Source: Ministry of Commerce Website, PRC

RULES ON THE LIQUIDATION OF FOREIGN-INVESTED ENTERPRISES

Tuesday, July 09, 1996 Posted: 10:53 BJT(0253 GMT)

(Valid From:1996.07.09)

(Approved by the State Council on June 15, 1996 and promulgated by the Ministry of Foreign Trade and Economic Cooperation on July 9, 1996)

  • CHAPTER I GENERAL PROVISIONS
  • CHAPTER II ORDINARY LIQUIDATION
  • SECTION 1 TIME LIMIT OF LIQUIDATION
  • SECTION 2 LIQUIDATION ORGANIZATIONS
  • SECTION 3 NOTICE AND ANNOUNCEMENT
  • SECTOR 4 CLAIMS, DEBTS AND LIQUIDATION
  • SECTOR 5 EVALUATION, PRICING, AND DISPOSAL OF PROPERTIES UNDER LIQUIDATION
  • SECTOR 6 CONCLUSION OF LIQUIDATION
  • CHAPTER III SPECIAL LIQUIDATION
  • CHAPTER IV LEGAL RESPONSIBILITIES
  • CHAPTER V SUPPLEMENTARY RULES

CHAPTER I GENERAL PROVISIONS

Article 1 These Rules are hereby promulgated pursuant to stipulations in relevant laws to guarantee the smooth conduction of liquidation of foreign-invested enterprises, protect the legitimate rights and interests of debtees and investors, and maintain the economic order of the society.

Article 2 These Rules are applicable to all Sino-foreign equity and cooperative joint ventures set up on the territory of the People’s Republic of China (hereinafter referred to the enterprises) when they undergo liquidation.

In case the enterprises are declared as bankrupt, they shall be handled in line with relevant laws and administrative decrees concerning bankruptcy liquidation.

Article 3 The enterprises that can organize liquidation committees to carry out liquidation on their own efforts shall handle their cases in line with stipulations on ordinary liquidation as set in these Rules.

The boards of directors, joint management committees and other organs of power (hereinafter referred to the organs of power of enterprises); and the investors or the debtees of the enterprises that can not organize liquidation committees to carry out liquidation on their own efforts or come across serious obstacles when carrying out liquidation in line with stipulations on ordinary liquidation may apply for special liquidation to enterprise examination and approval organs. If approval is given by these examination and approval organs for special liquidation, the cases shall be handled in line with stipulations on special liquidation as set in these Rules.

The enterprises that carry out liquidation after being ordered in accordance with law to close and subsequently dissolve shall handle their cases in line with stipulations on special liquidation as set in these Rules.

Article 4 Liquidation of enterprises shall be carried out in line with stipulations in relevant State laws and administrative decrees, on the basis of their approved contracts and articles of association, and according to the principle of impartiality and rationality and protection of the legitimate rights and interests of enterprises, investors, and debtees.

CHAPTER II ORDINARY LIQUIDATION

SECTION 1 TIME LIMIT OF LIQUIDATION

Article 5 The date of the start of liquidation of the enterprises shall be the date of expiration of the operation of the enterprises, or the date of the dissolution of the enterprises as approved by their examination and approval organs, or the date of the termination of their contracts as judged by people’s courts or ruled by arbitration organizations.

Article 6 The time limit of the liquidation of the enterprises shall be no longer than 180 days, starting from the date of start of liquidation and the submission of liquidation reports to enterprise examination and approval organs.

If this time limit is to be extended due to special reasons, the liquidation committees shall apply to enterprise examination and approval organs for extension of the time limit 15 days before the expiration of the time limit. The time limit to be extended shall not exceed 90 days.

Article 7 The enterprises shall not carry out new business activities during the time of liquidation.

SECTION 2 LIQUIDATION ORGANIZATIONS

Article 8 When the enterprises decide to carry out liquidation, the power organs of the enterprises shall organize a liquidation committee. This committee shall be set up within 15 days of the start of liquidation.

Article 9 A liquidation committee shall compose of at least three members to be appointed by the power organ of the enterprise from among the members of the power organ or be assumed by relevant professionals.

A liquidation committee shall have one director, to be appointed by the power organ of the enterprise. With agreement from the power organ of the enterprise, the liquidation committee can engage people to handle specific matters of liquidation.

