Bankruptcy and Liquidation FAQ's

What are the functions and powers of a liquidation committee in China?

Liquidation committees are essentially set-up to safeguard creditor interests. They meet this objective by ensuring the company does not incur any further debts as a result of trading whilst insolvent, paying outstanding (higher ranking and secured creditors) and ensuring clarity in insolvency procedures through public announcements.

In China, Article 193 of the Company law states that a liquidation committee has the following functions and powers:

1. to undertake a stock-take of the company's assets, formulate a balance sheet and prepare a detailed inventory of assets;

2. to serve notice upon the creditors or make a public announcement;

3. to complete the company's unfinished business in relation to the liquidation;

4. to pay such taxes as are owed by the company;

5. to prepare a list of the claims and debts of the company;

6. to dispose, after repayment of the debts of the company, of the company's remaining assets; and

7. to participate in civil proceedings on behalf of the company.

Most company Liquidation Committees are comprised of both internal senior management and external advisors such as accountants and lawyers. This ensures greater transparency and a greater degree of separation.

Under the company law, shareholders are members of the liquidation committee. Similalry, for joint stock companies, members of the liquidation committee should be determined by the shareholder's meeting.

 

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