A mandatory bid (or a mandatory general offer obligation) ("GO Obligation") will be triggered if a controlling block in a listed company ("Controlling Block") changes hands.

The chain principle summarised

On October 21, 2008, the China Insurance Regulatory Commission of the PRC (CIRC) issued the Circular on Implementing the Administrative Provisions on the Solvency of Insurance Companies which went into effect on the same day. The Administrative Provisions on the Solvency of Insurance Companies, which the Circular intends to implement, replaced the 2003 Provisions for the Administration of the Insurance Company Solvency Quota and Regulatory Indices (the 2003 Provisions). The 2003 Provisions did not prioritize solvency issues.

On December 29, 2008, the State Administration for Taxation (SAT) and the Ministry of Finance (MOF) jointly promulgated the Circular on Several Deed Tax Policies Concerning Enterprise Reorganization and Restructuring, (Cai Shui (2008) 175, Circular 175). Circular 175 took effect on January 1, 2009, and will be effective through December 31, 2011.  

New tax rules relating to the tax treatment of certain corporate restructuring transactions are expected to be finalized soon by the PRC Ministry of Finance (“MOF”) and the State Administration of Taxation (“SAT”).

Many multinational corporations ("MNCs") are either restructuring or actively considering restructuring their China operations, given the current economic conditions and forecasts. Restructuring efforts often include consolidating legal entities, business units, and operations; closing down operations and factories; and workforce reductions. Implementing such restructuring efforts often raises complicated legal issues, many of which require careful analysis in light of recent legislation and policy considerations.

Consolidating Operations

Throughout the global economic meltdown, the number of bankruptcy cases in China has risen considerably. To shed light on bankruptcy proceedings and stabilize the domestic economy, the Supreme People’s Court of the PRC issued Opinions on Several Issues Regarding the Proper Adjudication of Enterprise Bankruptcy Cases to Provide a Judicial Safeguard for Maintaining Order in the Market Economy on June 12, 2009. The Opinions direct courts at all levels to properly apply the Enterprise Bankruptcy Law (EBL) to assist insolvent enterprises, maintain market order, and stabilize the economy.

The Bankruptcy Law, applicable to FIEs and most other companies in China, will come into effect on 1 June 2007.

The Bankruptcy Law sets out a dual test of insolvency: inability to pay debts as they fall due ("cash flow insolvency") and insufficient assets to pay off all debts ("balance sheet insolvency"). Either a debtor or a creditor may apply to the court for reorganization or liquidation of the debtor. Court assistance may also be sought to conciliate.

On 27 August 2006, the PRC National People’s Congress passed a new Enterprise Insolvency Law (the “Law”) after more than a decade’s preparation and debate. The Law, which will become effective on 1 June 2007, introduces a formal insolvency process applying to a wide range of legal entities. The Law only contains general principles which in practice are unlikely to provide sufficient protection to creditors’ interests.

Scope of application

The Supreme People’s Court has begun drafting the Regulations of Several Issues Concerning the Application of Enterprises Bankruptcy Law (Tentative Name), so as to conform with the implementation of the Enterprise Bankruptcy Law. The regulations are meant to interpret the EnterpriseBankruptcy Law in an integrated and systematic way and guide all levels of the people’s courts in adjudicating enterprise bankruptcy cases. The regulations are in the early state of drafting.

Xi Xiaoming, the deputy president of China’s Supreme People’s Court, said that the Supreme People’s Court has formally launched efforts to formulate judicial interpretations on the Enterprise Bankruptcy Law. The Court will conduct further research on several important legal issues arising from the new circumstances and problems which the courts have encountered since the introduction of the Enterprise Bankruptcy Law on 1 June 2007.