Properly handling liquidation and deregistration of FIEs

With the advancement of China’s industrial transformation and upgrading, as well as the reform of the supply front, many foreign-invested enterprises (FIEs) that cannot be successfully transformed are facing dissolution and liquidation. However, according to China’s laws and regulations, and the operating procedures of government authorities, the dissolution and liquidation process of FIEs is quite complex, and if handled improperly will inevitably lead to disputes or even cause failures in the deregistrations of enterprises.

For example, Sino-foreign joint ventures always come to a deadlock as dissolution and liquidation of the joint ventures (JVs) often depends on the communication and co-operation among multiple investors. Foreign investors might then file a lawsuit to request the court to dissolve the JV or launch compulsory liquidation procedures for the purpose of deregistering the company as soon as possible. Furthermore, if foreign investors encounter problems during the compulsory liquidation process, they can also file applications to the court to request relief in most cases.

According to current laws and regulations, JVs must be dissolved before liquidation, and their dissolution must be approved by the competent commercial authorities first. In practice, quite often one party requests to dissolve the company, while the other party disagrees with dissolution.