Chinese Mandarin - Interim Provisions on Mergers and Acquisitions of Domestic Enterprises by

Foreign investors

BIZCHINA / Company laws

Interim Provisions on Mergers and Acquisitions of Domestic Enterprises
by Foreign investors

Updated: 2006-04-17 10:20

Article 7 In the case of Equity Merger and Acquisition by foreign
investors, the foreign investment enterprise established thereafter shall
succeed to the creditor's rights and liabilities of the merged or
acquired Domestic Company. In the case of Asset Merger and Acquisition by
foreign investors, the domestic enterprise selling assets shall assume
all its original creditor's rights and liabilities. The Foreign
investors, merged or acquired domestic enterprises, creditors and other
parties may reach separate agreements regarding the disposition of the
creditor's rights and liabilities of the merged or acquired domestic
enterprises, provided that the agreement shall not result in any damage
to any third party interest or societal public interest. Any agreement on
the disposition of the creditor's rights and liabilities shall be
submitted to the examination and approval authority. The domestic
enterprise selling assets shall, within 10 days of the adoption of the
resolution to sell its assets, gives notice to its creditors and makes a
public announcement on a newspaper at the provincial level or above with
national circulation. A creditor of the domestic enterprise may, within
10 days from the date of receipt of such notice or publication of such
public announcement, requests the domestic enterprise selling assets to
provide the corresponding security.

Article 8 The parties to a merger or acquisition shall determine the
transaction price on the basis of the result of the evaluation of the
equity interest to be transferred or of the assets to be sold conducted
by the asset evaluation institution. The parties to a merger or
acquisition may agree on an asset evaluation institution established
within the territory of China in accordance with the law. Asset
evaluation shall be conducted by adopting internationally recognized
evaluation methods. Where the merger or acquisition of a domestic
enterprise leads to any change in the equity interest formed by the
investment of state-owned assets or resulting in any transfer of the
property right in state-owned assets, evaluation shall be conducted and
transaction price shall be determined in accordance with the relevant
regulations governing the administration of state-owned assets. It is
prohibited to transfer equity interest or sell assets at a price
obviously lower than the evaluation result for the purpose of
transferring the capital out of China in a disguised way.

Article 9 In case of a merger or acquisition of a domestic enterprise by
foreign investors to set up a foreign investment enterprise, the foreign
investors shall, within 3 months from the date of issuance of the foreign
investment enterprise business license, pay the full consideration to the
shareholder(s) transferring equity interest or to the domestic enterprise
selling assets. If the above time limit needs to be extended under
special circumstances, the foreign investors shall, upon the approval by
the examination and approval authority, pay 60% or more of the total
consideration within 6 months and full considerations within 1 year from
the date of issuance of the foreign investment enterprise business
license, and shall distribute the proceeds in proportion to the actual
capital contribution. Where the foreign investors conduct Equity Merger
and Acquisition and the foreign investment enterprise established after
such mergers and acquisitions increases its registered capital, the
investors shall set forth a time schedule for capital contribution in the
contract and the articles of association of the foreign investment
enterprise.

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