· Document Number：No. 13 [2003] of Civil Division IV of the Supreme People's Court

· Area of Law： Civil Law

· Level of Authority： Documents of Judicial Interpretation Nature

· Date issued：09-30-2003

· Effective Date：09-30-2003

· Issuing Authority： Supreme People's Court

· Status： Effective

Reply of the Supreme People's Court on Request for Instructions on Issues concerning Whether the Court Shall Accept the Claim Brought by a Party for the Return of Property or Articles on the Ground of Tort During the Special Liquidation Process of a Foreign-Funded Enterprise
(No. 13 [2003] of Civil Division IV of the Supreme People's Court)
Henan Higher People's Court:
Your Request for Instructions on Issues concerning Whether the Court Shall Accept the Claim Brought by a Party for the Return of Property or Articles on the Ground of Tort in the Special Liquidation Procedure of a Foreign-Funded Enterprise has been received. Upon deliberation, a reply is hereby given as follows:
Neither the Regulation on the Implementation of the Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures nor the Measures for Liquidation of Foreign-Funded Enterprises provide that a liquidation organization may not institute a tort action in its own name during the liquidation process of a foreign-funded enterprise. Although the official reply of the Supreme People's Court (Judicial Interpretation No. 1 [1998]) provides that there is no legal basis for the people's courts to organize liquidation, it will not fall under the circumstance that the people's court intervenes in the liquidation activities of a foreign-funded enterprise or even organizes liquidation if the people's court accepts the tort action instituted by the liquidation committee against You Xilin, the defendant. In this case, the purpose of the liquidation committee for instituting the action is, in nature, to request the people's court to protect the civil rights it is entitled to during the liquidation process rather than to request the people's court to intervene in the liquidation. This case accepted by the people's court is a tort dispute in nature, and what the people's court needs to do is to settle the disputes between the plaintiff and defendant over the return of property, rather than to decide how to conduct the liquidation. Therefore, as long as the action instituted by the liquidation committee meets the conditions for instituting an action as set forth in the Civil Procedure Law of the People's Republic of China, the people's court shall accept it. We agree with you on the second opinion, that is, your suggestive opinion, in your Request for Instructions.

