financial crises. The Court’s rejection of the appeal in SRM Global Master Fund LP, RAB Special Situations (Master) Fund Ltd, Dennis Grainger & Others v The Commissioners of Her Majesty’s Treasury [2009] EWCA Civ 788, identified key drivers of the legal response and highlighted the relatively weak position of shareholders of banks, such as Northern Rock, that failed during the global financial crisis. These key drivers have included the legislative framework which was put in place by the UK Parliament following the passage of the Banking (Special Provisions) Act 2008. In the end, this meant that the resolution of the appeal largely became a matter of statutory interpretation. Also driving the legal response was the lore of central banks which act as lenders of last resort (LOLR) in times of crisis; the Court of Appeal was to turn to this body of economically inspired principles to provide the basis for its decision when it accepted the centrality of this body of thought, as expressed by former Governor of the Bank of England Lord George. A 1993 speech delivered by Lord George served to set out the principles that the appeal court regarded as fundamental in this case. In doing so, the Court recognized the importance of economic concepts such as “moral hazard” as providing a basis for the policy that had been adopted by the Bank of England and the UK Government. Another notable feature of this appeal is that the principal legal foundations of the shareholders’ action were not found in insolvency or company law principles, but in the application of European human rights law as developed by the European Court of Human Rights; in particular, the decision rested on the interpretation of Article 1 of the First Protocol (A1P1) of the European Convention on Human Rights which guarantees the protection of private property.

Tax practitioners play a pivotal role in the Australian taxation system. Not only do they act as intermediaries between the Australian Taxation Office (ATO) and the majority of taxpayers, especially business taxpayers, but they also influence the ethical climate and level of compliance with taxation laws. This article discusses this role by reference to data derived from an empirical study of tax practitioners and tax officials from around Australia. The study sheds light on the nature of the compliance problem and the factors which affect the administration of Australian taxation law generally.

This article reports findings from a national empirical study of insider trading in Australia. The study is based upon in-depth interviews conducted with almost one hundred key actors involved in the Australian securities industry. The interviews were conducted in Sydney, Melbourne, Perth and Canberra and involved stock exchange officials, brokers, merchant bankers, lawyers in large law firms, various other financial advisers and observers as well as national, state and territory corporate regulatory officials. Although it was not the intention of this study to seek to quantify the extent of insider trading, something which is probably not possible to achieve, it was found that as insider trading was seen by most observers to be commonplace in Australia, this was likely to be a good indicator of its extent. This research also found mat insider trading tended to be more prevalent in certain situations, such as in takeovers and in closely held corporations, and that it was more likely to occur amongst particular groups involved in the Australian securities industry.

Creditor participation in insolvency proceedings has been widely seen as an essential feature of any well-developed insolvency administration system. This notion has been expressed in different ways in national systems of insolvency law, ranging from principles such as the pari passu rule, to the holding of creditor meetings to decide matters of importance in the insolvency proceedings, to the role of insolvency representatives in such proceedings. Over the last decade we have seen the emergence of a number of multilateral efforts to more clearly articulate insolvency norms or "best practice" guidelines. These have included such outcomes as the Asian Development Bank’s 2000 Good Practice Standards, the World Bank and IMF’s 2005 draft Principles for Effective Insolvency and Creditor Rights Systems, and the monumental 2004 UNCITRAL Legislative Guide on Insolvency Law (the UNCITRAL Guide). The emergence of these multilateral statements witnesses the regional and global significance of insolvency laws and the role that they play in providing a foundation for a market economy. This paper will examine the creditor participation standards evident in this body of international best practice norms. Ultimately, it is argued that creditor participation in insolvency is an essential element in a rule of law based market economy.

Effective creditor participation in insolvency proceedings has been widely seen as an essential feature of any well-developed insolvency administration system. This notion has been expressed in different ways in national systems of insolvency law, ranging from principles such as the pari passu rule and the conduct of creditor meetings to decide matters of importance in the insolvency proceedings, to the role of insolvency representatives in such proceedings. The last decade has seen the emergence of a number of multilateral efforts to more clearly articulate insolvency norms or 'best practice' guidelines; these have included such outcomes as the Asian Development Bank’s 2000 Good Practice Standards, the World Bank and International Monetary Fund’s 2005 draft Principles for Effective Insolvency and Creditor Rights Systems and the monumental 2004 UNCITRAL Legislative Guide on Insolvency Law. The emergence of these multilateral statements has recognised the regional and global significance of insolvency laws and the role that they play in providing a foundation for a market economy. This article examines the creditor participation standards evident in this body of international best practice norms. Ultimately, it is argued that creditor participation in insolvency is an essential element in a rule of law based market economy.

