Brief of the Company Dissolution, Liquidation and Deregistration under China's New Company Law
Time:2024-04-28 16:15:36Source:Click:次
China's updated Company Law, set to take effect on July 1, 2024, introduces new provisions governing the dissolution and liquidation of companies. These articles outline procedures for dissolution, liquidation, and cancellation, as well as delineate the entities responsible for carrying out these processes.
I. Company Dissolution
Company dissolution signifies the cessation of all external business activities, marking the commencement of liquidation (except in cases of merger or demerger), ultimately resulting in the termination of the company's legal status.
1. Causes of company dissolution
According to Article 229 of the new Company Law, a company may be dissolved under the following circumstances:
(1) Expiry of the stipulated business period or other dissolution reasons outlined in the articles of association.
(2) Dissolution by resolution of the shareholders' meeting.
(3) Necessity for dissolution due to company merger or spin-off.
(4) Revocation of the business license or closure order by law.
(5) Dissolution mandated by the People's Court as per Article 231 of the Law.
2. Method of company dissolution
(1) Arbitrary Dissolution: Initiated based on the articles of association or shareholder meeting resolutions, requiring approval by over two-thirds of voting shareholders. Article 230 of the new Company Law permits companies dissolved via these means, yet to distribute assets, to continue operations by amending the articles or through shareholder resolutions.
(2) Dissolution by Litigation: Under Article 231 of Company Law, shareholders holding at least ten percent of voting rights may petition the People's Court for dissolution if the company faces severe operational difficulties jeopardizing shareholders' interests, with specific circumstances enumerated in the Supreme Court's Interpretation 2 of the Company Law.
Based on Interpretation 2 of the Company Law by the Supreme Court of China, specific circumstances indicating "serious difficulties in the operation and management of the company" include:
--Inability to convene a shareholders' meeting or a general meeting of shareholders for a continuous period exceeding two years, leading to significant operational and managerial challenges.
--Shareholders failing to meet the required proportion of voting rights as per legal or articles of association stipulations, thereby hindering effective decision-making. If such a situation persists for more than two years without reaching a resolution, it signifies serious operational and managerial difficulties.
--Prolonged conflicts among directors that cannot be resolved at shareholders' or general meetings, resulting in operational and managerial challenges.
--Other substantial operational and managerial difficulties that would cause significant loss to shareholders' interests if the company continues operating.
II. Company Liquidation
Companies dissolved under Article 229(1)(a), (b), (d), and (e) of the new Company Law must undergo liquidation. The appointed liquidation team, within fifteen days of dissolution, assumes responsibility for liquidation, which may be conducted via self-liquidation or compulsory liquidation.
1. Self-liquidation
The dissolved company forms its own liquidation team, as mandated by the new Company Law, comprising directors. However, the articles of association or shareholder resolutions may independently select team members.
2. Compulsory liquidation
Initiated by the People's Court if the company fails to establish a liquidation team within the stipulated time frame or deliberately delays liquidation, potentially harming creditors or shareholders.
3. Duties of the liquidation team
As per Article 234 of the new Company Law, the responsibilities of the liquidation team encompass:
--Organizing the company's assets and compiling a balance sheet and property list.
--Notifying and announcing to creditors.
--Handling any outstanding business pertinent to the liquidation.
--Settling outstanding taxes and any taxes incurred during the liquidation process.
--Resolving creditor debts.
--Distributing remaining company assets after debt settlement.
--Acting on behalf of the company in civil litigation matters.
III. Company Deregistration
Upon completion of liquidation, the liquidation team produces a report, subject to confirmation by the shareholders' meeting or the People's Court, before applying for deregistration with the company registration authority. The new Company Law introduces simplified and compulsory deregistration procedures in addition to standard deregistration.
1. Simplified Cancellation
Article 240 outlines conditions for simplified deregistration, including no outstanding debts and written commitment from all shareholders, aligning with existing regulations and imposing joint and several liability on shareholders to prevent abuse.
2. Compulsory Cancellation
Under Article 241, companies failing to apply for deregistration despite license revocation or closure orders for three years may face compulsory cancellation, with shareholders and liquidators retaining their liabilities.
