Drawing a clear line between corporate and personal debt has long vexed Chinese entrepreneurs. To raise capital, many provide personal guarantees for corporate loans; when their companies fall into financial distress, those same guarantees often leave them burdened with substantial personal liabilities. Pilot personal bankruptcy regimes in cities such as Shenzhen have begun to test possible remedies, but their reach remains narrow. The current Enterprise Bankruptcy Law still focuses on rescuing companies rather than protecting the individuals behind them.
In September 2025, the National People’s Congress released the Enterprise Bankruptcy Law (revised draft), which introduces a mechanism for personal debt relief. Under the proposal, individual shareholders who become insolvent because of company?related liabilities may, in defined circumstances, apply to the courts to resolve their personal and corporate debts simultaneously. The move marks a tentative but significant step towards a more comprehensive insolvency regime, one that recognises the intertwined nature of corporate and personal risk in China’s private sector.
Legal basis
Director, Chief Partner
Zhong Ce Law Firm
Under article?2 of the current Enterprise Bankruptcy Law, “if a corporate debtor is unable to repay its due debts and either lacks sufficient assets to cover all liabilities or is plainly insolvent, it must liquidate its debts in accordance with the law. Where a corporate entity faces, or is likely to face, such insolvency, it may seek reorganisation under the same statute.”
A new third paragraph in the draft amendment extends this framework. It provides that “when a corporate entity has entered bankruptcy proceedings and a natural-person shareholder becomes jointly and severally liable for the company’s debts, falling within the circumstances described above, this “joint individual debtor” may also apply to the court to resolve his or her debts under the law.
The “circumstances described above” refer to the conditions constituting bankruptcy. Once a natural-person shareholder meets those conditions, he or she may petition for debt discharge. Yet relieving shareholders of personal liability would inherently affect the rights of corporate creditors. The draft therefore places tight restrictions on when this new mechanism may be invoked.
Scope of application
Associate
Zhong Ce Law Firm
The draft amendment confines the scope of eligible parties. It applies only to natural-person shareholders who bear joint and several liability for their company’s debts; it excludes directors, supervisors, senior managers and ordinary debtors. Moreover, the type of liability covered is limited solely to joint liability. From these restrictions, it is clear lawmakers intend first to tackle debts arising from shareholders’ joint liability in corporate bankruptcies. The coverage remains limited, yet it represents a careful step towards a broader personal bankruptcy framework.
The draft also regulates the conduct of eligible individuals. Under article 18, when a court accepts a bankruptcy petition from a joint individual debtor, it must simultaneously issue an order restricting high-value spending. The applicant may not engage in luxury or non-essential consumption and must disclose in full the assets of both self and household.
Article 174 provides that debt relief requires a five-year supervision and assessment period. During this term, a natural-person shareholder cannot serve as a director, supervisor, or senior executive of a listed company, a non-listed public company, or a financial institution, and must submit monthly reports on personal assets.
The draft establishes situations in which personal liabilities cannot be discharged. Such circumstances fall into two categories. The first concerns particular types of debt, as specified in article?175: for example, compensation arising from intentional or grossly negligent harm to another person’s rights, or unpaid wages owed to workers. The second category, under article?176, concerns misconduct by the debtor, such as serious breaches of the spending restrictions or failure to disclose assets truthfully, as well as concealing, transferring, or damaging property, or falsifying or destroying financial records once the statutory grounds for bankruptcy are met.
In addition, the draft further provides that even after a debt–relief order is issued, the court must revoke it if any grounds for denying discharge later emerge.
Practical challenges
Following the release of the revised draft, academic debate around the proposed personal debt-relief system has largely centred on two questions: the scope of eligible debtors and the soundness of the framework. The discussion also reflects two distinct concerns. The first is that the definition of eligible debtors may be too narrow, leaving other “honest but unfortunate” debtors without comparable relief and creating inequity. The second is that deficiencies in design or enforcement could allow dishonest debtors to exploit the system to evade repayment, undermining creditors’ rights. In future revisions and implementation, the author suggests a model that opens the door wide but lets only the deserving walk out – broad access at entry, strict scrutiny at exit.
The broad?entry side means widening eligibility at the legislative level. In practice, not only natural?person shareholders but also de facto controllers, senior executives, and even shareholders’ spouses often personally guarantee corporate debts on a joint?and?several basis. There is little justification for excluding such individuals from the scheme’s protection. The tight?exit side calls for an exacting review of who truly qualifies for debt relief, backed by stronger institutional safeguards. This would involve linking judicial, financial, property registration, social security and market supervision databases to ensure real-time updates of asset information. Subject to privacy protection, courts and creditors could be granted access to those records, supported by reporting and complaints channels. During the supervision period, authorities would monitor whether debtors file truthful asset declarations on time and avoid major or luxury spending, as well as any transfer of assets.
China’s Enterprise Bankruptcy Law is gradually evolving from a corporate–centred framework towards one encompassing individuals. Future amendments are expected to draw on pilot programmes in personal bankruptcy reform, refining the rules step by step and paving the way for comprehensive personal insolvency legislation, an important move in strengthening the health of the market economy.
Liang Qiang is a director and chief partner at Zhong Ce Law Firm. He can be contacted by phone at +86 135 0106 8519 and by email at liangqiang@zhongcelaw.com
Ma Jinpeng is an associate at Zhong Ce Law Firm. He can be contacted by phone at +86 180 0408 155 and by email at majinpeng1116@163.com
