Dissolution & Liquidation of Foreign Investment Enterprises
The Foreign Investment Enterprise herein refers to CHINESE-FOREIGN EQUITY JOINT VENTURES, CHINESE-FOREIGN CONTRACTUAL JOINT VENTURES and WHOLLY OWNED FOREIGN ENTERPRISE.
I Application of the Law
In the former, the dissolution & liquidation of FIEs applies to the MEASURES FOR LIQUIDATION OF FOREIGN INVESTMENT ENTERPRISES promulgated as of 1996. Whereas, the measures had been cancelled by Regarding the decision of abolishing parts of administrative regulations by State Council, and now the Corporation Law of PRC prevails.
In accordance with of new corporation law, the limited liability companies and joint stock limited companies invested by foreign investors shall be governed by the present Law. Where there are otherwise different provisions in any law regarding foreign investment, such provisions shall prevail.
According to the principle of special law has priority to common law, the laws of CHINESE-FOREIGN EQUITY JOINT VENTURES, CHINESE-FOREIGN CONTRACTUAL JOINT VENTURES and WHOLLY OWNED FOREIGN ENTERPRISE shall be applied first upon the issues of dissolution & liquidation of FIEs.
I I Reasons of Dissolution
As for the reasons are specified in Article 90 of the implementation regulations of the Law of the People’s Republic of China on Chinese-foreign Equity Joint Ventures, article 48 of implementation regulations of the law of Chinese-foreign contractual joint ventures and article 72 of implementation regulations of the law of wholly owned foreign enterprise. The specific circumstances are as follows:
1. maturity of business term;
2. occurrence of serious loss and no ability to operate continuously;
3. one party failed in performing obligation prescribed in agreement, contract or article of association, therefore causing no ability to operate continuously
4. one party of Equity Joint Ventures failed in achieving its goal of business, meanwhile lacking development future.
5. suffered by Force Majeure such as act of god, war etc, causing no ability to operate continuously
6. enterprises are ordered to close due to violating the law and administrative regulation;
7. occurrence of the reasons of dissolution & liquidation specified in contract or article of association;
8. ordered to dissolute because of court decision or arbitration award.
Otherwise except provisions mentioned above, new corporation law specifies other reasons of dissolution:
* The shareholders’ meeting or the shareholders’ assembly decides to dissolve it;
* It is necessary to be dissolved due to merger or split-up of the company;
* Where a company meets any serious difficulty during its operation or management so that the interests of the shareholders will be subject to heavy loss if it continues to exist and it cannot be solved by any other means, the shareholders who hold ten percent or more of the voting rights of all the shareholders of the company may plead the people’s court to dissolve the company.
III Liquidation
i Common Liquidation
For CHINESE-FOREIGN EQUITY JOINT VENTURES, where meeting the requirements of (ii), (iv), (v), (vii) mentioned above, the board of director shall bring forward the dissolution application and submit it to approval authority for approval.
For CHINESE-FOREIGN CONTRACTUAL JOINT VENTURES, where meeting the requirements of (ii), (v) mentioned above, the board of director or Joint Management Committee shall bring forward the dissolution application and submit it to approval authority for approval..
For WHOLLY OWNED FOREIGN ENTERPRISE, where meeting the requirements of (ii), (iv) mentioned above, the management institution shall bring forward the dissolution application and submit it to approval authority for approval.
ii Special Liquidation
Where failed in organizing the liquidation committee by enterprise themselves, the authority institution, creditors or investor shall apply for special liquidation through submitting to approval authority or arbitration committee or court.
If submitting the case to court for dissolution, the People’s court only made actions upon the matters concerning validity of joint venture contract, breaching responsibility and whether to terminate the contract or not, have no legal basis to decide the liquidation process.
iii Composition of Liquidation Committee
According to the implementation regulations of the Law of the People’s Republic of China on Chinese-foreign Equity Joint Ventures, the member of liquidation committee shall be designated among the members of the board of directors; where directors failed or was not applicable to assume the member of liquidation committee, enterprise may employ the accountants or lawyers who registered in China to conduct liquidation function, if necessary, the approval authority may designate somebody to supervise the process.
According to the implementation regulations of the law of wholly owned foreign enterprise, the liquidation committee shall be comprised by the legal representative, representative of creditors or representative of competent authority, and employ the accountants or lawyers who registered in China to conduct liquidation process.
IV How to Specify Precaution Provisions to Avoid Deadlock of Operation
i The Designation of General Manager, Vice Manager
According to article of association, the general manager shall be designated by foreign investor and the vice manager shall be designated by Chinese party. To prevent the candidate of general manager or vice manager was constantly rejected by other party, therefore causing deadlock and impact on normal operation, article of association or joint venture contract shall be specified that one party can only veto two times for tow different candidates designated by another party and the third candidate can not be vetoed.
ii As for Enlarging Investment
If it is necessary to increase investment in order to enlarge scale or to improve economic benefits, the article of association can specify that if one party is unable to increase investing capital , he may not be against the other party to increase investment. Meanwhile, the investment proportion shall be adjusted in accordance with the increasing amount.
