Source: Ministry of Commerce Website, PRC
PROCEDURES FOR LIQUIDATION OF FOREIGN-FUNDED ENTERPRISES IN BEIJING
Wednesday, May 20, 1992 Posted: 10:54 BJT(0254 GMT)
(Decree of the Municipal People’s Government of Beijing, No. 9, 1992)
- CHAPTER I GENERAL PRINCIPLES
- CHAPTER II NORMAL LIQUIDATION PROCESS
- CHAPTER III SPECIAL CLEARING PROCESS
- CHAPTER IV LEGAL RESPONSIBILITIES
- CHAPTER V SUPPLEMENTARY ARTICLES
CHAPTER I GENERAL PRINCIPLES
Article 1. With a view to safeguarding the legitimate rights and interests of creditors and Chinese and foreign investors and ensuring a fair and smooth process of the liquidation of foreign-funded enterprises, these procedures are formulated in accordance with relevant stipulations of State laws and regulations and with reference to the concrete conditions in this city.
Article 2. These procedures apply to the liquidation of Chinese-foreign equity joint ventures, Chinese-foreign cooperative ventures and wholly foreign-owned firms (all of which are hereinafter referred to as foreign-funded enterprises, or enterprises, for short).
Article 3. The liquidation of enterprises is under the control of the Municipal Commission on Foreign Economic Relations and Trade which is responsible for the examination and approval of the establishment of the enterprises (hereinafter referred to as approval authorities) and supervision of departments responsible for the management of the enterprises as well as the financial, taxation, customs and industrial and commercial administration offices in pursuance of their respective duties.
Chinese-foreign joint or cooperative ventures involving State assets should also accept the supervision of managing and auditorial departments of State assets.
Article 4. Liquidation as mentioned in these procedures refers to the final clearing of assets and credits of an enterprise which is dissolved upon the expiry of its term of operation; termination of the contract and articles of association of the enterprise by law before its expiry with approval from the approval authorities; withdrawal of business license by the industrial and commercial administration office; or ordered to close by the approval authorities according to law.
Article 5. The liquidation of an enterprise should be carried out in accordance with relevant stipulations of State laws and regulations as well as the approved contract and articles of association of the enterprise under the principles of fair and rational with full protection to the lawful rights and interests of the creditors and Chinese and foreign investors.
Article 6. Liquidation of enterprises can be classified into a normal or a special process.
Where enterprise assets are sufficient to cover debts and the board of directors or the management (hereinafter referred to as the board of directors) are fully capable of carrying out the liquidation by themselves, the liquidation can be carried out in a normal process.
Where enterprise assets cannot cover debts, or the enterprise cannot carry out the liquidation of its own, the approval authorities may, at the request of the enterprise, any side of the investors or the creditors, or on their own power, order to carry out the liquidation under a special process.
Where the normal process of liquidation cannot be properly carried out in full, upon requests by creditors, the board of directors or any side of the investors, the liquidation can be switch into a special process under a proper approval.
Where an enterprise becomes insolvent under heavy losses, the creditors or debtors can apply for a declaration of bankruptcy of the enterprise through court and upon an arbitration of the court on the declaration and the process of debt-payment, the process of breakage is to be carried out pursuant to the regulations contained in the Civil Procedure Law of the People’s Republic of China.
Article 7. From the day the liquidation process begins, except some civil activities carried out to comply the liquidation, or under permission by the approval authorities and the industrial and commercial administration offices, all production and business operations of the enterprise should be brought to a halt.
CHAPTER II NORMAL LIQUIDATION PROCESS
Article 8. A normal liquidation usually starts on the day of:
(1) termination of the term of operations;
(2) dissolution of the enterprise with approval from the approval authorities in the case of a premature termination of the contract and articles of association;
(3) withdrawal or revoke of the business license.