Article 10 The members of the liquidation committee shall be replaced should any one of the following cases develop during the period of liquidation:

1. Law-breaking behaviours on the part of members on the liquidation committee.

2. Request by the debtee with good reasons.

3. Death of members on the liquidation committee or loss of ability of action.

Article 11 The liquidation committee shall exercise the following powers during the period of liquidation:

1. Check-up of enterprise properties, compilation of balance sheets and inventories of properties, and formulation of liquidation plans.

2. Notice to unknown debtees and written notice to known debtees.

3. Handling and liquidation of businesses not yet completed by the enterprises.

4. Proposal of standards for the evaluation and pricing of properties and criteria for calculation.

5. Payment of taxes due.

6. Clearance of liabilities.

7. Disposal of the properties of the enterprises left over from completion of debt repayment.

8. Participation in civil lawsuits on behalf of the enterprises.

Article 12 The balance sheets and inventories of properties compiled, the standards for the evaluation and pricing of properties proposed, and the liquidation plans worked out by liquidation committees shall be confirmed by the power organs of enterprises and reported to examination and approval departments for the record.

Article 13 After the establishment of liquidation committees, relevant people in the enterprises shall hand over financial statements, accounting books, lists of properties, name lists of debtees and debtors, and other data related to liquidation to the liquidation committees within the period of time prescribed by the liquidation committee.

Article 14 Liquidation committees shall perform duties in accordance with law and handle relevant liquidation issues according to the principle of consultation.

Members on liquidation committees shall be devoted to their duties. They shall not accept bribery or seek illegal gains by usurping their powers, or embezzle enterprise properties.

Article 15 During the period of liquidation, enterprise examination and approval departments and departments in charge of the enterprises can sent representatives to attend the liquidation-related meetings of the enterprises and supervise the liquidation work of the enterprises.

SECTION 3 NOTICE AND ANNOUNCEMENT

Article 16 The enterprises shall notify, in written form, enterprise examination and approval departments, departments in charge of the enterprises, customs offices, foreign exchange control administrations, enterprise registration departments, tax departments, banks with which they have opened accounts, and other relevant units of their names, addresses, reasons for liquidation, and date of start of liquidation within seven days after the start of liquidation. If the enterprises have state-owned assets, they shall also notify administrative departments in charge of state assets.

Article 17 Liquidation committees shall notify, within 10 days after their establishment and in written form, known debtees to report their claims, and publish an announcement in a national newspaper and a provincial or city newspaper at least twice within 60 days after their establishment. The first publication of announcement shall be made within 10 days after establishment of liquidation committees.

Liquidation announcements shall contain the names and addresses of the enterprises; the reasons for liquidation; the date of start of liquidation; and the contract addresses, name lists of members, and contract persons of liquidation committees.

Article 18 Debtees shall report claims to liquidation committees within 30 days after receiving notices, or 90 days within the publication of the first announcement if they have not received notices.

Article 19 Debtees shall report claims within prescribed periods of time and provide documents certifying the amount of claims and other materials related to these claims.

Those who fail to make claims within prescribed periods of time shall be handled according to the following stipulations:

1. The claims of known debtees shall be included in liquidation.

2. The claims of unknown debtees shall be answered before completion of distribution of the remaining properties of the enterprises and be regarded as being given up after the completion of the distribution of the remaining properties of the enterprises.

SECTOR 4 CLAIMS, DEBTS AND LIQUIDATION

Article 20 Liquidation committees shall register the claims made by debtees and, after verifying them, notify debtees of the results of verification in written form.

Article 21 If debtees have objections against the results of verification made by liquidation committees, they may ask liquidation committees to make re-examination within 15 days after receiving the written notice. If they still have objections after re-examination, they may lodge a lawsuit with local people’s courts within 15 days after receiving the written notice of re-examination. If debtees have reached arbitration agreements with the enterprises, the cases shall be handed over for arbitration in accordance with law.

During the period of lawsuit or arbitration, liquidation committees shall not distribute the properties under dispute.

Article 22 Liquidation committees shall notify, in written form, the power organs of the enterprises of the profits, and losses arising from and the selling off of properties during the period of liquidation, bad debts, irrecoverable claims, and other profits and losses arising during the period of liquidation, explain the reasons and produce certificates for these developments, and include these profits or losses into the list of liquidation profits and losses.

