SPC: Company's Mandatory Liquidation - 最高人民法院印发《关于审理公司强制清算案件工作座谈会纪要》的通知
Released on November 4, 2009, and effective as of the same date
In an attempt to provide rules and procedures for the liquidation of a company, on May 19, 2008, the Supreme People's Court (SPC) promulgated the Judicial Interpretation (II) [2008] No. 6 Concerning Issues on Application of PRC Company Law (“Judicial Interpretation”). Unfortunately, the Judicial Interpretation did not resolve all the issues and left the need for additional rules. To address this need, on November 4, 2009, the SPC issued a new judicial interpretation (in the form of meeting records) titled Guiding People's Court on Hearing Cases Regarding Company's Mandatory Liquidation (the “Meeting Records”). A few points of the Meeting Records are briefly touched on below:
· Applying for Mandatory Liquidation of a Company
A company's creditors or its shareholders may apply to the people's court for mandatory liquidation. The application shall provide, among other things, the facts and circumstances of the matter, proof of the company’s dissolution and proof of applicants right to file the application.
· Review and Acceptance of the Mandatory Liquidation Application
The Meeting Records established a new mechanism titled "Testimonial Session" where the court decides whether or not to accept an application for mandatory liquidation. Notice of this session is given by the court to interested parties five (5) days prior to the session. At the session, the court will hear issues concerning whether the applicants are qualified, whether the dissolution of the company occurred, and whether the mandatory liquidation is in compliance with laws and regulations. The people's court shall determine whether or not to accept the mandatory liquidation application within 10 days from the "Testimonial Session". The company may object to the application, and such disputes will be resolved either through litigation or arbitration.
· Designation of Liquidation Group
The court shall designate the liquidation group members after the mandatory liquidation application is accepted. The company's shareholders, directors, supervisors, and senior managers would have priority to be designated as the members if they are willing and able to do so. If not, the court may designate intermediaries or individuals to form the liquidation group from the <Intermediary Directory of the People's Court> and the <Individual Directory of the People's Court>.
· Insolvency During the Company's Mandatory Liquidation Process
During the company's mandatory liquidation process, if the company is determined to be unable to use all of its assets to repay its debts, the liquidation group shall apply to the court for an insolvency declaration.
· Termination of the Mandatory Liquidation Process
After the liquidation is completed and the liquidation report drafted by the liquidation group is approved by the court, the court will determine whether to terminate the liquidation process. If the process is terminated, the liquidation group will then have the company deregistered.