September 30, 2003
Annex: Request of the Henan Higher People's Court for Instructions on Issues concerning Whether the Court Shall Accept the Claim Brought by a Party for the Return of Property or Articles on the Ground of Tort During the Special Liquidation Process of a Foreign-Funded Enterprise
The Supreme People's Court:
In accepting the appeal case of the Special Liquidation Committee of the Xinxiang Laosong Machinery Co., Ltd v. You Xilin (Taiwan businessman) et al. involving tort disputes, we have different opinions on the issue whether the people's court shall accept the claim brought by the party against the shareholders of another party for the return of property or articles in the special liquidation procedure of the foreign-funded enterprise, and hereby report the following issues for instructions:
I. Basic facts
A company in Taiwan, a company in Singapore and an equipment factory in Xinxiang city jointly funded the Xinxiang Laosong Machinery Co., Ltd in 1993. During the process of fulfilling the equity joint venture contract, there were disputes among the parties which had not been resolved through negotiation, and the parties applied to the arbitration institution for arbitration. The Shenzhen Branch of the China International Economic and Trade Arbitration Commission rendered a final award on May 8, 2000, with the main contents as follows: the contract and the bylaws of the equity joint venture should be terminated, the parties should liquidate the equity joint venture in accordance with law, and the residual assets of the equity joint venture should be distributed in proportion to their investment. The failure of one party to cooperate with the liquidation will not affect the normal progress of the liquidation. Since then, the parties applied to the enterprise approval authority for special liquidation after unsuccessful negotiations about the liquidation of the equity joint venture. Upon the application of the parties and in accordance with the applicable legal provisions, the Xinxiang Foreign Investment Service Bureau approved the establishment of the Special Liquidation Committee for the Xinxiang Laosong Machinery Co., Ltd (hereinafter referred to as the “Special Liquidation Committee”) on July 6, 2000, to conduct special liquidation. During the process of liquidation, the director of the Special Liquidation Committee instituted an action in the name of the Special Liquidation Committee against You Xilin, shareholder on Taiwan side (also the board chairman of the equity joint venture), requiring the return of some property and account books as well as seals. By reference to the relevant provisions of the Regulation on the Implementation of the Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures, the Measures for Liquidation of Foreign-Funded Enterprises (hereinafter referred to as the “Liquidation Measures”), and the Official Reply of the Supreme People's Court on Issues concerning the Liquidation of Equity Joint Ventures in the Trial of Cases Involving Disputes over Chinese-Foreign Equity Joint Venture Contracts, the Xinxiang Intermediate People's Court held in the first instance that the disputes did not fall under the scope of civil cases to be accepted by the people's courts, and it dismissed the claim of the Special Liquidation Committee of the company in Xinxiang. The Special Liquidation Committee refused to accept the original judgment and appealed to this Court.
II. Issues for instructions
This Court has two opinions on such issues that how the people's courts get involved in the special liquidation procedures of Chinese-foreign equity joint ventures, and whether such cases fall under the scope of cases to be accepted by the people's courts:
The first opinion held that: the liquidation of a company is a legal act of dealing with various affairs of the company satisfying the liquidation conditions, checking up and distributing the residual assets of the company, finally ending all legal relations of the company and eliminating its qualification as a legal person. There is a difference between the Liquidation Measures and the Company Law of China in terms of special liquidation of companies. The Company Law provides that if a liquidation team fails to be established within the prescribed time limit after the voluntary dissolution of a company, the relevant party may apply to the people's court for designating persons to organize a liquidation team; however, there are no provisions on the involvement of courts in either general liquidation or special liquidation among the provisions on liquidation of foreign-funded enterprises in the Liquidation Measures, and it is prescribed therein that the approval authority of the enterprise shall organize the liquidation. In addition, the Official Reply of the Supreme People's Court on Issues concerning the Liquidation of Equity Joint Ventures in the Trial of Cases Involving Disputes over Chinese-Foreign Equity Joint Venture Contracts (Judicial Interpretation No. 1 [1998], SPC) provides that, “where one party to a Chinese-foreign equity joint venture brings a lawsuit in the people's court …, the people's court shall only render a judgment on the effectiveness of the joint venture contract, whether to terminate the joint venture contract, and the liability for breach of contract, among others. The issues concerning the liquidation of the joint venture shall be governed by the relevant provisions of the Regulation on the Implementation of the Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures and the Measures for the Liquidation of Foreign-Funded Enterprises, and there is no legal basis for people's courts to organize liquidation.” During the special liquidation process of a foreign-funded enterprise, the party's claim for the return of property and articles is, in fact, a part of the property check-up of the foreign-funded enterprise during the liquidation process, and therefore, it is also a part of liquidation. Moreover, Article 6 of the Liquidation Measures provides that, the term of liquidation of a foreign-funded enterprise is 180 days, and it may be extended for not more than 90 days under any special circumstance, so the completion of liquidation procedures on schedule cannot be guaranteed if the court hears the tort cases similar to this case. Therefore, this case does not fall under the scope of cases to be accepted by the court in accordance with the judicial interpretation of the Supreme People's Court and the relevant provisions of China.
The second opinion held that: according to the official reply of the Supreme People's Court (Judicial Interpretation No. 1 [1998]), the people's courts shall not intervene in the specific liquidation activities of foreign-funded enterprises, but it does not prohibit the people's courts from accepting civil actions instituted by enterprises that have started liquidation procedures. In accordance with the Liquidation Measures, the liquidation committee shall exercise the functions of the organ of authority of the enterprise. If the liquidation committee files a civil action in its own name, the case shall be accepted provided that the conditions for bringing a lawsuit as prescribed in the Civil Procedure Law are met. In this case, the liquidation committee filed a civil action on the ground that the shareholders of one party have infringed upon the property right of the equity joint venture, the court shall accept the case.
We prefer the second opinion.
Please inform us which opinion is appropriate.