Restructurings and Liquidations

There are many reasons why a foreign company might restructure their China operations: When a Chinese investor acquires a stake in a foreign-invested company (and vice versa), the company automatically becomes a so-called Joint Venture. In the event several Chinese subsidiaries of an international incorporation shall to be merged, the options, types and conditions for corporate mergers under Chinese laws and regulations must be taken into account. Also, a business operation may need to be relocated to another site for economic reasons - or may be required to do so due to local authorities' constraints.

Each and any form of restructuring - including the closure of a Chinese subsidiary - requires close coordination with all relevant local Chinese authorities.

If the economic situation necessitates the closure of a business operation in China, all steps of the local Chinese liquidation procedures should be carefully planned in order to avoid, as far as possible, unforeseen obstacles and costly delays. If necessary, Chinese regulations governing the filing for bankruptcy proceedings should also be taken into account, in time.

In the event of a formal liquidation procedure, all relevant authorities should be involved as early as possible. Local authorities are often willing to negotiate and open to practical solutions, especially with regard to businesses in economic difficulties or distress.

If a subsidiary or business unit in China is to be closed, this requires thorough preparation regarding layoffs of the local workforce, by taking into account the legal requirements for business closures. Finally, a solution for terminating each employee’s individual employment contract must be prepared and implemented. For employees who are to remain on the payroll "until the very end" during the liquidation process, individual solutions must be found, by taking into account the fact that a company undergoing liquidation proceedings in China will - at a certain point - no longer be able to pay out salaries.

The liquidation of foreign business operations and subsidiaries requires a comprehensive deregistration process at all relevant local and national authorities. In China, this in general also involves revoking all permits, registrations and other filings etc. that were obtained by the entity at the time of establishment and during the course of its operations.

In general, the authorities involved in the deregistration process also review the accuracy of the official applications and filings submitted during the company’s usual operation times. Furthermore deregistration with the tax authorities often leads to comprehensive tax audits - including retroactive audits - of the entity's recent years of operation.

A Chinese subsidiary in liquidation requires a complete and overall dissolution process, ranging from the termination of all employment relations, the termination of all existing supply and customer contracts, the cancellation of all registrations, approvals and notifications with the public authorities, the preparation of final financial and tax statements, the sale of all inventory, and the return of the leased premises, or the return or sale of land use rights, and finally the dissolution of the remaining company funds and the closing of all bank accounts.

For all of these projects and steps, we can provide you with our expertise, advice and support, based on our many years of experience in China.