What are the relevant procedures in the process of liquidation regarding:
Assets?
Liquidation assets include all the properties of the enterprise at the time of announcing the liquidation and the assets acquired during the liquidation period. However, three types of assets are excluded: first, the balance in the staff incentives and welfare funds and housing funds for mainland workers, and all properties and facilities purchased or constructed with such funds; second, the balance in the enterprise's insurance and other benefits for its mainland workers; third, the balance in the enterprise's trade union funds and the properties purchased or constructed with such funds.
Liquidation assets are normally valued at their net book value, or they can be re-valued or converted into realised income.
Debt repayment?
Enterprises with legal entity status in China (that is, limited liability companies and joint stock limited companies) should repay their debts with all the companies' registered assets. For enterprises without the status of a legal entity, the investors involved should bear unlimited liability for debt repayment and other related liabilities.
In a Sino-foreign cooperative JV where it is stipulated in the contract that the foreign party can recover its investment with priority during the term of the cooperation and that all the fixed assets will be handed over to the Chinese party upon expiry of the JV, both the Chinese and foreign should be jointly liable for debt repayment in the event of liquidation.
Distribution of residual assets?
In a liquidation exercise, after deducting all the debts and losses, the residual assets will be used to cover undistributed profits, capital surplus, other funds and the liquidation expenses.After all these deductions, the balance that exceeds the amount of the paid-up capital is the net liquidation proceeds, which will be deemed as profit and, as such, subject to income tax. The residual after-tax assets will be distributed to investors according to the following order of priority:
For equity JVs, distribution would be made according to the actual proportion of capital contribution of the respective investors. For cooperative JVs, distribution would follow the terms stated in their contracts and articles of association. For foreign enterprises, distribution would be made according to their articles of association.
Cancellation of financial registration?
When the liquidation process is complete, the liquidator will present a liquidation report accompanied by an income and expenditure statement for the liquidation period, and a verification report by a Chinese CPA, to the competent financial authority, and proceed with cancellation of the financial registration of the enterprise.
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