On December 26, 2016 China’s State Administration for Industry and Commerce (“SAIC”) issued its “Guiding Opinions on Comprehensively Promoting the Reform of Simplified Deregistration of Enterprises” (《关于全面推进企业简易注销登记改革的指导意见》, “Guiding Opinions”, effective as of March 1, 2017) to introduce the simplified enterprise deregistration procedures across the country. The simplified deregistration procedures are aimed at accelerating deregistration procedures for certain qualified enterprises (incl. foreign invested enterprises – FIEs) and have already been experimented with slight variations in several provinces and cities since early 2015.
Highlights of the Guiding Opinions
1. Right to Choose
The enterprises have the right to choose the simplified deregistration procedures or the normal deregistration procedures if they meet the qualifications below for using the simplified deregistration procedures.
The simplified deregistration procedures only apply to the enterprises with the legal form of limited liability company, non-company enterprise legal person, individual proprietorship enterprise and partnership enterprise.
In addition, an enterprise shall:
- Not have undertaken any operation after obtaining their business licenses; or
- Not have had any claims/receivables against and obligations towards other parties before applying for deregistration; or
- have already settled all their claims/receivables against and obligations towards other parties before applying for deregistration.
At the same time, when applying for using the simplified deregistration procedures, the investor(s) of a qualified enterprise must undertake that the enterprise has already completed the liquidation procedure, including fully paying liquidation expenses, salaries, making social insurance contributions, paying statutory compensations/severance and taxes.
The following enterprises are explicitly excluded from using the simplified deregistration procedures:
- a. FIEs in the industries listed in the Negative List (see Taylor Wessing newsletter: “A More Structured World – The Birth of FIE Negative List”:https://china.taylorwessing.com/en/a-more-structured-world-the-birth-of-fie-negative-list);
- b. Enterprises under any of the following circumstances：
- Being listed as enterprises whose operation is abnormal or that have seriously violated law or are discredited;
- Shares (investment rights and interests) in the enterprises are frozen, pledged or mortgaged, etc.;
- Being under investigation, compulsory administrative measure, judicial assistance, or administrative punishment, etc.;
- Their non-legal person branches have not yet been deregistered;
- Being ordered to stop using the simplified deregistration procedures;
- Approval is required before deregistration according to laws, regulations and the State Council’s decisions;
- Other scenarios where the simplified deregistration procedures are not applicable.
3. Simplified Application Documents to AIC
Should the simplified deregistration procedures be applicable to an enterprise, such enterprise will only need to submit to the competent AIC an application form, the power of attorney to agent, an investor undertaking letter (see above Item 2.) and its business license (Zheng Ben and Fu Ben). In other words, the resolution, liquidation report and tax clearance document etc., which are required by AICs under the normal deregistration procedures, will no longer be required by AICs under the simplified deregistration procedures.
- 4. Simplified vs. Normal Deregistration Procedures
Steps / Documents Normal Deregistration Procedures Simplified Deregistration Procedures Shareholder decision/resolution (or board resolution in the case of a Sino-foreign equity joint venture company) Required by AICs Not required by AICs (Note: Such resolution is however needed according to the Company Law and very likely also the company’s articles of association.) Filing liquidation group members with AICs Required by AICs Not required by AICs (Note: According to the Company Law the liquidation group shall be constituted for dissolving and liquidating a company.) Public announcement On newspaper – Announcement period: 45 days; – Objections shall be directly raised to the enterprise to be deregistered. On an online platform named “(open-in-new-window) National Enterprise Credit and Information Publicity Platform” (http://gsxt.saic.gov.cn/) - Announcement period: 45 days; - Simultaneously, AICs shall forward the information via the platform to other relevant authorities such as tax authorities and human resources and social security authorities, etc. at the same level, and to commercial authorities if the to-be deregistered enterprises are FIEs; – Founded objections shall be submitted by relevant interested parties or authorities via the platform; - The simplified deregistration can be applied for if no objection has been raised during the public announcement period. Certificates of deregistration/clearance with other authorities such as tax, social insurance, customs authorities, etc. Required by AICs Not required by AICs (Note: Deregistration/clearance with other authorities such as tax, social insurance, customs authorities still needs to be done as the relevant authorities have not yet changed their practices in this regard.) Liquidation report Required by AICs Not required by AICs (Note: When applying for using the simplified deregistration procedures, the investor(s) of an enterprise shall undertake that the liquidation procedure has been duly closed. Under the Company Law, a liquidation report must be prepared for completing the liquidation procedure.) Investor undertaking letter to AICs Not required by AICs Required by AICs；Prescribed contents: - The enterprise is qualified to apply for the simplified deregistration; - The enterprise has completed the liquidation procedure. Time to complete deregistration with AICs upon application Normally 5 – 15 working days in practice from submitting a complete set of required documents 3 working days
- In the Guiding Opinions, SAIC explicitly requests local AICs to actively implement the simplified deregistration procedures. However, practices and documents required would likely vary by location at least at the very beginning.
- Other authorities (especially the tax authorities) might adjust their respective deregistration / clearance procedures accordingly.
- To be qualified for the simplified deregistration an operative enterprise shall quickly settle all its claims and obligations and well document such settlements.
- Even though fewer documents will be required by AICs under the simplified deregistration procedures, the investor(s) of an enterprise, which applies for using the simplified deregistration procedures, must undertake that the liquidation procedure of the enterprise has been duly completed. This will mean that the relevant resolution, liquidation report and certificates of deregistration with other authorities such as tax clearance document should still be prepared / obtained prior to applying for the simplified deregistration.
- The internal exchange of information among authorities through the “National Enterprise Credit and Information Publicity Platform” will also make the misuse of the simplified deregistration procedures (e.g. deregistration without tax clearance) very difficult.
- Under the simplified deregistration procedures the investor undertaking letter will serve as the key application document and the basis for AICs’ administration and supervision. In case of false statement or fraudulent concealment when making such undertakings, the deregistration may be revoked, the registered status may be restored and the enterprise may be listed and publicized as an enterprise that has seriously violated law and is discredited. In addition, the parties affected by such fraudulent conducts (e.g. creditors) may claim damages from the investor(s) of the enterprise; depending on the specific circumstances the investor(s) of the enterprise may also face administrative and criminal law punishments (e.g. making-up the underpaid tax, fine and imprisonment for liable individuals up to 7 years in case of tax evasion).