General Office of the Ministry of Commerce, Transmission of the «Legislative Affairs Office of the State Council, Questions Relevant to Specific Application Regarding Investors' Capital Contributions to and Liquidation of Foreign-invested Enterprises Reply»Circular

Issued: March 18 2005

Main contents: The Circular clarifies that funds raised through loans of a party to a joint venture in its own name shall be regarded as the party's own cash (Item One). According to Article 7 of the Capital Contribution by Parties to Sino-foreign Equity Joint Ventures Several Provisions, where any party to a joint venture fails to pay its capital contribution in on time or pay in full in accordance with the joint venture contract, such failure shall constitute a breach of contract. Item Two states that the original examination and approval authority shall, in accordance with valid court judgments or awards by relevant arbitral institutions, recognize such failure of the party to the joint venture as a breach of contract. The authority shall approve the dissolution of the joint venture, or approve the non-defaulting party to find another party to the joint venture to assume the defaulting party's rights and obligations under the joint venture contract. Item Three explains that "the power to make final decisions in respect of the enterprise" in the Supplementary Provisions refers to all decision-making powers vested in the capital contributors of the enterprise. Item Four states that if the liquidation committee fails to submit the liquidation report according to schedule, the matter shall be handled by the original examination and approval authority in accordance with the first paragraph of Article 47 of the Foreign-invested Enterprises Liquidation Procedures. On the question of whether an enterprise may, on the principle of not reducing the value of enterprise property, continue routine business activities during the liquidation period, Item Five states that an enterprise may not launch any new business activities during the liquidation period.
Related legislation: Capital Contribution by Parties to Sino-foreign Equity Joint Ventures Several Provisions, Jan 1 1998, CLP 1988 No.2 p2; Supplementary Provisions, Sep 29 1997, CLP 1997 No.10 p6 and Foreign-invested Enterprises Liquidation Procedures, Jul 9 1996, CLP 1996 No.8 p7