However, the excessively strict tests of insolvency make creditors unable to apply for effecting insolvency of the debtors timely and effectively. Taking “inability to repay all debts with assets or in evident insolvency” as the criteria will prevent the enterprises from entering the bankruptcy procedures until they become absolutely insavable.
Under this circumstance, the opportunities to restructure or reconcile the insolvent enterprises will be missed, resulting in a failure to provide maximum protection for the creditor’s rights. Third, weakness in criminal liability investigation for financial frauds and irregularities exposes financial institutions to operational risks. The frequent occurrence of operational risks is one of the big problems for China’s financial sector.