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When a Chinese Company Goes Bankrupt, Who Shall be Paid First?

When you deal with or work for a Chinese company, it’s possible that the Chinese company owes you money for various reasons, and if this company has a lot of other debts besides owing you money, it may go bankrupt.


When the Chinese company goes bankrupt, and this bankrupt company owes money to other people or companies, without enough property to pay off all the debts, which debt should it repay first? And if the property of the bankrupt company has been mortgaged to the bank, does the property need to be used to repay the debt owned to the bank first?



According to Articles 42, 109, 110 and 113 of the PRC Enterprise Bankruptcy Law (中华人民共和国企业破产法), and referring to the cases of the PRC Supreme People's Court and Hangzhou Intermediate People's Court, when a Chinese company goes bankrupt, the order of its debt settlement is as follows:


1. If the property of the bankrupt company is used for mortgage or other guarantees to some people or companies, the property used for mortgage or other guarantees shall be used to repay the debts owned to these people or companies first.


2. After the property of the bankrupt company is used to repay the money to people or companies with mortgage right or other security rights, the remaining property of the bankrupt company should first be used to pay off the bankruptcy expenses and common benefits debts.


3. After completing the repayment of the debts in the above two points, the remaining property of the bankrupt company will be used to repay other debts in the following order: