Provisions on Several Issues Concerning the Application of the «PRC Company Law» (2) (Revised)

(1) the company has been unable to call a shareholders' meeting or shareholders' general meeting for at least two years in succession and serious difficulties have arisen in its operations and management;

(2) when the shareholders vote, they have been unable to reach the statutory percentage or the percentage specified in the company's articles of association, making it impossible to pass a valid resolution of the shareholders' meeting or shareholders' general meeting for at least two years in succession, and serious difficulties have arisen in the company's operations and management;

(3) there has been a long-standing conflict between directors of the company that cannot be resolved by the shareholders' meeting or shareholders' general meeting and serious difficulties have arisen in the company's operations and management; or

(4) other serious difficulties have arisen in the company's operations and management and its continued existence would cause a material loss to the interests of the shareholders.

If a shareholder or shareholders institute(s) a legal action to dissolve the company on the grounds that rights and interests such as its/their right to know and its/their right to a share of the profits have been harmed, or that the company has incurred losses and its property is insufficient to discharge all of its debts or that the company has had it legal person business licence revoked but has not been liquidated, the people's court shall not accept the case.

Article 2: If a shareholder or shareholders institute(s) a legal action to dissolve the company and also petition(s) a people's court to liquidate the company, the people's court shall not accept its/their liquidation petition. The people's court may inform the plaintiff(s) that it/they may arrange for the liquidation itself/themselves or file a separate petition with the people's court for the liquidation of the company in accordance with Article 183 of the Company Law and Article 7 hereof after the people's court has rendered its judgment on the dissolution.

Article 3: If a shareholder or shareholders institute(s) a legal action to dissolve the company and petition(s) a people's court for property preservation or evidence preservation, the people's court may grant such preservation provided that the shareholder or shareholders provide(s) security and such preservation does not affect the normal operations of the company.

Article 4: When a shareholder or shareholders institute(s) a legal action to dissolve the company, the company shall be named as the defendant.

If the plaintiff(s) name(s) another shareholder as a defendant and institute(s) a legal action jointly against it and the company, the people's court shall inform it/them to name such shareholder as a third party. If the plaintiff(s) insist(s) on not making the change, the people's court shall reject its/their suit against such shareholder.

When the plaintiff(s) institute(s) a legal action to dissolve the company, it/they shall inform the other shareholders or the people's court shall notify them to participate in the suit. If another shareholder or a materially interested party petitions to participate in the suit as a co-plaintiff or as a third party, the people's court shall permit it to do so.

Article 5: When a people's court tries a lawsuit to dissolve a company, it shall favour mediation. If the concerned parties reach an agreement through consultations to have the company or a shareholder acquire the shares or use means such as a capital reduction to cause the company to continue to exist without violating mandatory provisions of laws and administrative regulations, the people's court shall uphold such agreement. If the parties fail to reach an agreement through consultations on causing the company to continue to exist, the people's court shall render a judgment in a timely manner.

If the people's court mediates the acquisition of the plaintiff's or plaintiffs' shares by the company, the company shall transfer or cancel such shares within six months from the date on which the mediated settlement agreement entered into effect. Until the shares are transferred or cancelled, the plaintiff(s) may not oppose creditors of the company on the grounds that the company has acquired its/their shares.

Article 6: The judgment rendered by a people's court in a lawsuit to dissolve a company shall be legally binding on all the shareholders of the company.

If the shareholder or shareholders who instituted the original legal action or (an)other shareholder(s) institute(s) another legal action to dissolve the company based on the same facts and on the same grounds after the people's court rendered a judgment rejecting the petition to dissolve the company, the people's court shall not accept the case.

Article 7: A company shall, in accordance with Article 183 of the Company Law, establish a liquidation committee and commence liquidation itself within 15 days from the date on which a ground for dissolution arises.

If, in any of the circumstances set forth below, a creditor petitions a people's court to designate a liquidation committee to carry out the liquidation, the people's court shall accept the petition:

(1) the company has been dissolved but no liquidation committee has been established to conduct the liquidation after the expiration of the aforementioned period;

(2) although a liquidation committee has been established, it is deliberately holding up the liquidation; or

(3) the liquidation is illegal and could materially harm the interests of the creditors or shareholders.

If any of the circumstances set forth in the second paragraph of this Article exists, no creditor has filed a liquidation petition and a shareholder of the company petitions the people's court to designate a liquidation committee to liquidate the company, the people's court shall accept such petition.

Article 8: Once a people's court accepts a company liquidation case, it shall designate relevant persons to form a liquidation committee in a timely manner.

The members of the liquidation committee may be selected from among the following persons or organizations:

(1) the company's shareholders, directors, supervisors and senior management personnel;

(2) a legally established private intermediary firm, such as a law firm, accounting firm or bankruptcy liquidation firm; or

(3) the persons of a legally established private intermediary firm, such as a law firm, accounting firm or bankruptcy liquidation firm, who have the relevant professional knowledge and practice qualifications.

Article 9: If any of the circumstances set forth below applies to a member of the liquidation committee designated by a people's court, the people's court may replace such member based on a petition by a creditor or shareholder, or ex officio:

(1) he/she has violated a law or administrative regulation;

(2) he/she has lost its professional capacity or capacity for civil acts; or

(3) he/she has committed an act that materially harms the interests of the company or its creditors.

Article 10: Until the liquidation of the company has been completed in accordance with the law and de-registration procedures have been carried out, civil lawsuits involving the company shall be conducted in the name of the company.

If the company has established a liquidation committee, the person in charge of the liquidation committee shall participate in the lawsuit on the company's behalf. If a liquidation committee has not yet been established, the incumbent legal representative shall participate in the suit on the company's behalf.

Article 11: When a company is to be liquidated, the liquidation committee shall notify in writing all known creditors of the dissolution and liquidation of the company in accordance with Article 185 of the Company Law and, depending on the size of the company and the geographic scope of its operations, make an announcement in an influential national newspaper or an influential provincial level newspaper in the place where the company is registered.

If the liquidation committee fails to perform its notification and announcement obligations in accordance with the preceding paragraph, thereby resulting in creditors' failing to declare their claims in a timely manner and being unable to obtain repayment, and a creditor asserts that the members of the liquidation committee are liable for compensation in respect of the losses incurred as a result thereof, the people's court shall uphold such assertion.

Article 12: If, during the liquidation of a company, a creditor objects to its claim as determined by the liquidation committee, it may request that the liquidation committee determine it anew. If the liquidation committee does not determine the claim anew or the creditor still objects to the claim as determined anew, and the creditor, naming the company as the defendant in a lawsuit instituted in a people's court, requests confirmation of its claim, the people's court shall accept the case.

Article 13: If a creditor fails to declare its claim during the prescribed period, but does so subsequently before conclusion of the company liquidation procedure, the liquidation committee shall register its claim.

The term “conclusion of the company liquidation procedure” means that the shareholders' meeting, shareholders' general meeting or the people's court has completed confirmation of the liquidation report.

Article 14: A claim declared subsequently by a creditor may be discharged in accordance with the law from the undistributed property of the company. If the claim cannot be fully discharged from the undistributed property of the company and the creditor requests that the shareholders discharge the claim from the share of the remaining property that they received, the people's court shall uphold such request, unless the creditor failed to declare its claim during the prescribed period due to gross negligence.

If a creditor or the liquidation committee files a bankruptcy liquidation petition with a people's court on the grounds that a claim declared subsequently cannot be fully discharged from the undistributed property of the company and the shares of the remaining property received by the shareholders, the people's court shall not accept such petition.

Article 15: If a company carries out liquidation itself, the liquidation plan shall be submitted to the shareholders' meeting or shareholders' general meeting for confirmation in the form of a resolution. If the liquidation is organized by a people's court, the liquidation plan shall be submitted to the people's court for confirmation. The liquidation committee may not implement a liquidation plan that has not been confirmed.

If a liquidation plan that has not been confirmed is implemented, thereby causing the company or its creditors to incur a loss, and the company, a shareholder or creditor asserts that the members of the liquidation committee are liable for compensation, the people's court shall uphold such assertion in accordance with the law.

Article 16: If the liquidation is organized by a people's court, the liquidation committee shall complete the liquidation within six months of the date of its establishment.

If, due to special circumstances, the liquidation cannot be completed within six months, the liquidation committee shall apply to the people's court for an extension.

Article 17: If the liquidation committee designated by the people's court discovers during its inventory of the company's property and preparation of the balance sheet and property list that the company's property is insufficient to discharge its debts, it may consult with the creditors on preparing a debt discharge plan.

If the debt discharge plan is confirmed by all of the creditors and does not harm the interests of other materially interested parties, the people's court may, pursuant to an application by the liquidation committee, rule to approve such plan. Once the liquidation committee has discharged the debts in accordance with the discharge plan, it shall apply to the people's court for a ruling concluding the liquidation procedure.

If the creditors do not confirm the debt discharge plan or if the people's court does not approve the same, the liquidation committee shall petition the people's court for a declaration of bankruptcy in accordance with the law.

Article 18: If a shareholder of a limited liability company, or a director or controlling shareholder of a company limited by shares fails, by the statutory time, to establish a liquidation committee and commence the liquidation, resulting in the impairment, squandering or loss of, or damage to, the company's property, and a creditor asserts that it/he/she is liable for compensation in respect of the company's debts to the extent of the losses, the people's court shall uphold such assertion in accordance with the law.

If a shareholder of a limited liability company, or a director or controlling shareholder of a company limited by shares is negligent in the performance of its/his/her duties, resulting in the loss of the principal property, account books, important documents, etc. of the company, thereby making it impossible to carry out the liquidation, and a creditor asserts that it/he/she bears joint and several liability for the discharge of the company's debts, the people's court shall uphold such assertion in accordance with the law.

If any of the aforementioned circumstances arises due to a reason attributable to a de facto controller and a creditor asserts that the de facto controller bears the attendant civil liability for the company's debts, the people's court shall uphold such assertion in accordance with the law.

Article 19: If a shareholder of a limited liability company, or a director or controlling shareholder of a company limited by shares, or a de facto controller of the company disposes of the company's property in bad faith after its dissolution, thereby causing creditors to incur a loss, or if it/he/she does not carry out liquidation in accordance with the law and prepare a false liquidation report to deceive the company registration authority in order to obtain legal person de-registration, and a creditor asserts that it/he/she bears the attendant compensation in respect of the company's debts, the people's court shall uphold such assertion in accordance with the law.

Article 20: When a company is dissolved, it shall apply for de-registration once liquidation is completed in accordance with the law. If the company carries out de-registration procedures without first undergoing liquidation, making it impossible to carry out the liquidation, and a creditor asserts that a shareholder of the limited liability company, or a director or controlling shareholder of the company limited by shares, or a de facto controller of the company is liable for discharging the company's debts, the people's court shall uphold such assertion in accordance with the law.

If a company carries out de-registration procedures without first undergoing liquidation and if a shareholder or third party undertakes, when carrying out the procedures for the de-registration of the company, to assume liability for the company's debts, and a creditor asserts that such shareholder or third party bears the attendant civil liability in respect of the company's debts, the people's court shall uphold such assertion in accordance with the law.

Article 21: If the shareholders of a limited liability company, or the directors or controlling shareholders of a company limited by shares, or the de facto controllers of the company number at least two parties, and one or more of such parties assert, after bearing civil liability in accordance with Article 18 or the first paragraph of Article 20 hereof, that the other parties bear liability in proportion to their respective faults, the people's court shall uphold such assertion in accordance with the law.

Article 22: When a company is dissolved, any unpaid capital contributions of the shareholders shall be part of the property subject to liquidation. The unpaid capital contributions of shareholders include capital contributions that are due but unpaid as well as capital contributions that, pursuant to Articles 26 or 80 of the Company Law, may be paid in instalments but the payment deadlines for which have not yet expired.

If the property of a company is insufficient to discharge its debts and a creditor asserts that a shareholder that has not paid in its capital contribution and other shareholders or promoters at the time of the establishment of the company bear joint and several liability for discharging the debts of the company to the extent of their unpaid capital contributions, the people's court shall uphold such assertion in accordance with the law.

Article 23: If the members of the liquidation committee, in the course of carrying out the liquidation, violate a law, administrative regulations or the company's articles of association, thereby causing the company or its creditors to incur a loss, and the company or a creditor asserts that they are liable for compensation, the people's court shall uphold such assertion in accordance with the law.

If, pursuant to the third paragraph of Article 151 of the Company Law, a shareholder of a limited liability company, or a shareholder of a company limited by shares who alone or shareholders of the company who in combination have held at least 1% of the shares of the company for at least 180 days in succession institute(s) a legal action in a people's court on the grounds that the members of the liquidation committee committed the act mentioned in the preceding paragraph, the people's court shall accept the case.

If liquidation and de-registration of the company have been completed and the aforementioned shareholder(s), with reference to the third paragraph of Article 151 of the Company Law, directly institute(s) a legal action in a people's court naming the members of the liquidation committee as defendants and other shareholders as third parties, the people's court shall accept the case.

Article 24: The people's court of the place where a company is domiciled shall have jurisdiction over a lawsuit for the dissolution of the company or the liquidation of the company. The term “the place where a company is domiciled” means the place where the company has its main offices. If the place where a company has its offices is unknown, the people's court of the place where it is registered shall have jurisdiction.

Basic-level people's courts shall have jurisdiction over lawsuits for the dissolution and the liquidation of companies registered by the company registration authorities of counties, county-level cities and districts. Intermediate people's courts shall have jurisdiction over lawsuits for the dissolution and the liquidation of companies registered by the company registration authorities of regions, and cities at the prefectural level and above.