Recently, the issue of many “zombie enterprises” has caught the public eye, these are unusually state owned businesses which are practically insolvent and inoperative, but the local governments choose to turn a blind eye to save face, which resulted in the empty shells of such companies. JAVY’s Liu Yang Esq. commented on this issue in a recent interview with state media.
Zombie enterprises, according to MIIT, are inoperative, suffering from chronic losses, insolvent enterprises, mostly living off governmental subsidies & bank loans. How could this happen? As pointed out by Mr. Liu, the problems lies in the local government, because they want to maintain social stability and employment rate, so they kept such enterprises alive with subsidies and loan support.
However, this is a huge waste of government funds & resources, Mr. Liu suggested it’s high time that local government solve this issue, first, they should rely on legal counsel and lawyers to design a viable plan to dissolve the zombie enterprises; secondly, they can learn from similar regulations from Singapore and Hong Kong to utilize tools such as securitization & capitalization of land, in line with international standards.
Thirdly, courts, government agencies and market supervisory authorities should work together to dissolve those zombie enterprises with bankruptcy or reorganization procedures, thus to speed up the process.
Mr. Liu also mentioned that the enterprises should pay their employees properly, along with social insurance and other benefits pursuant to law, before the dissolution of the companies.
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