Circular of the Supreme People's Court on Printing and Distribution of the Minutes of the Forum on Hearing Cases of Corporate Compulsory Liquidation

　　Fa Fa [2009] No. 52

　　November 4, 2009

　　To the Higher People's Courts of all provinces, autonomous regions and municipalities directly under the Central Government, People's Liberation Army Military Courts and Production and Construction Corps Branch of the Higher People's Court of Xinjiang Uygur Autonomous Region:

　　Minutes of the Forum on Hearing Cases of Corporate Compulsory Liquidation of the Supreme People's Court is hereby printed and distributed to you for implementation in light of local trial and hearing work.

　　With the current international financial crisis and global economic recession, there has been a marked increase in the number of cases of corporate compulsory liquidation caused by cooperate operation difficulties. Concerning the issues on hearing such cases, there are already provisions in the Company Law of the People's Republic of China and Provisions of the Supreme People's Court on Several Issues Concerning the Application of the Company Law of the People's Republic of China (II) (hereinafter referred to as "the Judicial Interpretation II of the Company Law"); however, in view of the non-litigious nature of such cases and the deficiencies in the existing liquidation procedures, it is nonetheless necessary to further define the principles in hearing such cases and refine relevant procedures and substantive rules, with a view to improving the regulation of market exit of companies, protecting market order, legally and appropriately hearing corporate compulsory liquidation cases and, maintaining and promoting social and economic harmony and stability of the country. Therefore, on the basis of extensive investigation and research, the Supreme People's Court held the forum on corporate compulsory liquidation cases by partial courts all over the country in Shaoxing, Zhejiang on September 15 and 16, 2009, which brought together representatives from courts from all over the country. Participants in the forum reached consensus on major issues in hearing corporate compulsory liquidation cases through serious discussion. Minutes on the forum are as follows:

　　I. Principles in hearing Corporate Compulsory Liquidation Cases
　　1. The forum believes that, companies, as the primary form of modern enterprises, shall strictly respect market access rules as well as market exit rules for their market competition. Corporate compulsory liquidation, as an important path for market exit, is an important part of corporate legal system. Therefore, in hearing cases of corporate compulsory liquidation, people's courts shall uphold the following principles:
　　(1) Procedure fairness. The purposes of corporate compulsory liquidation are to end various business relations during the company's duration, so as to rationally adjust interests of all parties concerned, and to protect normal economic order. In hearing corporate compulsory liquidation cases, people's courts shall strictly observe legal procedures so as to uphold the fairness of liquidation results on the basis of procedural justice.
　　(2) Efficiency. To improve the overall efficiency of social economy is one of the purposes of corporate compulsory liquidation; therefore, it is necessary to ensure that companies for which the dissolution circumstance has arisen will exit from the market in a strict and swift manner, so as to reduce losses of parties concerned to the minimum. In hearing compulsory liquidation cases, people's courts shall complete liquidation in timely and effective manner strictly in accordance with legal provisions, so as to guarantee timely realization of creditors and shareholders' interests and avoid unnecessary losses of interested parties as a result of prolonged deferred liquidation, and secure effective use of social resources.
　　(3) Equal Protection. In corporate compulsory liquidation, the principle of equal protection for parties concerned shall be followed, so as to ensure the fairness and justice in the process of market exit. In hearing corporate compulsory liquidation, people's courts shall not only properly protect creditors' interest but also pay attention to interests of employees, shareholders and the public, and appropriately settle interest conflict, so as to realize effective unification of judicial ruling and public interests.

　　II. Jurisdiction of Compulsory Liquidation Cases
　　2. Jurisdiction of corporate compulsory liquidation cases shall be determined on the basis of geography-based jurisdiction and judicial-level-based jurisdiction. The geography-based jurisdiction court shall be the people's court in the place where the company is located, i.e. the people's court in the place where the primary business premise of the company is located; where there is ambiguity or controversy over the location of such primary premise, the people's court at the location where the company is registered shall have jurisdiction over the case. The people's court of judicial-level-based jurisdiction shall be determined on the basis of the level of the competent authority with which the company is registered, which means that the grass-rooted courts shall have jurisdiction over compulsory liquidation cases of companies registered in authorities at the level of county, county-level city or district; intermediate courts shall have jurisdiction over compulsory liquidation cases of companies registered with authorities at the region or prefecture city level or above. Where due to special circumstances, the jurisdiction for a corporate compulsory liquidation case may be determined by in accordance with article 4 of the Enterprise Bankruptcy Law of the People's Republic of China and articles 37 and 39 of the Civil Procedure Law of the People's Republic of China.