Article 9. The period for an enterprise liquidation is limited to 90 days from the starting of the liquidation to the day when the enterprise submits a report on ending of the liquidation to the financial and taxation offices and cancellation of the registration of the enterprise concerned at the industrial and commercial administration office. On case that the liquidation period has to be prolonged under special circumstances, an application should be submitted by the clearing committee to the authority concerned, who will act in conjunction with the industrial and commercial administration office to give or deny approval.
Article 10. The enterprise should form a clearing committee, which should comprise at least three members, with one of them chosen as chairman, to carry out the work of liquidation.
Members of the clearing committee are chosen by the board from among the board directors or accountants or lawyers registered in China upon employment.
With approval by the board, the clearing committee may invite financial staff to form a clearing work group in charge of day-to-day matters of clearing.
Article 11. The enterprise board should, within seven days from the starting of the enterprise liquidation, report the name list of the clearing committee to the managing department of the enterprise for examination and to the approval authorities for record.
The managing department or the approval authorities should, within seven days of receiving the name list of the clearing committee, give a written reply, and an absence of a reply over this period is taken as an implied consent.
Article 12. During the period of liquidation, with approval by the enterprise board, a member of the clearing committee can be discharge or replaced by a new member on any one account of the following:
(1) The clearing committee member has broken the law;
(2) The creditors with sound reasons request a change;
(3) The death or loss of capacity of a member;
(4) Other reasons.
The discharge and replacement of a clearing committee member by the enterprise board must be reported to the managing department of the enterprise for examination and the approval authorities for record.
Article 13. During the period of a liquidation, the clearing committee is in full charge of all matters for clearing, with its chief duties as:
(1) sent written notices to the known creditors and public notices to the unknown creditors, informing them of the convocation of a creditors’ meeting;
(2) manage the property for the enterprise and compile a balance sheet, an inventory of assets and relevant statements and reports;
(3) prepare an evaluation of the enterprise property and the basis of calculations;
(4) formulate a plan for clearing work;
(5) recall the enterprise credits and clear enterprise debts;
(6) recall the unpaid payments due for the investors (including the unpaid portion of the registered capital or the spurious amount of capital payment);
(7) distribute the surplus property;
(8) compile a report upon the closing of the liquidation;
(9) perform the procedures for cancellation of enterprise registration;
(10) engage in other matters related to enterprise liquidation.
Article 14. During the period of enterprise liquidation, the clearing committee acts on behalf of the enterprise in law suits that would arise.
Article 15. In the handling of clearing matters, the clearing committee should reach a unanimous agreement through negotiation, failing which the board of directors should make decisions.
Article 16. The clearing committee is responsible to report its work to the board of directors
The balance sheet, property inventory and the plan for clearing work prepared by the clearing committee must be examined and adopted at the board meeting and reported to the managing department concerned and the approval authorities.
Article 17. Upon the formation of the clearing committee, the board of directors should immediately notify the relevant personnel of the enterprise, asking them to submit within 10 days to the clearing committee the final statement, account books, property inventory, name lists of creditors and debtors and other materials that are related to the clearing process.
Article 18. When the clearing committee, members of the board or creditors discover apparent mistakes in the decisions made by the board with regard to the clearing process, they may, within seven days after the board takes the decisions, report their opinions in writing to the managing department concern or approval authorities and request their examination. Duplicates of the written report should be sent to the board. The managing department concerned or approval authorities should make a written reply within seven days of receipt of the report. During the period of examination, except those decisions involving the administration or transference of enterprise property, the board’s decisions should be accordingly carried out.
Article 19. During the period of enterprise liquidation, when the approval authorities deem it necessary, they can send people to attend relevant meetings or take necessary actions to supervise the enterprise liquidation.
Article 20. The clearing committee should, within 60 days of its formation, notify the public, at least on two occasions, on the enterprise liquidation on two national newspapers. The first public notice should be published within 10 days of its formation.
In the public notice, the name of the enterprise, its address, reasons for liquidation, period of clearing and time limit for claiming creditor’s rights should be clearly announced.
Article 21. The clearing committee should, within 20 days of its formation, notify in written forms the known creditors to put in their claims for creditor’s rights.
