· Document Number：Interpretation No. 1 [2003] of the Supreme People's Court

· Area of Law： Civil Law

· Level of Authority： Judicial Interpretation

· Date issued：01-03-2003

· Effective Date：02-01-2003

· Issuing Authority： Supreme People's Court

· Status： Effective

Announcement of the Supreme People's Court of the People's Republic of China
The Provisions of the Supreme People's Court on Several Issues concerning the Trial of Cases of Civil Disputes Related to Enterprise Restructuring, as adopted at the 1259th meeting of the Judicial Committee of the Supreme People's Court on December 3, 2002, are hereby issued, and shall come into force on February 1, 2003.
January 3, 2003
Provisions of the Supreme People's Court on Several Issues concerning the Trial of Cases of Civil Disputes Related to Enterprise Restructuring
(Interpretation No. 1 [2003] of the Supreme People's Court)
For the purpose of correctly trying cases of civil disputes related to enterprise restructuring, these Provisions are developed in accordance with the General Principles of the Civil Law of the People's Republic of China, the Company Law of the People's Republic of China, the Law of the People's Republic of China on Industrial Enterprises Owned by the Whole People, the Contract Law of the People's Republic of China, the Civil Procedure Law of the People's Republic of China and other relevant provisions of laws and regulations as well as in light of trial practice.
I. Acceptance of cases
Article 1 The people's courts shall accept the following cases of civil disputes in the property right system reform of enterprises between equal civil subjects:
1. Civil dispute over a contract on an enterprise's corporate system reform;
2. Civil dispute over a contract on an enterprise's joint stock cooperative system reform;
3. Civil dispute over a contract on an enterprise's division;
4. Dispute over an enterprise's debt-for-equity swap contract;
5. Dispute over a contract on the sale of an enterprise;
6. Dispute over a contract on an enterprise's merge; or
7. Other civil disputes related to enterprise restructuring.
Article 2 Where a party files a lawsuit under any of the circumstances listed in Article 1 hereof and in compliance with the conditions for filing a lawsuit provided in Article 108 of the Civil Procedure Law, the people's court shall accept the case.
Article 3 For the disputes over the administrative adjustment and transfer of the state-owned assets of enterprises by the competent governmental department, if a party files a civil lawsuit with the people's court, the people's court shall not accept such case.
II. Corporate reform of enterprises
Article 4 Where a state-owned enterprise is wholly transformed into a wholly state-owned limited liability company, the debts of the former enterprise shall be assumed by the limited liability company that has been transformed into.
Article 5 Where an enterprise is wholly transformed into a limited liability company or a joint-stock company through the holding of the enterprise's shares by the others in the form of the increase of capital and shares or transfer of part of its property rights, the debts of the former enterprise shall be assumed by the newly established company after the transformation.
Article 6 Where an enterprise establishes a new company by part of its property and corresponding debts with the others, and the creditors recognize the transferred debts, the newly established company shall assume civil liabilities thereof; where the creditors haven't been notified of the transferred debts or refuse to recognize such debts in case of notification, the former enterprise shall assume the civil liabilities thereof. Where the former enterprise is unable to repay debts and the creditors claim rights to the newly established company, the newly established company shall assume civil liabilities within the scope of the property that it has received.
Article 7 Where an enterprise establishes a new company by its high quality property with the others, but retains the debts in the former enterprise, and the creditors files a lawsuit to claim rights by regarding the newly established company and the former enterprise as joint defendants, the newly established company shall jointly assume several and joint liability with the former enterprise within the scope of the property that it has received.
III. Reform of an enterprise's joint stock cooperative system
Article 8 Where an enterprise's employees purchase the property of the enterprise, and the former enterprise is transformed into a joint-stock cooperative enterprise, the debts of the former enterprise shall be assumed by the joint-stock cooperative enterprise after the transformation.
Article 9 Where an enterprise assign part of its equity to its employees, and jointly establish a joint-stock cooperative enterprise with its employees, the debts of the former enterprise shall be assumed by the joint-stock cooperative enterprise after the transformation.
Article 10 Where an enterprise increases its capital and shares through the investment of its employees, and the former enterprise is transformed into a joint-stock cooperative enterprise, the debts of the former enterprise shall be assumed by the joint-stock cooperative enterprise after the transformation.
