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China's top court outlines plan to help 'zombie firms' file for bankruptcy
February 6, 2017 / 12:58 PM / 10 months ago

China's top court outlines plan to help 'zombie firms' file for bankruptcy

BEIJING (Reuters) - China’s highest court has outlined conditions under which “zombie enterprises” will be allowed progress towards claiming bankruptcy, the official Xinhua said on Monday.

Firms that, among other conditions, are unable to meet debt payments and have insufficient assets to pay off debts, or are clearly unable to clear debts, will be able to progress to the stage of being investigated for whether they qualify for bankruptcy, Xinhua said, citing a Supreme People’s Court document.

The announcement comes as state media reported that ownership reforms at more than 100 central government-run enterprises would be completed by the end of the year as part of efforts to use private capital to revive a lumbering state sector.

Zombie firms are economically unviable enterprises that survive only with the support of local governments and banks. China has vowed to take action and use tougher environmental, efficiency, quality and safety standards to drive them out of the market.

But flaws in bankruptcy laws have made it difficult for struggling firms to exit, and local governments are worried about the prospect of rising unemployment.

Reporting by Sue-Lin Wong; Editing by Robert Birsel

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