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In China, there are often sound business reasons why a joint venture or Wholly Foreign Owned Enterprise should be wound up. Sometimes the business has simply run its course. Sometimes the joint venture partners cannot agree on how the business should be run. Sometimes companies need to be liquidated for no other reason than they are not needed post merger or acquisition. Whatever the reason, there is only one certainty: liquidating a Chinese company involves a complex compliance and government approval process that is rarely straightforward. The good news is that over the years PricewaterhouseCoopers has amassed significant experience in relation to the liquidation of companies incorporated in China, ranging from dormant companies to corporations with ongoing operations and substantial assets. We can thus help stakeholders navigate through the liquidation process, helping to clarify available options, minimise loss exposure and perhaps most importantly, free-up management time and resources to focus on forward looking projects.
Solvent Liquidations
Most Chinese Foreign Invested Enterprises (FIE) that are wound up are liquidated on a solvent basis. Why? Because most foreign institutions that have made investments in China want to preserve their reputations and ongoing relationships. Thus, to ensure a solvent liquidation, the shareholders must place sufficient funds in the company being liquidated to ensure all creditors are paid in full. We help companies prepare for a solvent liquidation including advising in relation to the timing and potential compensation required for early termination of contracts, strategies to dispose of assets and recover outstanding debts, and approaches to deal with tax, foreign exchange and other compliance issues. Our roles have involved:
- acting as member of the liquidation committee,
- arranging for the termination of employees,
- realising fixed and movable assets,
- commencing litigation against delinquent debtors, and
- obtaining the requisite approvals from various government departments including the tax and customs clearances required for de-registration.
The solvent liquidation process for FIEs in China is dictated by a series of government approval and foreign exchange controls. It is generally more complex and time-consuming than the original procedures for setting up the companies. Our experience indicates that to implement a solvent liquidation successfully, it takes more than just knowledge of the documents and regulations. Equally critical is first-hand experience on local practices and availability of local resources to conduct the considerable amount of on-the-ground activities that are required. Given PwC's extensive China network and experience, we are well positioned to help clients navigate through the difficult path of administrative procedures and controls required to achieve a successful solvent liquidation in China.
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Insolvent Liquidations
PricewaterhouseCoopers is known for being the liquidators of some of the region's largest and most complex corporate insolvencies originating out of Hong Kong and many of these insolvencies involve liquidating companies whose assets and/or operations are primarily situated in China (e.g. Greater Beijing First Expressways and Albatronics Group). We have one of the largest and most experienced dedicated insolvency teams in Greater China to manage insolvencies from the initial crisis situation through to completion of distribution of assets to creditors. As a result, our partners are recognised as some of the the leading insolvency practitioners to provide insolvency related services in China. For more information about our Hong Kong practice, read our Hong Kong based liquidation services.
On 27 August 2006 the Standing Committee of the National People's Congress adopted a long awaited new enterprise bankruptcy law. The new law will come into effect on 1 June 2007 and will replace the current enterprise bankruptcy law which was enacted back in 1986.
Comprised of 12 chapters and containing 136 articles, the new law is modelled on international best practices and establishes a unified statutory framework for bankruptcy for all enterprises in China, whether state or privately owned, and provides much clearer procedures for insolvent enterprises to restructure or exit the market by means of reorganisation, conciliation or bankruptcy. Read more about the China's new Enterprise Bankruptcy Law.
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