Article 23 The following liquidation costs shall claim precedence in payment with properties under liquidation:

1 Costs needed for managing, marketing or distributing the properties of the enterprises under liquidation.

2 Costs needed for making announcements, raising lawsuits, or seeking arbitration.

3 Other costs that call for payment during the period of liquidation.

Article 24 The debtees that have claims carrying property guarantees established before the start of liquidation shall enjoy the right to precedence repayment of the said guarantees.

Should the amount of claims carrying guarantees exceed the sold value of the guarantees, the unpaid part of the claims of the debtee shall be repaid in the sequence of order set in Article 25 of these Rules.

Article 25 The properties under liquidation shall be liquidated according to the following sequence of order after liquidation costs have been paid in precedence:

1 The wages and labour insurances of employees.

2 Taxes to the state.

3 Other debts.

Article 26 The properties of the enterprises shall not be distributed before the payment of liquidation costs and the repayment of debts.

The properties of the enterprises left over from payment of liquidation costs and repayment of debts shall be distributed according to the ratio of the actual amount of investment input by investors, unless otherwise stipulated in laws, administrative decrees, or enterprise contracts or articles of association.

Article 27 If the properties of the enterprises are found during the process of liquidation to be insufficient for repaying debts, the liquidation committees shall apply to the people’s courts for declaring the enterprises bankrupt. The enterprises that have been declared bankrupt shall be handled according to laws and administrative decrees concerning the liquidation of bankrupt enterprises.

Article 28 The following acts of the enterprises shall be ineffective within 180 days before the date of the start of liquidation:

1 Unpaid transfer of the properties of the enterprises.

2 Marketing of the properties of the enterprises at abnormally reduced prices.

3 Providing of guarantees for debts that do not carry guarantees before.

4 Liquidation of immature debts in advance.

5 Abandonment of claims of the enterprises.

The Chinese and the overseas investors of the enterprises shall not dispose any of the properties of the enterprises between the start and conclusion of liquidation.

SECTOR 5 EVALUATION, PRICING, AND DISPOSAL OF PROPERTIES UNDER LIQUIDATION

Article 29 The evaluation and pricing of properties under liquidation shall be carried out according to the following stipulations:

1 Observation of stipulations in the contracts or articles of association of the enterprises if such stipulations have been specified in contracts or articles of association.

2 Determination by the Chinese and the overseas investors through consultation if no stipulations have been made in contracts or articles of association, with the decisions to be submitted to enterprise examination and approval departments for approval.

3 If no stipulations have been made in contracts or articles of association and no agreement can be reached between the Chinese and the overseas investors through consultation, the liquidation committees shall make the decision in line with relevant state stipulations and with reference to the opinions of assets evaluation organizations. Such decisions shall be reported to enterprise examination and approval departments for approval.

4 If it has been judged by people’s courts or ruled by arbitration committees to terminate enterprise contracts, and rules on the evaluation and pricing of the properties under liquidation have been set in these judgments or rulings, the cases shall be handled according to stipulations in these judgments or rulings.

Article 30 If the properties under liquidation are to be sold, the investors of the enterprises shall have precedence in purchase. These properties shall be sold to the party that offer higher prices.

SECTOR 6 CONCLUSION OF LIQUIDATION

Article 31 Liquidation committees shall work out liquidation reports after completing work set in liquidation plans. Liquidation reports shall contain the following:

1 The reason, limit of time, and process of liquidation.

2 Results of disposal of claims and liabilities.

3 Results of disposal of properties under liquidation.

Article 32 Liquidation reports shall be submitted to enterprise examination and approval departments for the record after confirmation by the power organs of the enterprises.

Article 33 Within 10 days after submission of liquidation reports to enterprise examination and approval departments, liquidation committees shall go through registration cancellation procedures with tax and customs offices respectively.

Liquidation committees shall submit, within 10 days after completing procedures specified in the preceding clause, to enterprise examination and approval departments liquidation reports together with certificates on registration cancellation produced by tax and customs offices, go through enterprise cancellation registration procedures, hand in business licenses, and publish announcements of the termination of the enterprises in a national newspaper and a local newspaper at the provincial and city level.

Article 34 After conclusion of liquidation and before going through enterprise cancellation registration procedures, the enterprises shall hand in their accounting vouches, accounting books, financial statements, and other relevant data according to the following stipulations:

1 To the Chinese investor in the case of Sino-foreign contractual and cooperative ventures, or one of the Chinese investors designated by responsible departments if two Chinese investors are involved.

