Supreme People's Court, Several Questions on the Freezing and Auction of State-owned Shares and Private Legal Person Shares of Listed Companies Provisions

Promulgated: September 21 2001
Effective: September 30 2001
Applicability: These Provisions are applicable where equity interests are subject to property preservation and enforcement measures, such as freezing, appraisal, auction and transfer, by a people's court in civil dispute cases (Article 1). State-owned shares of listed companies include State-owned shares and State-owned legal person shares, and State-owned legal person shares include their equity investments in companies limited by shares; and private legal person shares refer to limited company shares formed by equity investments of non-State-owned legal persons (Article 2).

Main contents: The Provisions state that where the holder or owner of the shares in question, being the debtor in the relevant case, is solvent, the people's court generally does not freeze such shares and that if the shares are already frozen, the court may lift the freeze upon provision of valid security by the shareholder or share owner or a third party (Article 4). Freezing shall not last more than one year but may be extended upon the request of the claimant (Article 6). The effect of the freeze extends to the dividends and other fruits derived from the shares (Article 7). Where the shareholder or share owner provides other assets that are convenient for execution (such as cash, finished products, raw materials, etc.), the court shall order enforcement against such assets first and then against the shares if such assets are not sufficient to discharge the debt, and the shares subject to enforcement shall be put up for auction (Article 8). The people's court shall appoint an asset appraisal institution selected by the creditor and the debtor to conduct a pre-auction appraisal of the shares and an auction institution selected by the creditor and the debtor to conduct the auction (Articles 9 and 12). The appraised value of the shares shall become the reserve price of the shares in the auction (Article 13). A bidder for State-owned shares in the auction shall meet the conditions for becoming a transferee of State-owned shares (Article 15). If, in the course of the auction, a bidder becomes an owner of over 30% of the issued shares of the listed company, the relevant provisions of the PRC, Securities Law shall come into operation and the auction shall be suspended accordingly (Article 16).
Related legislation: PRC, Securities Law (Amended), Oct 27 2005, CLP 2006 No.1 p31; PRC, Company Law (Amended), Oct 27 2005, CLP 2005 No.10 p21; PRC Civil Procedure Law (2nd Revision) and PRC, Auction Law, Jul 5 1996, CLP 1996 No.7 p10