　　III. Case Number Management of Compulsory Liquidation Cases
　　3. After receiving an application for corporate compulsory liquidation, the case filing chamber of people's court shall put the case on record under the case number of "(****) **Fa*Qing (Yu) Zi No. *". After putting the case on record, the filing chamber shall transfer application documents presented by applicants to the compulsory liquidation tribunal for examination, which shall make award on whether to accept the application.
　　4. In the case of awarding not to accept the application, the case shall be terminated in "(****) **Fa*Qing (Yu) Zi No. *" after the award becomes effective. Where the tribunal awards to accept the application, the case filing chamber shall put the case on record in "(****) **Fa*Qing (Suan) Zi No. *".
　　5. After accepting the application, the tribunal shall prepare civil rulings and decisions in consecutive numbers after "(****) **Fa*Qing (Suan) Zi No. *", such as "Civil ruling of (****) **Fa*Qing (Suan) Zi No. * - 1", "Civil ruling of (****) **Fa*Qing (Suan) Zi No. * - 2"; or "Civil Decision of (****) **Fa*Qing (Suan) Zi No. * - 1", "Civil Decision of (****) **Fa*Qing (Suan) Zi No. * - 2", etc.

　　IV. Tribunal for Compulsory Liquidation Cases
　　6. As corporate compulsory liquidation cases are similar with enterprise bankruptcy liquidation cases, compulsory liquidation cases shall be heard by tribunals responsible for trial of enterprise bankruptcy liquidation cases. If conditions permit, people's courts may establish special tribunals or appoint special collegiate benches for corporate compulsory liquidation cases and enterprise bankruptcy liquidation cases. A collegiate bench is required for any corporate compulsory liquidation case.

　　V. Application for Compulsory Liquidation
　　7. When applying for compulsory liquidation, the applicant, creditors or shareholders, shall present applications to the people's court. The application shall indicate the basic information on the applicant and the respondent, as well as facts and reasons of the liquidation applied for. Meanwhile, the applicant shall provide the people's court with evidences proving that an event causing the dissolution of the respondent has arisen and the applicant has creditor's right or share right on the respondent. Where the applicant applies to the people's court for compulsory liquidation in case of intentionally deferred liquidation or possible serious infringement on its interests by other illegal liquidation acts, even though the respondent has established a liquidation team after dissolution thereof, the applicant shall also provide the people's court with corresponding evidence for the said intentionally deferred liquidation or possible infringement.
　　8. If the materials provided by the applicant need to be corrected and supplemented, people's court shall order the applicant to complete such correction or supplementation within seven days. If the applicant is unable to do so within the specified time limit, it shall give a written explanation and an application for extension to the people's court.

　　VI. Examination of Application for Compulsory Liquidation
　　9. When it is considering the application for a compulsory liquidation application, the tribunal shall, as a general rule, convene a public hearing. The tribunal may decide not to convene the public hearing but examine such application in writing, if the relevant facts are clear, the legal relations definite and evidence sufficient and accurate and if the applicant has no objection to the written examination after being notified of the same in writing.
　　10. Where a people's court decides to hold a public hearing, the people's court shall inform the applicant and respondent within five days prior to the hearing, and shall serve the same with relevant application materials. Where the shareholder(s) or actual controlling person of the company applies to participate in such hearing, the people's court shall sustain such application. In the public hearing, the people's court shall organize the interested parties to hear such contents as whether the applicant is qualified to submit application, whether the circumstance entailing the dissolution of the respondent has arisen, whether the compulsory liquidation satisfies legal provisions. Where another public hearing is necessary due to evidence supplementation, such public hearing shall be held within ten days after the expiry of the supplementary period.
　　11. Where the people's court decides not to hold a public hearing, the people's court shall inform the applicant and respondent in a timely manner and serve relevant application materials to the respondent. Meanwhile, the people's court shall inform the respondent that the respondent has the right to complain to the people's court within seven days after being so informed if it objects to the applicant's claims.