2 To the unit designated by enterprise examination and approval departments in the case of ventures with exclusive overseas investment.

CHAPTER III SPECIAL LIQUIDATION

Article 35 The date on which enterprise examination and approval departments approve special liquidation or the date on which the enterprises are ordered to close up in accordance with law shall be the date of start of special liquidation.

Article 36 If special liquidation is to be carried out in the enterprises, enterprise examination and approval departments or departments authorized by them shall call the Chinese and foreign investors, representatives from relevant departments, and relevant professionals together to set up liquidation committees.

Article 37 A liquidation committee shall have one director, who shall be appointed by enterprise examination and approval departments or departments they authorize. During the period of special liquidation, the director of the liquidation committee shall exercise the power of the legal representative of the enterprises while the liquidation committee shall exercise the power of the power organ of the enterprise.

The liquidation committee shall handle all matters concerning liquidation, and report its work to enterprise examination and approval departments.

Article 38 Liquidation committees can call meetings of the power organs of the enterprises and meetings of the debtees to discuss specific matters concerning liquidation.

Article 39 All debtees shall be members of meetings of debtees. Members of meetings of debtees shall have the right to vote, except for those with property guarantees but having not yet given up their right to precedence compensation.

The chairman of the meeting of debtees shall be appointed by enterprise examination and approval departments or departments they authorize from among debtees with voting rights.

Article 40 Meetings of debtees shall be called by liquidation committees. Liquidation committees shall send written notices to debtees 15 days before the convening of these meetings. If the debtees can not attend, they shall authorize, in written form, others to attend in their stead.

Article 41 Meetings of debtees shall exercise the following power:

1 Examination of the evidences on claims provided by debtees and the sums and status of guarantee of these claims.

2 Investigation of the situation of debt repayment and forwarding of the opinions of debtees on liquidation plans and debt repayment to liquidation committees.

Article 42 The liquidation plans and liquidation reports produced by liquidation committees shall be confirmed by enterprise examination and approval departments.

Article 43 Stipulations in Chapter II of these Rules shall apply to cases of special liquidation not specified in this chapter.

CHAPTER IV LEGAL RESPONSIBILITIES

Article 44 The enterprises that start new business activities during the time of liquidation shall be ordered by enterprise registration departments to make corrections and imposed a fine ranging between 10,000 and 100,000 yuan.

Article 45 The enterprises shall fail to notify debtees as stipulated in Article 17 of these Rules shall be ordered by enterprise registration departments to make corrections and imposed a fine ranging between 10,000 and 100,000 yuan.

Article 46 The Chinese or foreign investors that violate stipulations in the second clause of Article 28 of these Rules by disposing enterprise properties during the time of liquidation shall be ordered by enterprise examination and approval departments to resume the original status quo of the properties or to return the disposed properties to the enterprises. They shall also assume responsibilities over compensation should any damages are caused.

Article 47 Liquidation committees that fail to submit liquidation reports to enterprise examination and approval departments for the record or liquidation reports to enterprise registration departments, as stipulated in articles 32 and 33 of these Rules, or withhold or omit major facts in their liquidation reports shall be ordered by enterprise examination and approval departments and enterprise registration departments to make corrections.

Liquidation committees that fail to go through enterprise cancellation registration procedures in line with stipulations in Article 33 of these Rules shall have their business licenses revoked by enterprise registration departments, and their cases shall be publicized.

Article 48 The enterprises that conceal their properties, make false records in the balance sheets or property inventories, or distribute enterprise properties before the payment of liquidation costs and repayment of enterprise debts during the period of liquidation shall be ordered by enterprise examination and approval departments and enterprise registration departments to make corrections. Enterprise registration departments shall impose upon these enterprises fines amount to over one per cent and below five per cent of the value of the properties concealed or the enterprise properties distributed before repayment of all enterprise debts. The persons directly in charge and those involved in the cases shall also be fined between 10,000 and 100,000 yuan.

Article 49 Members of liquidation committees who usurp their power to seeks gains for their relatives or friends, drive at illegal incomes, or occupy enterprise properties shall be ordered by enterprise examination and approval departments and enterprise registration departments to return the enterprise properties occupied. Enterprise registration departments shall confiscate the illegal incomes, and imposed fines ranging between one time and five times of the illegal times.

Article 50 Those who violate these Rules and commit crimes shall be brought to shoulder criminal responsibilities.