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Bankruptcy LawKnow your rights if your employer goes bust



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Overview:

This article was originally published over a year ago in relation to the "extended holiday" during the lockdown following the Covid-19 outbreak when many employers found themselves either unable or unwilling to pay their staff. 
This new article is now focused on the new Government regulations (explained below) which are affecting many private education providers and, subsequently, their foreign staff. WNIC has received several enquiries on rights and next steps. As such, we have asked several renown legal professionals to describe various stipulations and expectations in relation to pay, rights and any other factors which may be of concern to any affected foreign staff.


Labour Arbitration in Changsha


The official city-level Labour Law Department is given below, although we do not know if they can hear cases or issues made by foreigners and you may only be able to seek their help after getting a legal rep to support you.


Address: China, Hunan, Changsha, Tianhua N Rd, 175 : 410100
Phone: +86 731 8401 1459

http://rsj.changsha.gov.cn/

For your reference, the organisation that issues Work Permits is: http://fwp.safea.gov.cn but we doubt their ability to intervene in these matters.


Forced resignations: It has come to the attention of WNIC that some foreign employees have been told to sign 'resignation' letters following the announcement that their place or work is to close (bankrupt). WNIC has been told that this is not the correct procedure in such cases. If you experience this, you can contact one of our lawyer partners for advice and legal action (email us at [email protected]) or contact your local PSB (police station). You can also contact the organisation above. 


Please also feel free to contact WNIC ([email protected]) and we can also try to raise the issue through our own channels, but clearly WNIC has no legal mandate and as such cannot give personalised legal advice.



What to do...

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How to get my salary when my company goes bankrupt

Article by Edgar Choi

of

LawInAMinute

(see original here)


Wall Street English (WSE), an Italian international adult English training company, will reportedly announce the bankruptcy of its Chinese business next week


I have been contacted by many WSE employees from different branches all over China as early as 3 months ago telling me that they have not been paid a dime.


Wall Street English owes their employees more than 3 months salary.


What's the reason behind this?


COVID-19 would definately be the first factor in breaking the camel's back. Since 2020, the education, airline, hotel, tourism, and F&B industry has been severly hit. This would compare to being diagnosed with stage 2 cancer. Up to this stage, there is still hope for survival.


The second crippling hit would be a fine administered by the State Administration for Market Regulation (SAMR), which carried out on-the-spot inspections on major after-school tutoring institutions that were flagged by complaints in June.


In fact, WSE was also penalized by the Shanghai Administration for Market Regulation in May for 2.5 million Yuan for false advertisement and  predatory pricing.


The last nail in the coffin is China's recent policy on after-school classes. Although most of these measures are targeted at regulating K12 education companies, niche industries on adult and vocational education are also seeing a freeze as capital withdraws.   


These hardened measures mandate private tutoring firms to register as non-profit organizations and will no longer be allowed to raise capital in stock markets. Foreign investment in the sector will be banned.


What can you do if you are a WSE employee?



Law In A Minute



Going bankrupt is a situation that hurts everybody. Employees lose their jobs, creditors lose their money, shareholders lose their money and the government loses tax revenue. Nobody wins in this situtation. 


When a company files for bankruptcy, an administator, usually a law firm or accounting firm will come in and start sorting out the mess. To keep a long story short, this administrator is tasked with selling whatever's left of the company and paying off creditors. This whole process will take up to a year.


I have an analogy that I love to use when explaining bankruptcy. WSE is an elephant with cancer and bankruptcy means it is dying. For teachers who hired lawyers and file for labour arbitration 3 months ago, when they were not getting paid, they are the luckiest people. They would get their money back, and a good sum of severance pay. They are the lions that get to rip off the best chunks of meat and they get what they want.


Once a company goes bankrupt, it means that the elephant is dead. However, there is still meat left on the elephant, and tusks that would sell for a good price. 


Bankruptcy law requires that salary has to be the first in line when considering who to pay first. 


If you take action now, you will be the human hunter who stumbles upon a fresh elephant corpse. What do you do? You take off the tusks and sell them. Therefore, my advice for you is to take legal action as soon as possible via labour arbitration. WSE employees have told me that they don't even have money to hire a lawyer due to being starved of 3 months' salary, so the sooner you take action, the better. 


Who's next in the line? Creditors, the hyenas that strip the corpse from any flesh left. The problem is that there are too many hyenas and not enough meat. Therefore, they would have to share. 


According to previous cases, creditors only get around 4% of what the company owes them. So let's say you paid 10,000 for english courses at WSE, how much money would you get back when they go bankrupt? Only 400 RMB. There is simply no money left!


Wall Street English is the first giant to fall. Which training centre will be next? The main takeaway for you is to understand that the sooner you take legal action, the better. The lions are able to minimize their losses due to their early attack, but the poor WSE employees are basically so low on cash that they don't have money to pay rent.



Legal Basis


Bankruptcy Law

Article 113 

The bankruptcy property shall, after the expenses for bankruptcy proceedings are defrayed and the debts incurred for the common good of creditors are repaid first, be liquidated according to the following order:

(1) the wages, subsidies for medical treatment, injuries and disability and the pensions for the disabled and the families of the deceased which the bankrupt owes, the basic old-age insurance premiums and the basic medical insurance premiums which he owes and fails to enter in the employees personal accounts, and the compensations which should be paid to the employees as prescribed by relevant laws and administrative regulations;

(2) the social insurance premiums which the bankrupt fails to pay, other than the ones which are specified in the preceding subparagraph, and the taxes which the bankrupt fails to pay; and

(3) the common bankruptcy claims.

Where the bankruptcy property is not sufficient to satisfy the demands for repayment that are arranged in the same group, it shall be distributed on a pro rata basis.

The salaries of the directors, supervisors and senior managers of a bankrupt enterprise shall be calculated on the basis of the average wages of the employees of the enterprise.


Article 114 

The bankruptcy property shall be distributed in cash, unless it is otherwise decided on by the creditors meeting.


About the Author


About The Author

 Author of Intellectual Property, Commercial, Company and Business Law In A Minute

Co-Author of Peking University Textbook: Business Ethics

Graduated from Fudan University Law School

Interviewed by Bloomberg and Timeout

Honorary Legal Advisor of Esports International Group;

    International Financial Technology Academy;

    The Asian General Chamber Of New Retail

Mentor at Bloom Education (Charity)

Wechat: Search lawinamin or scan the QR code below

[email protected]

Edgar can be contacted by email [email protected]

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