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China Company Law-Company Law of People’s Republic of China part 3

Time:2014-03-13 Hit:937

China Company Law-Company Law of People's Republic of China part 3

Duty of diligence and loyalty of the director, supervisor and officer

The directors, supervisors and officers are obliged to observe various duties since they are agents running the company on behalf of shareholders or stakeholders, the duties are as follows:

1. No leakage of the secret of the company

2. No competition with the company

3. No pocketing commissions

4. No usurping corporate opportunity

5. No improper self-deal

6. No improper loan or security

7. No defalcation

8. No separate account

9. No misappropriation of property

10. No such illegal benefits as a bribe

Corporate dissolution and liquidation:

  There are two types of dissolution: the compulsory liquidation and voluntary dissolution, and there are three kinds of compulsory dissolution: statutory dissolution, administrative dissolution and judicial dissolution.

  Chapter 10 of China company law address issues of non-insolvency related dissolution and liquidation of companies. In accordance with article 181 of China company law, a company shall be dissolved for the following reasons:

  Expiry of the term of operation stipulated in the article of association of the company or occurrence of an event which triggers the dissolution as provided in the article of association;

  A resolution on dissolution has been passed by the board of shareholders or a shareholders' general meeting; where the dissolution is required due to merger or division of the company; the business license has been revoked or has been ordered to close down.

  Serious difficulties arise in the operation and management of a company and its continued existence would cause a material loss to the interests of the shareholders and the difficulties can not be resolved through other means, shareholders holding at least 10% of all shareholder voting power may petition a people's court to dissolve the company.

  When a company is to be dissolved, it shall set up a liquidation committee within 15 days from the days of occurrence of the dissolution event, creditors must be notified within 10 days of the formation of the liquidation committee, and the liquidation event shall be published in newspaper within 60 days of the formation of the liquidation committee. Creditors may have 30 days from the date of receiving the liquidation notice to register their claims with the liquidation committee. Creditors who have not received such notice shall register their claims within 45 days of the publication if the liquidation event.

  The courts' acceptance if an application to initiate insolvency proceedings will lead to the following major effects:

1. Legal representatives of the debtor company are obliged to preserve assets, seals, books and other documents of the debtor company. To cooperative with the court, to participate in creditors' meeting; not to leave their place of the residence without permission of the court and not to accept any new position as a member of the board of director or the supervisory board or as a senior manager of another enterprise

2. Any payment of debts by the debtor company shall be deemed as invalid

3. The debtor shall pay off any debts with or transfer the assets to the debtor company. The unpaid capital contribution shall be made by the shareholders who fail to do so

4. For the purpose of maximization of the assets, the insolvency administrator may decide to rescind or to continue the performance of the contracts with which the debtor company is a party prior to the insolvency proceeding

5. Property preservation measures and enforcement measures related to the assets of the debtor company shall be put on hold

6. Court and arbitration proceeding against the debtor shall be suspended;

7. New civil court proceedings against the debtor can only be initiated with the court, which is dealing with the insolvency proceedings

The company's assets will repay the company's debts in the following order:

1. Expenses incurred for the liquidation

2. Employee salaries

3. Social insurance fees and compulsory compensation fees

4. Unpaid tax

5. Claims of creditors

6. Shareholders

 The insolvency administrator has the right to request the court to revoke certain acts relating to the assets of the debtor company if the acts have been conducted within one year prior to the date of the acceptance of the application to initiate insolvency proceedings.

Upon the completion of liquidation, the liquidator shall prepare the liquidation report, and submit to the shareholder's meeting or the court for ratification. The liquidator shall submit such report to the AICs for handling cancellation registration and make the public announcement of the corporate termination. Upon the completion of the cancellation registration, corporate life as a legal person is terminated.

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