China has experienced dramatic developments in the growth of a rule-based approach to its securities market and the operation of corporate law since the early 1990s. These efforts sought to keep pace with the speed at which the market economy has grown in China over this time. However, the development of a sophisticated system of corporate law and corporate governance has tended to lag well behind rapid market developments, even in regard to the most advanced sector of China’s major stock exchange listed companies. This paper seeks to assess the nature of current patterns of law and regulation of this sector by reference to data derived from China’s top 100 listed companies. This paper was made possible by funding from the Australian Research Council of a project funded study led by Roman Tomasic, Neil Andrews and Jian Fu. This paper explores this theme by reference to findings from face to face interviews undertaken by the authors in China.

China’s corporate insolvency law regime has been in a state of transition for a relatively long period of time, with the major, but temporary, body of legislation dealing specifically with enterprise bankruptcy having been passed in 19861 (for trial implementation). China’s existing insolvency law is inadequate; this has become especially clear since China’s accession to the World Trade Organization (WTO) and the imminent opening up of its markets to permit foreign banks to conduct businesses directly with domestic customers from 2006. A new draft of China’s Bankruptcy Law was considered by the 10th session of Standing Committee of the National People’s Congress (NPC) on 21 June 2004.2 Given the recent passage of amendments to the PRC Company Law and Securities Law, it is anticipated that the passage of the much-debated new PRC Bankruptcy Law is imminent. This paper highlights some of the inadequacies of China’s existing insolvency law regime and examines whether the new draft law will assist China in dealing with these issues and help to facilitate China’s becoming a more developed market economy.

The corporate collapses of recent times, culminating with massive collapses such as those of Enron in the United States and HIH in Australia, have suggested to many that there are major systemic problems facing the way in which corporations and corporate governance operate. Some conduct associated with these collapses has been clearly criminal in character, such as the actions of accounting firm Anderson in shredding audit related papers after a regulatory investigation into Enron had been announced. The use of off-balance sheet structures by Enron so as to avoid adequate disclosure or transparency has also offended basic corporate governance notions. Some conduct associated with the collapse of pivotal institutions such as these have led to the disqualification of directors and even to the virtual disappearance of one of the world’s great accounting firms. Recent corporate collapses have also struck at the basis of investor and public confidence in previously highly regarded companies and professional firms and have led to calls for a reassessment of ethical standards, auditing practices, executive reward structures, governance practices and disclosure principles. This article reviews some of the factors which have led us to this bleak juncture.

Insolvency law reform has been an on-going effort in the People’s Republic of China for much of the last two decades. Since the enactment of the Enterprise Bankruptcy Law (for Trial Implementation) in 1986 there has been debate in this area about key principles. The 1986 law had limited application and there was widespread recognition in China of the need for a more broadly based insolvency statute which served to facilitate both the reorganisation and the winding up of companies and other business entities. But, it was not until August 2006 that a more modern Enterprise Bankruptcy Law was enacted in China. Various drafts circulated during the decade or so before the passage of the 2006 law. These drafts and the current Law drew heavily upon Western insolvency ideas and sought to apply these to the particular Chinese experience. The need for the enactment of this new legislation was apparent in view of the serious debt problems of many PRC state-owned business enterprises. This article examines key insolvency principles which have emerged through this law making process. The law also drew upon insolvency concepts found in other recent PRC laws which have dealt with insolvency issues, such as the 1993 Company Law. A number of law reform suggestions are made in this article. However, the key to an effective insolvency law will be the creation of an effective legal and administrative infrastructure which will ensure that insolvency administrations are undertaken economically, expeditiously and fairly. The enactment of the new insolvency law is but the first step in this process.