　　VII. Acceptance of Application for Compulsory Liquidation
　　12. The people's court shall make an award on whether to accept the application for compulsory liquidation within ten days after holding the hearing or the expiry of the objection period.
　　13. Where the respondent raises objection to whether the applicant has creditor's right or share rights on the respondent or whether any circumstance entailing the dissolution of the respondent has arisen, the people's court shall not accept the applicant's compulsory liquidation application. The applicant shall not apply for compulsory liquidation to the people's court until separate legal proceedings or arbitration on relevant disputes is confirmed, with the exception where valid legal documents for the said disputes are confirmed and there are sufficient evidences for such dissolution circumstances as the cancellation of business license, close-down order or cancellation of the company.
　　14. Where the respondent fails to present counter-evidences after the applicant provides relevant evidences for that the respondent's intentionally deferred liquidation or other illegal liquidation acts that may seriously infringe on the interests of creditors or shareholders, the people's court shall accept the applicant's application for compulsory liquidation. As for the creditor's application for compulsory liquidation, the people's court shall not refuse to accept liquidation unavailability as reasons of the loss of the respondent's primary properties, accounts and important documents or missing of persons concerned of the respondent.
　　15. If the people's court finds that the compulsory liquidation application does not satisfy any legal provision after accepting the application, the people's court may overrule the application.
　　16. If the applicant objects to the people's court's refusal to acceptance or overruling of its application, it may appeal to a competent people's court at the next higher level.

　　VIII. Withdrawal of Application for Compulsory Liquidation
　　17. The people's court shall allow the application for withdrawal which is made before the people's court rules to accept the application for compulsory liquidation.
　　18. Where an application for compulsory liquidation is proposed on the ground of the expiry of business period as stipulated in the articles of association or other dissolution circumstances as specified in the articles of association, or voluntary dissolution upon the resolution of the (general) shareholders' meeting, and the application is accepted by the people's court, the people's court shall permit the applicant to withdraw the application, upon the strength of amendment of the articles of association or corporate continuance under resolution of the (general) shareholders forum, which is made before the liquidation team distributes residual properties.
　　19. Where the company is under liquidation because its business license is revoked, or it is ordered to be closed down or it is cancelled, or is ordered to be dissolved by a competent people's court, the people's court shall not permit the applicant's application for withdrawal, which is made after the people's court has accepted the application for compulsory liquidation and before the liquidation team distributes residual properties, with the exception where the applicant has evidences proving that relevant administrative decisions are cancelled or parties concerned conclude settlement agreement for corporate continuance after the people's court awards to dissolve the company.

　　IX. Charges for Compulsory Liquidation Cases
　　20. In accordance with articles 10, 14, 20 and 42, concerning application charges for enterprise bankruptcy cases, of the Rules of Legal Proceedings Charges, application charges for corporate compulsory liquidation cases shall be calculated on the basis of the total amount of properties under liquidation and at half of the rate for property cases charges; such application charges shall be paid with the respondent's properties in priority after the people's court accepts the application for compulsory liquidation. Where the compulsory liquidation proceeding is changed into bankruptcy liquidation proceeding because the properties are insufficient for repaying the liabilities, bankruptcy application charges shall not be collected; in the case of the compulsory liquidation application charges to be collected exceed 300,000 Yuan, the excessive part shall not be collected and shall be refunded back if it is already collected.
　　21. Where people's court permits the applicant's application for withdrawal of compulsory liquidation application before such application for compulsory liquidation is accepted by the people's court, the application charges shall not be paid in priority with the applicant's properties; if such permitted application for withdrawal is made after the people's courts accept the application for compulsory liquidation, the application charges so paid shall not be refunded.

　　X. Appointment of the liquidation team for Compulsory Liquidation
　　22. After accepting an application for compulsory liquidation, the people's court shall designate members of the liquidation team in a timely manner. If corporate shareholders, directors, supervisors and senior management are able to and will join the team, the people's court may consider designating such persons to form the liquidation team; if the said persons are unable or unwilling to joint the team, or their participation will not facilitate the liquidation process, the people's court may designate intermediaries or individuals specified in the List of intermediary Managers of the People's Courts and the List of Individual Managers of the People's Courts to form the team; furthermore, the people's court may designate corporate shareholders, directors, supervisors, and senior managers and intermediaries and individuals on the aforementioned lists to jointly form the team. The Provisions of the Supreme People's Court on the Appointment of Administrators in Hearing Enterprise Bankruptcy Cases shall be applied by the people's court in light of the designation of intermediaries and individuals on the aforementioned lists to form the team or serve as members of the team.
　　23. The liquidation team shall compose of an odd number of members. When designating the members, the people's court shall appoint a team leader, who may either be elected by the members or designated by the people's court. The team leader shall act as the representative during the liquidation on behalf of the company. Where any member of the team fails to perform his or her duties, the people's court shall replace such member upon request by the interested parties or on its own discretion.

　　XI. Remuneration for Members of the Liquidation Team
　　24. No reimbursements shall be granted to shareholders, actual controlling person or directors of a joint stock company respondent that serve as members of the liquidation team. Where directors, supervisors and senior managers of a limited company respondent and supervisors and senior managers of a joint stock respondent other than the said persons serve as the liquidation team members, reimbursements may be paid to them on the basis of the respective average salary of such person of the previous year.
　　25. Reimbursements for intermediary or individual members shall be determined through negotiation between such members and the company under liquidation; where such negotiations fails, the reimbursement shall be determined by the people's court in accordance with the Provisions of the Supreme People's Court on the Determination of Service Fees for Administrators in Hearing Enterprise Bankruptcy Cases.