Article 11 When an enterprise is transformed into a joint-stock cooperative enterprise, it has, by referring to the relevant provisions of the Company Law, notified all creditors by an announcement. Where, after the enterprise is transformed into a joint-stock cooperative enterprise, any creditor files a lawsuit against the joint-stock cooperative enterprise in respect of the debts concealed or omitted by the former asset manager (capital contributor) of the former enterprise, and the creditor has declared the claims during the period of the notification, the joint-stock cooperative enterprise may, after assuming civil liabilities, claim compensation from the former asset manager (capital contributor) of the former enterprise. If the creditor hasn't declared the claims during the period of the notification, the joint-stock cooperative enterprise will not assume any civil liability. The people's court may advise the creditor to file a separate lawsuit against the former asset manager (capital contributor) of the former enterprise.
IV. Division of enterprises
Article 12 Where, for any creditor's claims against the enterprises formed after the division, the responsibility for the debts of the former enterprise is agreed upon by the enterprises during the division and has been recognized by the creditor, the agreement of the parties shall prevail; in the absence of such an agreement or of any clear agreement on the responsibility for the debts of the former enterprise during the division of the enterprises, or in the case that the agreement is not recognized by the creditor, the enterprises formed after the division shall bear several and joint liabilities.
Article 13 Where, after the enterprises formed after the division have borne several and joint liabilities, there is an agreement on the responsibility for the former enterprise's debts between such enterprises, the agreement shall prevail; in the absence of such an agreement or of any clear agreement thereupon, several and joint liabilities shall be borne according to the proportion of assets during the division of the enterprises.
V. Debt-for-equity swap of enterprises
Article 14 Where a debtor and its creditors voluntarily reach a debt-for-equity swap agreement, which does not violate the mandatory provisions of laws and administrative regulations, the people's court shall confirm that the debt-for-equity swap agreement is valid in the trial of related cases involving civil disputes.
A policy debt-for-equity swap shall be governed in accordance with the provisions of the relevant departments of the State Council.
Article 15 Where a debtor defrauds any creditor by concealing or falsifying its enterprise's assets so that they sign a debt-for-equity swap agreement, and the creditor exercises the right of revocation within the statutory period, the people's court shall support the creditor's claim.
After the debt-for-equity swap agreement is revoked, the creditor is entitled to require the debtor to pay debts.
Article 16 Certain creditors' debt-for-equity swap will not affect the claims of other creditors against the debtor.
VI. Sale of state-owned small-scale enterprises
Article 17 Where an enterprise is sold in the form of agreement-based transfer, but a contract on the sale of the enterprise fails to be subject to approval by the local people's government with the power to approve or any of its authorized department, the people's court shall, in the trial of cases involving civil disputes, confirm that the contract on the sale of the enterprise is invalid.
Article 18 Where, in the sale of an enterprise, both parties maliciously collude with each other and cause any damage to the national interest, the people's court shall, in the trial of cases involving civil disputes, determine that the enterprise's sale is invalid.
Article 19 Where, in the sale of an enterprise, the seller's act is under any of the circumstances as set forth in Article 54 of the Contract Law, and the buyer exercises the right of revocation within the statutory period, the people's court should support the buyer's claim.
Article 20 Where the term for performance as stipulated in a contract on the sale of an enterprise expires, and a party refuses to perform the contract or fails to completely fulfill its contractual obligations so that the purpose of the contract can not be achieved and the other party requires to terminate the contract and claims for damages, the people's court shall support the requirement and claim.
Article 21 Where the term for performance as stipulated in a contract on the sale of an enterprise expires, a party fails to completely fulfill its contractual obligations, and the other party requires it to continue to perform the contract and claims for damages, the people's court shall support the requirement and claim.
Where both parties fail to completely fulfill their contractual obligations, the civil liabilities they should separately assume shall be determined according the fault of the parties.
Article 22 Where, in the sale of an enterprise, the seller fails to fulfill the obligation of truthful disclosure of major issues such as the asset-liability status and profit-and-loss statement, as a result, the selling price of the enterprise is affected, the buyer thereof files a lawsuit with the people's court to claim compensation, the people's court shall support the buyer's claim.
Article 23 Where a contract on the sale of an enterprise is confirmed as invalid or is revoked, the gains and losses, as occurred during the operation of the enterprise by the buyer after the enterprise is sold, shall be enjoyed or assumed by the buyer.