This paper reviews findings from one of the first empirical studies of the phoenix company problem in Australia. The phoenix company phenomenon is a disturbing one, especially as it seems to reflect the emergence of a business culture in which a substantial number of businesses see the payment of debt as being optional, as some insolvency practitioners have begun to suggest. Whilst changing corporate and business cultures is as important as changing or simplifying corporate laws and vigorous law enforcement, any regulatory compliance program needs to pay particular attention to changing attitudes to debt and debt enforcement in Australia. This research suggests that unless grass roots activity such as the use of phoenix companies is adequately attended to, the broader corporate culture may be affected and lead to the further spread of phoenix type attitudes into other areas.

This paper reports upon an empirical study of the place of law and legal duties in the governance of Australian public companies. A fuller discussion of the findings from this empirical research project is to be found in: Tomasic and Bottomley, Directing the Top 500: Corporate Governance and Accountability in Australian Companies, (Sydney, Allen & Unwin, 1993). The debate concerning the legal duties and obligations of management of corporations became quite heated in Australia following the corporate excesses of the 1980s. Many corporations exploited the looseness of the legal rules for the control of business; weak regulatory structures also operated to the disadvantage of shareholders and creditors. The study is based upon data derived from a series of interviews conducted with officers from the top 500 Australian listed public companies. Interviews were held with 95 public company directors and 55 advisers of public companies. The adviser group comprised leading corporate lawyers, liquidators, auditors and corporate regulators. Interviews took place in five Australian state capital cities and all interviews were undertaken personally by the principal investigators. This article examines perceptions of corporate citizenship held by directors and goes on to contrast these with actual corporate decision making in the context of the legal requirements placed upon directors of Australian companies. The article also examines the structure of Australian corporate decision making processes by the board of directors.

Prior to the establishment of the non-judicial Australian Takeovers Panel in 2001, takeover litigation before the courts rarely led to an appeal to a higher court; for commercial reasons, many cases were settled before a final judicial resolution was reached. Before the introduction of the Takeovers Panel procedure in Australia, takeover litigation could not be adequately understood without reference to the commercial context in which the cases arose and for this reason, the backgrounds of judges and the level of commercial experience of judges were important and influential in achieving commercially sensible results from the courts. This paper by Roman Tomasic and Brendon Pentony reviews findings from an Australian Research Council funded national empirical study led to the reform of the old court-based system of takeover dispute handling in Australia which now effectively by-passes the courts.

The legal profession is a rigidly organised occupational group in which lawyers are divided by reference to criteria such as the nature of their legal work, their clientele and their legal-cultural value orientations. It is possible to identify a number of distinctive types of lawyers by reference to these criteria. Upon the basis of a random sample of over 600 New South Wales lawyers it was possible to identify four work related lawyer types: property lawyers, litigation lawyers, commercial lawyers and generalists. It was also found that the career patterns of lawyers were heavily influenced by the nature of their first legal job so that there was unlikely to be much movement between lawyer types. Lawyers could also be typified by reference to their clientele into 'individual-client' lawyers, 'organisational-client' lawyers and 'mixed-client' lawyers. Legal ideology plays an important part in providing unity to this extremely diverse social organisation. Although it was possible to identify at least three major value orientations within the profession, that of 'cynical-realism' was by far the most important and was widely shared amongst all lawyer types. This finding was contrary to the ideal of service which official legal ideologies seek to espouse.

Insider trading has been criminalised in Australia for over a decade. Yet there have been few prosecutions in respect of such conduct, and none of these have been successful. There is little doubt that insider trading in Australia is extensive and is to be found across many sectors of the securities industry. Despite this, the law has not proved to be an effective vehicle for the social control of insider trading or for the deterrence of such conduct. It seems that the criminal sanctions for insider trading have been largely symbolic in nature. This article explores the obstacles to enforcement of criminal laws in this area by reference to findings from a national empirical study funded by the Criminology Research Council. The study involved in-depth interviews with almost 100 key figures in the Australian securities industry (brokers, lawyers, merchant bankers etc) and of officials involved in its regulation (from the Corporate Affairs Commissions and the Australian Stock Exchange). Problems in detection, proof and punishment, in the nature and extent of regulatory resources devoted to this area and in the content of the law itself are identified and discussed.