iii FIEs May Take Full Use of Arbitration Provisions Agreed by Both Parties to Solve the Deadlock of Operation
V The Flow Chart of Liquidation of FIEs
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By Vincent Sun
Attorney at Law
Allen & John Law Firm May 20, 2008
10 key points of the Law of the People’s Republic of China on Mediation and Arbitration of Labor Disputes
This new law was adopted at the 31st Session of the Standing Committee of the 10th National People’s Congress on December 29, 2007 and came into effect on 1 May 2008. I summarize ten key points of this new law as bellows:
I. The New Law Stands out the Function of “Mediation”
Firstly, it is the first time to put “Mediation” into the outstanding position of the labor disputes arbitration law. Secondly, Article 3 of the new law provides the principle of mediation that the resolution of labor disputes shall be based on facts and follow the principles of lawfulness, fairness, timeliness and mediation-oriented to protect the lawful rights and interests of the parties. Accordingly, this new law provides a separate chapter to establish rules of mediation.
II. The Scope of Labor Disputes Which Can Be Arbitrated Is Defined
Prior to this new law, the scope of arbitrated labor disputes was provided generally. However, this new law gives a detailed scope. Article 2 states that the Law shall apply to the following labor disputes between employing units and laborers within the territory of the People’s Republic of China: 1. disputes arising from the confirmation of labor relations; 2. disputes arising from the conclusion, performance, alteration and termination of labor contracts; 3. disputes arising from name removal, dismissal, resignation or vacation of office; 4. disputes arising from working hours, rest days and leave days, social insurance, fringe benefits, training and labor protection; 5. disputes arising from labor remunerations, work injury medical expenses, economic compensation or damages; or 6. other labor disputes prescribed by laws and regulations.
Therefore, the labor disputes can be arbitrated only when they fall into any of the six legal circumstances.
III. The Valid Arbitration Time Is Extended
Originally, the valid time for arbitration stipulated by the old labor arbitration law was 60 days; however, the valid time provided by the new arbitration law is one year which gives more protection to the laborers.
On the other hand, this new law also offers exception of the valid time for arbitration. Where a dispute arises within the subsistence of labor relations due to labor remunerations in arrears, the laborer that applies for arbitration shall not be restricted by the validity of arbitration of one year. However, where the labor relations are terminated, the application for arbitration shall be submitted within one year of the termination of the labor relations.
IV. The Arbitral Award Shall Be Final as to Some Labor Disputes
In respect of the following labor disputes, the arbitral award shall be the final award and the statement of award shall have legal effect from the date of making unless otherwise stated hereof:
1. disputes in relation to the claim of labor remunerations, work-related injury medical expenses, economic compensation or damages which do not exceed the local monthly wage standard for an amount of 12 months;
2. disputes arising from working hours, rest days and leave days and social insurance in the implementation of state labor standards.
V. The Whole Period of Arbitration Is Shortened
According to this new law, from the submission of arbitration application to the end of arbitration, the whole period of arbitration does not exceed 60 days excluding 5 days of deciding whether the disputes shall be arbitrated or not.
VI. The Systems of Advanced Arbitration & Advanced Enforcement Are Established
To protect laborer completely, the new law establish new systems of advanced arbitration and advanced enforcement.
For the advanced arbitration, the new law states that where the partial facts are clear in a labor dispute, the arbitral tribunal can make an award on such parts before whole case finished, which shall give the protection to the laborers in time.
As to the advanced enforcement, the new law says that in respect of cases for the claim of labor remunerations, work injury medical expenses, economic compensation or damages, the arbitral tribunal may, pursuant to the application of the parties, make an award on advanced enforcement and transfer to the people’s court for enforcement before whole case finished. However, where the arbitral tribunal makes an award on advanced enforcement, the following conditions shall be fulfilled:
1. there is a clear relation of rights and obligations between the parties; and
2. The advanced enforcement shall not seriously affect the living of the applicant.
Additionally, where a laborer applies for the advanced enforcement, no relating security may be provided.
VII. The Burden of Proof of Employer Is Increased
Pursuant to the new law, where a labor dispute arises, the parties have the responsibility to give evidence for their own claims. Where the evidence relevant to the dispute matter is handled and managed by the employing unit, the employing unit shall give such evidence. Where the employing unit does not give evidence, it shall assume any unfavorable consequences.
It is obvious that the responsibility to submit relating evidences by the employer has been increased.
VIII. The Place of Arbitration
This new law states that labor disputes shall be handled by the labor dispute arbitration commission at the place where the labor contract is performed or at the place where the employing unit locates. Where both parties apply for arbitration to the labor dispute arbitration commission at the place where the labor contract is performed or the place where the employing unit locates, the labor dispute shall fall within the jurisdiction of the labor dispute arbitration commission at the place where the labor contract is performed.
Such an article gives both parties rights to choose the place of arbitration, which is helpful to make the case clear as well as to arbitrate the case.
IX. The Parties Under the Condition of Labor Dispatch Have Been Defined
Focusing on the condition of labor dispatch, the new law stipulates clearly that the laborer and the employing unit in a labor dispute are the parties to labor dispute cases. Where there is a labor dispute between a labor deployment unit and a laborer, the labor deployment unit and the employing unit are the joint parties.
X. There Is No Fee for the Labor Arbitration
From 1 May 2008, the labor arbitration is free.
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Written by
Ivy Hou
Legal Assistant
Allen & John Law Firm
May 9, 2008