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M&A in China

M&A in China

Chapter 5 Legal Liability

Article 32 Where the Transferor, the enterprise holding the subject matter of transfer or the Transferee commits one of the following acts during the transfer of State-owned property rights of enterprises, State assets supervisory authorities or relevant approval authorities of the transfer of State-owned property rights of enterprises shall require the Transferor to terminate the transfer of property rights. When necessary, such authorities shall bring an action in the people’s court according to law to confirm the invalidity of the transfer:

  1. Failure to carry out transaction in property right transaction agency according to the relevant provisions of these regulations;
  2. The Transferor or the enterprise holding the subject matter of transfer fails to implement corresponding internal decision making procedure and approval procedure or transfers State-owned property rights of enterprises beyond its authority or without permission;
  3. The Transferor or the enterprise holding the subject matter of transfer intentionally conceals the assets to be included in the appraisal scope or provides intermediary organization with false accounting information so as to cause the distortion of the result of audit and appraisal and its failure of audit and appraisal causes the loss of State assets;
  4. The Transferor and the Transferee collude and transfer State-owned property rights of enterprises at low price so as to cause the loss of State assets;
  5. The Transferor or the enterprise holding the subject matter of transfer fails to properly place staff and workers, continue social insurance relationship, settle the debts owed to staff and workers and pay the social insurance premiums in arrears and infringe upon the lawful rights and interests of staff and workers;
  6. The Transferor fails to settle the creditor’s rights and debts of the enterprise holding the subject matter of transfer, illegally transfers creditor’s rights or avoid the responsibility for debt settlement. Where State-owned property rights of enterprises are taken as security, the State-owned property rights of enterprises are transferred without the consent of the security right owner.
  7. The Transferee affects the choice of the Transferor and the signing of the contract for the transfer of property rights by means of fraud, concealment, etc.;
  8. The Transferees maliciously collude and force down price during bidding and auction for the transfer of property rights so as to cause the loss of State assets.

State assets supervisory authorities or relevant enterprise shall give warning to the persons directly in charge and other persons directly responsible of the Transferor or the enterprise holding the subject matter of transfer that has committed any of the above acts according to the authority of personnel management. If the circumstances are serious, such persons shall be given disciplinary punishment. In case of loss of State assets, such persons shall bear liability for compensation. Where the Transferee is liable for the loss of State assets, it shall compensate the Transferor for economic loss according to law. If a crime is constituted, such persons shall be transferred to judicial authorities and investigated for criminal liability according to law.

Article 33 Where an intermediary organization practices against the relevant regulations during the audit, appraisal and legal services in respect of the transfer of State-owned property rights of enterprises, national assets supervisory authorities shall notify its industrial authorities in charge of relevant information and suggest the imposition of corresponding penalty. If the circumstances are serious, State assets supervisory authorities may require relevant enterprise no longer to entrust such intermediary organization with the services in respect of the transfer of State-owned property rights of enterprises.

Article 34 Where a property right transaction agency practices fraud or neglect its duties during any transaction of State-owned property rights of enterprises and harms national interest or the lawful rights and interests of the parties to the transaction, the persons directly responsible shall be held liable according to law. State assets supervisory authorities shall no longer appoint such agency to provide services in respect of the transaction of State-owned property rights of enterprises.

Article 35 Where the approval authorities in charge of the transfer of State-owned property rights of enterprises and their relevant personnel approve any transfer of State-owned property rights of enterprises against these regulations and without permission or abuse their power for personal gains in approval and cause the loss of State assets, relevant department shall give them disciplinary punishment within cadre administration authority. If a crime is constituted, they shall be transferred to judicial authorities and investigated for criminal liability according to law.

Chapter 6 Supplementary Provisions

Article 36 Regulations on the transfer of State-owned property rights of enterprises of overseas enterprises shall be separately enacted.

Article 37 The transfer of State-owned property rights of enterprises held by an entity that has not separated governmental functions from corporate ones and other entities shall be subject to the approval of the financial department in charge with reference to these regulations for implementation.

Article 38 The State-owned Assets Supervision and Administration Commission under the State Council shall be responsible for the interpretation of these regulations. Where relevant department is involved, relevant department of the State-owned Assets Supervision and Administration Commission shall be responsible for the interpretation.

Article 39 These regulations shall be effective as of 1 February, 2004.

February 2009

Please note that this memorandum is for general information purposes only. Specific legal advice should be sought in relation to any particular situation.

M&A in China

M&A Rules

Interim Provisions on the Takeover of Domestic Enterprises by Foreign Investors

The Measures for the Administration of Strategic Investment in Listed Companies by Foreign Investors

Interim Provisions on Restructuring State Owned Enterprises with Foreign

Investment

Interim Measures for the Management of the Transfer of the State-owned Property

Right of Enterprises

Ministry of Commerce of the People’s Republic of China

direct equity acquisition

indirect acquisition

asset acquisition


Skills

Posted on

2015-02-03