　　XII. Deliberation Mechanism of the Liquidation Team
　　26. Any dispute over liquidation issues in the liquidation team during the corporate compulsory liquidation shall be resolved by over half of the votes of all members of the liquidation team in accordance with article 112 of the Company Law. Any member that has direct interest with the issues under disputes may submit his or her opinions but shall not vote on them; if no majority opinion may be reached as a result of the abstinence of interested members, the liquidation team may apply to the people's court for decision. Creditors or other members of the liquidation team may, in accordance with article 22 of the Company Law apply to the people's court for cancellation of the decision with any directly interested member fail to abstain from voting within 60 days after the decision is made.

　　XIII.XProperty Preservation in Compulsory Liquidation
　　27. After accepting the application for corporate compulsory liquidation, the people's court may adopt preservation measures upon request by the liquidation team or the applicant if the respondent is under circumstances that may affect the legal liquidation, including withholding, transferring or damaging its properties

　　XIV. Hearing of Cases Where Liquidation Is Impossible
　　28. Where in a compulsory liquidation case the primary property, accounts and important documents of the respondent are lost or the personnel of the respondent is missing, and therefore liquidation is unavailable or can not be conducted completely after explanations are given to or civil punishments including penalties are imposed on the respondent's shareholders, directors and other persons held directly liable, partial repayment shall be made, if possible, in accordance with existing accounts and important documents; and after equal repayment with existing properties, the compulsory liquidation shall be terminated for unavailability of complete liquidation in accordance with Enterprise Bankruptcy Law; where there is no properties, accounts and important documents, and personnel of the company under liquidation are missing, the compulsory liquidation shall be terminated due to liquidation unavailability.
　　29. For compulsory applied for by creditors, the people's court shall indicate in the termination ruling that the creditors may separately claim for the shareholders, directors, actual controlling persons of the respondent and other liquidation obligors' repayment for the corporate liabilities in accordance with Judicial Interpretations II of the Company Law if it rules to terminate the compulsory liquidation for liquidation unavailability or unavailability of complete liquidation. For compulsory liquidation applied for by shareholders, the people's court shall indicate in the termination ruling that the shareholders may apply to corporate controlling shareholders and other actual controlling bodies if it rules to terminate the compulsory liquidation due to liquidation unavailability or unavailability of complete liquidation.

　　XV. Hearing of Derivative Cases of Compulsory Liquidation Cases
　　30. Civil proceedings on any company under compulsory liquidation that has begun and not been completed before and when the people's court accepts the application for compulsory liquidation shall continue to be heard by the original court, but the corporate legal representative shall be replaced by the in-charge person of the liquidation team.
　　31. Legal proceedings shall be lodged to the people's court that accepts the application for compulsory liquidation for any rights and obligations disputes on the company under liquidation after the people's court accepts the application for compulsory liquidation, and the leader of the liquidation team shall participate in the proceedings on behalf of the company under liquidation. The people's court that accepts the application for compulsory liquidation may select the court hearing such cases in accordance with articles 37 and 39 of the Civil Procedure Law. Such cases shall be heard by the accepting court in its qualified tribunals. Arbitration shall be applied for, if there are definite and valid arbitration clauses between the parties concerned, on any rights and obligations disputes concerning the company under liquidation after the people's court accepts the application for compulsory liquidation.

