26 ALB CHINA INSOLVENCY & RESTRUCTURING GUIDE 2023 I. Introduction With business insolvencies in China continue to rise, we are seeing a large number of cases where the directors, supervisors and senior managers of bankrupt enterprises are held legally liable for failing to fulfill their obligations under the Enterprise Bankruptcy Law. In specific, due to a lack of understanding of one's obligations and liabilities in the bankruptcy proceedings, they refuse to cooperate with the bankruptcy administrator(s) during the legal proceedings, obtaining improper income even after bankruptcy, or fail to file for bankruptcy in time, that ultimately result in liabilities. This article delineates the obligations and corresponding liabilities of the directors, supervisors and senior managers in bankruptcy proceedings as stipulated in the Enterprise Bankruptcy Law and the Company Law of China. In essence, we intend to offer practical guidelines for company officers to handle debts and claims fairly in accordance with the law while reaching a balance of interests between themselves, the bankrupt enterprises, creditors and other stakeholders. II. Liabilities of the Directors, Supervisors and Senior Managers in Bankruptcy Proceedings 1. Legal Liability for Breach of Fiduciary Duty Leading to Corporate Bankruptcy Enterprise Bankruptcy Law Article 125 provides that any director, supervisor or senior manager whose breach of fiduciary duty precipitates the bankruptcy of their enterprise shall bear civil liability pursuant to the law. The personnel found liable shall not serve as a director, supervisor or senior manager of any enterprise within LEGAL LIABILITIES OF THE DIRECTORS, SUPERVISORS AND SENIOR MANAGERS OF BANKRUPT ENTERPRISES three years from the date the bankruptcy proceedings conclude. The Company Law Article 147 stipulates that the directors, supervisors and senior managers owe strict fiduciary duty to the company and its shareholders and whom in default results in the bankruptcy of the company shall bear civil liability according to the law. 2. Liability for Failure to Fulfil the Obligation to Liquidate or File for Bankruptcy in a Timely Manner (1) Obligation to Liquidate Members of a legal entity’s executive or decision-making body such as the directors or councilors are obligated to form a liquidation committee promptly to initiate liquidation. Civil Code Article 70 stipulates that where a legal entity is dissolved for reasons other than a merger or division, a liquidation committee shall be formed in a timely manner by people responsible for liquidation. Unless otherwise provided by laws or administrative regulations, members of a legal entity’s executive or decision-making body such as the directors or councilors, are responsible for the entity's liquidation. Personnel responsible who fail to perform their obligations in time and cause damage to others are subject to civil liability. Shareholders, directors,controlling shareholders or actual controllers who fail to liquidate timely that leads to loss or decline of company asset values, shall be proportionately liable for the company debts. According to Article 18(1) of the second Judicial Interpretation on the Company Law (hereinafter the "Company Law Interpretation II"), shareholders of a limited liability company or the directors or controlling shareholders of a joint stock company fail to establish a liquidation committee within the 4 CHAPTER
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