China company liquidation (WFOE) refers to liquidate a wholly foreign owned enterprise in China. How to start the cancellation and liquidation of a WFOE in line with the Chinese law and leave nothing illegal behind? Are there some regulations that foreign investors need to pay attention to? In the following exposition, Tannet lists some of the regulations on cancellation and liquidations of WFOE in China.
1. Liquidation Term
The starting date of enterprise liquidation is the date when the operation period of the China WFOE expires, or the date when the enterprise approval authority approves enterprise dissolution, or the date when the people’s court judges or the arbitration agency rules to terminate the enterprise contract. The enterprise liquidation term is from the starting date of the liquidation to the date of submitting the liquidation report to the enterprise approval authority, and shall not exceed 180 days.
2. Liquidation Committee
Within 15 days after the starting date of the liquidation, the Board of Directors of the enterprise shall organize and establish the liquidation committee consisting of at least 3 persons, whose members are generally selected among the directors and served by the accountants and lawyers registered in China employed.
3. Liquidation Notice and Announcement
The enterprise shall notify relevant units such as enterprise approval authority, enterprise competent department, the customs, foreign exchange management authority, industrial and commercial registration authority, tax authority and enterprise opening bank in writing within 7 days after the starting date of the liquidation. In addition, within 10 days after the date when the liquidation committee is established, the known creditors shall be notified in writing to declare the claims, and within 60 days after the date of establishment, announcement shall be published at least twice on one national newspaper and one local provincial or municipal newspaper.
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4. Distribution of Liquidated Properties
The enterprise and Chinese and foreign investors must legally distribute the liquidated properties and shall not arbitrarily dispose of them. According to relevant laws, the liquidated properties shall be paid off according to the following order after being used for paying the liquidation expenses (including the expenses required for managing, selling off and distributing the liquidated properties as well as the expenses required for announcement, lawsuit, arbitration and others) with priority.
5. Liquidation Termination
After completing the above property settlement, the liquidation committee will make liquidation report and submit to the enterprise approval authority for filing after being confirmed by the Board of Directors. Within 10 days after the date when the liquidation report is submitted to the enterprise approval authority, the liquidation committee must respectively handle cancellation registration to the tax authority and the Customs and within 10 days after such formalities are completed, the liquidation committee must handle enterprise cancellation registration to the industrial and commercial registration authority, with business license handed in and canceled.
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