On November 19, 2008, China’s Ministries of Commerce, Foreign Affairs, Public Security and Justice jointly issued a Guideline on Cross-border Investigation and Litigation of Fugitive Foreign Investors (hereinafter referred as to the “Guideline”).
According to the four Ministries, the legislative intent for the Guideline is to prevent the occurrence of foreign enterprises from irregularly withdrawing their investments in several districts in China, which stifled the interests of their Chinese partners as well as negatively affected both multilateral economic relationships and the stability of local society. For instance, eighty-seven companies established by Korean investors withdrew from Shandong Province with improper liquidation of assets last year.
China has established regulations allowing for judicial assistance in civil, commercial and criminal matters with sixty one countries; and also has established extradition treaties with many foreign countries. Based upon those regulations, the Guideline concentrates on the procedure for seeking fugitive foreign investors, protection of creditors, overseas acknowledgement and enforcement of valid judgments issued by Chinese courts and other legal liabilities of fugitive foreign investors.
The Guideline emphasizes that after the occurrence of an irregular withdrawal of foreign capital, Chinese partners shall file a civil/commercial or criminal case with competent judicial authorities. Pursuant to the procedures addressed in the Guideline, a request for judicial assistance shall be sent to foreign judicial authorities via China central government, including assistance with serving summons and other legal documents, collecting evidence as well as legal investigations on the foreign suspects.
For purposes of protecting the interests of creditors in China, the Guideline specifies that the legal representative of a limited liability company, such as the actual controlling owner or director of such a company, shall be subjected to relevant civil liabilities and be jointly liable for company debts under the Provisions (II) of the PRC Company Law.
Further more, the Guideline details that a valid civil judgment upheld in a China court shall be acknowledged and enforced by certain foreign jurisdiction where properties of foreign investors are located when the same investors do not have any enforceable properties in China.
In addition, the Guideline also points out that Chinese creditors in economic dilemma shall enjoy legal assistance originating from a foreign jurisdiction in accordance with some reciprocal national treatments.
The Guideline ends with a vehicle of extradition or criminal case transfer, via which punishments of some malicious foreign suspects aiming at avoiding huge taxes could be guaranteed.
In conclusion, the Guideline came into existence due to the economy slump which makes foreign investors shift their eyes on cheaper labor markets, such as India and Vietnam. The Guideline is a wise tool for restoring an orderly system for foreign investors to withdraw their investments, which shall counter negative influences of irregular foreign capital withdrawals on Chinese partners. Meanwhile, the Guidelines should attract more optimized foreign capital investment in the China market and facilitate the structural reform of China’s dense labor industry.