Article 22. The creditors should, within 30 days of receiving the notice, or within 40 days of the publication of the first public notice, put in at the clearing committee their claims for creditor’s rights, and at the same time submit reference materials on the amount of credit and relevant guarantees. Failing to claim the creditor’s rights within the specified time limit is deemed as a relinquishment of the rights.
Those creditors who are unable to claim their rights within the specified time limit for justifiable reasons may claim repayment before the end of distribution of enterprise surplus property.
Article 23. The clearing committee should notify the creditors in written form after its examination and certification of the creditor’s claims.
Article 24. The creditor who holds a different opinion from the clearing committee’s examination and certification of his obligatory right, may take legal proceedings in court.
During the period of litigation, clearing activities involving distribution of property should be halted.
Article 25. The clearing committee should report and explain to the board of directors the reasons why certain creditors’ rights cannot be retrieved, and the matter should be left with the board for a decision.
Article 26. Expenses involved in the clearing work and for remuneration of the clearing committee members and members of the clearing work group should be covered by the existing property of the enterprises and given priority in disbursement.
Expenses for the clearing work include:
(1) Expenses incurred in management, selling and distribution of the enterprise property during the liquidation process;
(2) Litigation and advertising fees involved in the liquidation process;
(3) Other fees incurred in the safeguarding of the common interest of investors and creditors in the liquidation process.
Article 27. In clearing a mortgage guarantee debt involving enterprise property, the creditors may have priority in receiving payment out of the money obtained through the selling off of the guarantee property. The insufficient amount is regarded as the enterprise’s non-property mortgage guarantee debt.
Article 28. In settling debts outside the Chinese territory, the enterprise should produce a verification report by a China-registered accountant and have the approval of the State exchange control department before the payment of the debt can be remitted out of the country.
Article 29. The clearing committee shall not distribute the enterprise’s property to its investors before the full payment of its various expenses and debts.
The surplus property after payment of all debts shall be distributed to the investors in proportion to their capital outlay, except otherwise stipulated in the enterprise agreement, contract or articles of association.
Article 30. The following materials related to the clearing process should be certified by a China-registered accountant:
(1) The balance sheet for the clearing process and account statements;
(2) Account books forwarded by the board of director to the clearing committee;
(3) Lists of creditor’s rights and debts contained in the plan for the clearing process;
(4) The basis of asset evaluation.
Article 31. Guiding principles for the evaluation of the assets of an enterprise:
(1) Where there are relevant stipulations in the contract and articles of association of the enterprise, the stipulations should be followed;
(2) In the absence of such stipulations in the contract and articles of association, the matter should be settled by parties concerned of the investment, and the results reported to the approval authorities for record;
(3) In the absence of such stipulations in the contract and articles of association and in case of failure of an agreement by the parties concerned through negotiation, the matter should be handled according to relevant State regulations.
Article 32. The disposal of assets of an enterprise should be carried out according to the plan adopted by the board of directors for the clearing process.
Chinese and foreign investors have priority to purchase the assets which are to be sold. Where there are more than one purchasers, the deal goes to a higher bidder.
When Chinese and foreign investors all give up their right to purchase the assets, the clearing committee may sell off the property by public bidding or by auction with consent from the board of directors.
Article 33. For an enterprise subject to liquidation, the surplus of the clearing, that is the remaining amount of its net assets (or surplus property) after deducting payments of profit, various foundation funds, clearing expenses, and the paid up capital, are taxable in accordance with stipulations of the Income Tax Law of the People’s Republic of China Concerning Foreign-funded Enterprises and Wholly Foreign-owned Enterprises.
All tax arrears of the enterprise before its liquidation should be paid up in accordance with State tax laws.
Article 34. At the closing of the clearing process, the clearing committee should compile and sent the relevant account statements and a report on the clearing process, to the board of directors for examination and then for certification from a China-registered accountant through a report.
The clearing committee should send the clearing account statements, the final clearing report and the accountant’s certification report to the managing department concerned and the financial, tax and customs offices for examination and to the approval authorities for record.