　　XVI. Connection between Compulsory Liquidation and Bankruptcy Liquidation
　　32. During the process of compulsory liquidation, if the liquidation team finds that the company's properties are insufficient to repay all liabilities when it clear the company's properties and prepares the balance sheet and properties list, the team shall apply for bankruptcy declaration to a court in accordance with article 188 of the Company Law and paragraph 3, article 7 of the Enterprise Bankruptcy Law, except for the circumstances specified in article 27 of the Judicial Interpretations II of the Company Law that it may prepare repayment program through negotiation with creditors and make repayment.
　　33. In corporate compulsory liquidation, where an interested party lodges a separate bankruptcy application before the people's court in accordance with articles 2 and 7 of the Enterprise Bankruptcy Law, the people's court shall examine in accordance with law. If the application for bankruptcy meets relevant provisions in the Enterprise Bankruptcy Law, the people's court shall rule to accept the same in accordance with law. After accepting the bankruptcy application, the people's court shall rule to terminate the compulsory liquidation.
　　34. After the compulsory liquidation proceeding changes into a bankruptcy liquidation proceeding, the people's court may designate competent intermediaries or individuals, the manager or manager members of the original liquidation team as designated in accordance with the List of Intermediary Managers of the People's Courts and the List of Individual Managers of the People's Courts, as the bankruptcy manager or include them as members thereof in accordance with the Enterprise Bankruptcy Law and its judicial interpretations, except where they are interested parties to the bankruptcy case or are otherwise disqualified as the bankruptcy manager or manager member. The total amount of remuneration of the said intermediaries or individuals for both compulsory and bankruptcy liquidation shall not exceed that paid to the manager or manager member in enterprise bankruptcy.
　　35. Where the said intermediaries or individual are not qualified as bankruptcy manager or manager members, the people's court shall designate new managers in a timely manner in accordance with the Enterprise Bankruptcy Law and its judicial interpretations. The original liquidation team shall deliver all liquidation issues and relevant materials to the new managers in a timely manner. Liquidation items completed in the compulsory liquidation shall remain valid if such items are free of any violations of the Enterprise Bankruptcy Law or relevant judicial interpretations.

　　XVII. Termination of the compulsory liquidation
　　36. After the legal liquidation is completed and the people's court confirms the liquidation report prepared and submitted by the liquidation team, the people's court shall rule to terminate the liquidation. The respondent shall terminate after the corporate registration authority cancels the respondent's corporate registration upon request by the liquidation team.
　　37. Where: (a) a company is to be dissolved upon expiry of business duration as stipulated in the articles of association or the advent of other dissolution circumstances as specified in the articles of association, or the shareholder's meeting or the shareholders' general meeting decides to dissolve the company; (b) the company nonetheless revises its articles of association, or the shareholders' meeting or shareholders' general meeting decides that the company shall continue to exist after the people's court accepts the creditor's application for compulsory liquidation of the company yet before the remaining property of the company is distributed among the shareholders; and (c) the applicant fails to withdraw the application for compulsory liquidation after the creditor's rights of the applicant and other parties are repaid in full, the people's court may rule to terminate the compulsory liquidation upon the request by the respondent. And after the termination of the compulsory liquidation, the company may continue to exist.

　　XVIII. Legal documents in compulsory liquidation cases
　　38. Civil rulings shall be made by the compulsory liquidation tribunal on such issues as whether to accept the application, overruling the application, permitting or overruling the applicant's withdrawal of application for compulsory liquidation, adopting preservation measures, confirming liquidation program, confirming liquidation termination report or terminating compulsory liquidation. And decision letter shall be prepared and issued for such issues as designation or changing of liquidation team members, remuneration of liquidation team members, extending liquidation term or punishing liquidation hindrance behaviors. Preparation of other legal documents concerned may be conducted in light of the format used by courts in enterprise bankruptcy liquidation cases as a reference.

　　XIX. Application of bankruptcy liquidation proceedings in compulsory liquidation
　　39. In view of the similarity between corporate compulsory liquidation and bankruptcy liquidation in terms of specific operation of proceedings, circumstances of compulsory liquidation not indicated in the Company Law, the Judicial Interpretation II of the Company Law and these Minutes, such as failure of relevant persons of companies under liquidation to keep properties, seals and accounts, and documents and materials under their possession and management in accordance with law, refusal of companies under liquidation to provide property status instructions, liabilities list, creditor rights list, relevant financial statements, wage payment status and social insurance premiums payment status or false provision thereof, refusal of companies under liquidation to transfer properties, seals and accounts, and documents and materials to liquidation team or forgery or damage of relevant property evidences with a view to distorting property status, shareholders' failure to make full capital contribution or unauthorized withdrawal of capital contribution, and directors, supervisors and senior management's illegal misappropriation of corporate properties, may be governed by Enterprise Bankruptcy Law and its judicial interpretations.

　　XX. Important Issues in Hearing Corporate Compulsory Liquidation Cases
　　40. As corporate compulsory liquidation cases are a new category of cases and involve complicated legal relations, and numerous interested parties. In view of this, when hearing serious difficult liquidation cases covering a wide range and involving social stability, people's courts shall closely rely on the leadership of the CPC and governmental support, give full play to various mechanisms established by local governments, and properly protect social stability under the premise of strict law compliance. Meanwhile, people's courts shall report new situations and problems found out in trial practice level by level in a timely manner. The people's court at superior level shall strengthen supervision and direction for such, attach importance to follow-up investigation and research, and summarize trial experiences in a timely manner, so as to ensure that such cases will be properly heard.