Monthly Archives: September 2015

How to Deal With Existing Contracts In Hard Time

Following a series of articles writing for the recently slowing down Chinese economy, we in this article will discuss how to deal with the existing contracts in case the foreign investors are considering or have decided to exit the PRC market by dissolution and liquidation of their foreign invested enterprises, the corporate vehicles in PRC (“FIE”).

As the employment contracts represented different public concern other than ordinary commercial contracts, we will discuss these two types of contracts separately.

Overview of Mandatory Liquidation in China

We have written in the last article to discuss the legal implication about the voluntary liquidation which was launched by the foreign investors and to a large extent governed by the PRC Company Law (“Voluntary Liquidation”).

In this article, we will proceed to set out the overview of a more contentious scene of so-called mandatory liquidation, which offered the last way out to the shareholder (more commonly seen minority shareholder) struggling in deadlocks or to the creditors claiming their money back (“Mandatory Liquidation”).

Legal Consequences of Illegal Liquidation in PRC

We have written in the last article to discuss various options for foreign investors to walk out of China during the recent risky period of time. One of the most commonly seen alternatives is for the foreign investors to take initiatives to dissolve and liquidate their PRC vehicles (collectively as “FIE”) voluntarily, which include the following major steps:

The Alibaba Partnership

The Alibaba Partnership raised a record-breaking US $25billion IPO on the New York Stock Exchange last September. The Chinese company was listed on the New York Stock Exchange after Hong Kong refused to allow the listing of a company with a stock structure that differed in the voting rights given to its management and its shareholders, in turn raising discussion of the Alibaba Partnership and its peer-based approach, with a small group of managers nominating the majority of directors on the board. The Alibaba partnership grew out of an original gathering in 1999, which was later formalized as an official partnership in July 2010 as ‘Lakeside Partners’, yet is commonly referred to as the ‘Alibaba Partnership.’

Exploration of Various Options to Walk Out of PRC

As the firm expectation of RMB appreciation is compromised and PRC is undergoing the painful economic restructuring, how to exit PRC has becoming an increasingly relevant matter for investors which had incorporated various foreign invested enterprises such as wholly foreign owned enterprises or joint ventures with local partners (collectively as “FIE”) within PRC.

In response to the foregoing change of capital flows, we summarized commonly seen options to exit PRC as starting point to consider and deal with the ever changing economy of PRC.

Nominee Shareholding Disputes In China

Probably due to the absence of trust law in PRC current legal scheme, the anonymous / nominee investment arrangement has been widely adopted by the foreign investments in China, i.e., the foreign investor may by contract request the local qualified investor to hold the shares of a PRC company as the shareholder shown on official corporate registration record. Although some of such arrangements are for legitimate purpose such as protection of privacy or avoidance of burdensome notarization and legalization procedures, most of such arrangements are in grey areas such as to get around certain PRC legal restrictions. Unsurprisingly, when disputes arise between the foreign investors and the nominee shareholders, the nominee shareholders will attack the validity of such anonymous / nominee investment arrangement. In response to the increasing amount and complexities of disputes in this connection, the PRC People’s Supreme Court released a judicial interpretation “Provisions of the People’s Supreme Court on Several Issues of Trial of Disputes Involving Foreign-Invested Enterprises (I)” (the “FIE Interpretation”) on August 5, 2010, which has entered into effect on August 16, 2010. The FIE Interpretation has provided for such disputes arising from the aforesaid anonymous / nominee investment arrangement specifically. In a nutshell, In […]