Article 24 Where, after an enterprise is sold, the buyer incorporates the assets of the purchased enterprise into its own enterprise or changes the purchased enterprise into its branch, the debts of the purchased enterprise shall be assumed by the buyer, unless otherwise agreed upon by the buyer and seller and authorized by creditors.
Article 25 Where, after an enterprise is sold, the buyer converts the assets of the purchased enterprise into shares to establish a new company with the others, and the purchased enterprise legal person is cancelled, the buyer shall, for the debts of the enterprise before it is sold, assume civil liabilities with all of its property including the equity in the newly established company.
Article 26 Where, after an enterprise is sold, the buyer registers the purchased enterprise as a new enterprise legal person and cancels the purchased enterprise legal person, the debts of the enterprise before it is sold shall be assumed by the newly registered enterprise legal person, unless otherwise agreed upon by the buyer and seller and authorized by the creditors.
Article 27 Where any creditor files a lawsuit against the sold enterprise for which the deregistration formalities should be undergone at the administrative departments for industry and commerce but haven't, the people's court shall, in accordance with the specific circumstances after the transfer of the enterprise's assets, tell the creditor to add the enterprise as a liable party and order the liable party to assume civil liabilities.
Article 28 When an enterprise is sold, the seller has, by referring to the relevant provisions of the Company Law, notified all creditors by an announcement. Where, after the enterprise is sold, any creditor files a lawsuit against the buyer in respect of the enterprise's debts concealed or omitted by the seller, and the creditor has declared the claims during the period of the notification, the buyer may, after bearing civil liabilities, claim compensation from the seller. If the creditor fails to declare the claims during the period of the notification, the buyer will not bear any civil liability. The people's court may advise the creditor to file a separate lawsuit against the seller.
Article 29 Where the sale of an enterprise is under any of circumstances as set forth in Article 74 of the Contract Law, and any creditor exercises the right of revocation within the statutory period, the people's court shall support the creditor's claim.
VII Merger of enterprises
Article 30 An enterprise's merger agreement shall come into force on the date when it is signed and sealed by the parties. Where it is necessary to be subject to the approval of the competent department of the government, the merger agreement shall come into force on the date of approval; the enterprise's merger agreement will not take effect without the approval. But if any party makes up the approval formalities before the end of court debate of the first instance, the people's court shall confirm that the merger agreement is valid.
Article 31 After an enterprise is merged, the debts of the merged enterprise shall be assumed by the merging party.
Article 32 When an enterprise is under a merger, it has, by referring to the relevant provisions of the Company Law, notified all creditors by an announcement. Where, after the enterprise is merged, any creditor files a lawsuit against the merging party in respect of the enterprise's debts concealed or omitted by the former asset manager (capital contributor) of the merged enterprise, and the creditor has declared the claims during the period of the notification, the merging party may, after assuming civil liabilities, claim compensation from the former asset manager (capital contributor) of the merged enterprise. If the creditor fails to declare the claims during the period of the notification, the merging party will not bear any civil liability. The people's court may advise the creditor to file a separate lawsuit against the former asset manager (capital contributor) of the merged enterprise.
Article 33 After a new enterprise is consolidated, the debts of the merged enterprise shall be assumed by the enterprise legal person after consolidation.
Article 34 Where, in the case of a merger or consolidation, any creditor files a lawsuit against the merged enterprise that should undergo the deregistration formalities at the administrative departments for industry and commerce but does not do that, the people's court shall, in accordance with the specific circumstances of the enterprise after the merger or consolidation, tell the creditor to add the enterprise as a liable party and order the liable party to assume civil liabilities.
Article 35 Where an enterprise's shares are controlled by acquisition, the debts of the controlled enterprise shall still be assumed by itself. But if the controlled enterprise is unable to repay debts because the holding company withdraws its capital to evade the debt, the debts of the controlled enterprise shall be assumed by the holding enterprise.
VIII Supplementary Provisions
Article 36 These Provisions shall come into force on February 1, 2003. Where the relevant judicial interpretations on the restructuring of enterprises issued by the Supreme People's Court before the entry into force of these Provisions are in conflict with these Provisions, such interpretations shall no longer apply.