Article 35. Within 10 days of sending its final clearing report to the managing department and approval authorities, the clearing committee must cancel the tax and customs registrations at the taxation and customs offices.
Within 10 days of cancellation of the aforementioned registrations, the clearing committee should, with payment certificates by taxation and customs offices, go to the industrial and commercial administration office to cancel the business registration of the enterprise and hand over the business license and its duplicates and the enterprise seals on behalf of the board of directors.
Article 36. At the end of the clearing process, the account books, account statements, documents and relevant materials belonging to a Chinese-foreign joint venture or a Chinese-foreign cooperative venture are to be kept in custody by the Chinese side of the investors, and those belonging to a wholly foreign-owned firms by a department to be appointed by the approval authorities.
CHAPTER III SPECIAL CLEARING PROCESSCHAPTER III SPECIAL CLEARING PROCESS
Article 37. In any one of the following cases in which a normal clearing process cannot be carried out, a special clearing process should be pursued:
(1) The board of directors cannot work out a resolution on the process of enterprise liquidation;
(2) The enterprise’s business license is withdrawn by the industrial and commercial administration office, or the enterprise is closed by the approval authorities, because of its violation of State laws and regulations;
(3) The enterprise applies for the practice of a special clearing process;
(4) Other circumstances which prevent the use of the normal clearing process.
Article 38. Under a special clearing process, the clearing committee of an enterprise is to be appointed by the approval authorities or a managing department concerned appointed by the approval authorities.
Article 39. During the period of liquidation, the clearing committee performs the duties of the board of directors, and the members of the board should assist the clearing committee in its work.
Article 40. In addition to the duties as stipulated in Article 13 of these procedures, the clearing committee can also convene and preside over board meetings.
Article 41. The clearing committee is responsible to reports its works of clearing to the approval authorities.
Article 42. Except property mortgage guarantee debts, the enterprise will pay its debts in the following order:
(1) Employees’ wages and labor insurance fees in arrears;
(2) Taxes in arrears;
(3) Other debts.
Article 43. For a special clearing in which an enterprise is not to pay off its debts with its remaining assets, the following actions committed within the six months before the approval authorities make the decision for clearing are invalid:
(1) Concealment, private sharing and free transference of property;
(2) Selling off of assets at abnormally low prices;
(3) Offering of property guarantees for debts which does not formally require such guarantees;
(4) Payments of debts before their due;
(5) Renouncing its own creditor’s rights.
The clearing committee has the right to sue the enterprise which has to undergo a special clearing process for the actions taken as specified above and demand the return of the properties to be included in those part of property for special clearing.
Article 44. An enterprise which has acquired the status of a Chinese legal person should use all its assets to fulfill its debt obligations.
When the assets of a Chinese-foreign cooperative venture are insufficient to cover its debts, the Chinese and foreign cooperators should pay the debts with the property of the venture and the recovered part of the investment in their cooperation.
Article 45. The clearing committee should submit its final clearing report to the approval authorities for approval.
Article 46. When the enterprise’s assets is insufficient to meet the clearing work expenses, the clearing committee can terminate the clearing process upon approval by the approval authorities.
Article 47. For stipulations unspecified in this chapter, reference can be made to relevant stipulations in Chapter Two of these Rules.
CHAPTER IV LEGAL RESPONSIBILITIES
Article 48. During liquidation of an enterprise, members of the clearing committee, the board of directors and the clearing work group shall be charged in civil terms for any damages they have caused as a result of an unlawful acts they have committed or in criminal terms for crimes they have committed.
CHAPTER V SUPPLEMENTARY ARTICLES
Article 49. Where State laws and regulations have otherwise stipulated with regard to enterprise liquidation, those stipulations shall prevail.
Article 50. The clearing process for enterprises with investments from businesses or other economic organization from Hong Kong, Macao and Taiwan shall be pursued with reference to these procedure.
Article 51. The right to interpret the present procedures resides in the Municipal Commission on Foreign Economic Relations and Trade.
Article 52. These procedures shall come into effect from June 1, 1992.