Voluntary, compulsory liquidation of foreign-invested enterprises

The Supreme People’s Court (SPC) held a news conference in Beijing on 3 August 2017. According to the figures then disclosed by the SPC, 53.8% more bankruptcy cases were accepted nationally in 2016 compared with 2015, with a total of 3,602 bankruptcy cases concluded.

As at 31 July 2017, courts nationwide had accepted more than 4,700 compulsory corporate liquidation and bankruptcy cases, and concluded 1,923. Among those, compulsory liquidations of foreign-invested enterprises have been trending upwards year-on-year. The authors will discuss the similarities and differences in the voluntary and compulsory liquidation of foreign-invested enterprises in light of their firm’s experience.

DIFFERENT PROVISIONS

Generally speaking, the term “foreign-invested enterprise” refers to three types of enterprises: Sino-foreign equity joint ventures; Sino-foreign co-operative joint ventures; and wholly foreign-owned enterprises established in China in accordance with the law. The term may also be extended to include foreign-invested joint stock limited companies, foreign-invested partnerships, etc.

Voluntary liquidation of a foreign-invested enterprise, which refers to the shareholders of such enterprise deciding at their own discretion to carry out liquidation, is specifically subject to the first, second and third paragraphs of article 180 of the Company Law. This is directly manifested in the shareholders of the foreign-invested enterprise being required to issue at their own discretion a liquidation resolution or decision.

For example, pursuant to the above-mentioned provisions, the grounds for dissolution of the company may include any of the following: (1) the term of operation specified in the company’s articles of association expires, or another reason for dissolution as specified in the company’s articles of association arises; (2) the shareholders’ meeting or the shareholders’ general meeting resolves to dissolve the company; (3) the company needs to be dissolved due to a merger or division; or (4) the company has had its business licence revoked, is ordered to close down, or is closed down in accordance with the law.