Liquidating Wholly Foreign-Owned Enterprises

According to Chinese law, a WFOE must be dissolved if any of the following circumstances apply: 

a. Its term of operation expires

b. The board of shareholders has adopted a resolution for dissolution to dissolve the company

c. It is merged or divided

d. Its business license is revoked by law, or the company is ordered to terminate or cancel it

f.Where there are serious operational difficulties and its continuance will cause significant losses to shareholders' interests, and if these are not able to be resolved, shareholders representing 10 percent or more of the voting rights of all shareholders may request dissolution by the People's Court

g. Other reasons for dissolution stipulated in the original Articles of Association have occurred

h. Upon the declaration of dissolution, the company is required to start the liquidation procedures.

Creation of liquidation committee

A liquidation committee is composed of its shareholders to handle the liquidation within 15 days from the dissolution date of the company. The liquidation committee shall liquidate and value the company's assets in accordance with Chinese law and the articles of association.

During the course of liquidation, the company shall not conduct any business activities irrelevant to the liquidation.  The liquidation team shall have the right to handle the company's ongoing businesses which are related to liquidation - to terminate employment contracts, to sell, export, transfer, assign or otherwise dispose of any and all assets belonging to the company whether they be inside or outside China, as well as to conclude all business matters of the company.

The liquidation committee shall exercise the following functions and powers during liquidation:

a. Liquidate the assets of the company, prepare a balance sheet and list of assets, and formulate the liquidation plan

b. Make an announcement for the benefit of unknown creditors and notify known creditors in writing

c. Complete any unfinished business of the company

d. Pay all outstanding taxes

e. Settle all of the company's claims and debts

f. Dispose of the remaining assets after the company's debts have been settled

g. Represent the company in any civil litigation

h. Produce the liquidation report and submit to the board of shareholders and the authorities for approval

To read the full version of this article, please purchase the Closing Down Representative Offices and Liquidating Businesses in China issue of Asia Briefing Bookstore. Companies requiring assistance may contact any Dezan Shira & Associates' nine national offices at china@dezshira.com for advice or visit www.dezshira.com.