The Legal Points Related To The Changes In Equity Interest Of Investors In Foreign Investment Enterp

Foreign investment enterprises include Sino-foreign equity joint ventures

, Sino-foreign co-operative joint ventures or wholly foreign-owned enterprises established in China under Chinese laws. Changes in equity interest of foreign investment enterprises refer to changes that occur in the shares of capital contributions of investors. Some related documents need to be submitted to examination and approval authority under laws when a change happens in equity interest, of which include the lawful and valid agreement to change the Equity Interest. The agreement to change the Equity Interest defines the details of changes in Equity Interest and the rights and obligations of each party; it plays a vital role in the change in Equity Interest.

In Aug. 5th this year, the Supreme Peoples Court of the Peoples Republic of China issued Provisions of the Supreme Peoples Court on Some Issues in the Adjudication of Foreign Invested Enterprises Dispute Case. These provisions were effective as of Aug. 16th 2010, which provides a judging basis for handling the disputes arising in the changes in equity interest. According to Provisions of the Supreme Peoples Court on Some Issues in the Adjudication of Foreign Invested Enterprises Dispute Case, after signing the Equity Interest assignment agreement, if the assignor and foreign investment enterprises do not fulfill the obligation to submit to the approval authority which resulted to the damages of assignees legal rights, the assignee can seek help through judicial remedies.

1st, Provisions of the Supreme Peoples Court on Some Issues in the Adjudication of Foreign Invested Enterprises Dispute Case provides the assignee of the agreement to change the Equity Interest without undergoing examination for approval a judicial relief . In reality, there are many phenomenons that the assignor does not fulfill the obligation to submit to the approval authority because of various causes which leads to the procedure of the changes in equity interest unable to initiate, so that the rights of the assignee are damaged. Provisions of the Supreme Peoples Court on Some Issues in the Adjudication of Foreign Invested Enterprises Dispute Case makes clear regulation, the assignor and foreign investment enterprises are negligent of the obligations of submitting reports for approval, the assignee shall take the assignor and the foreign investment enterprise as the defendant and let them fulfill their obligations within a stated time, the court shall support. The assignee submits reports for approval on his own while the assignor and the foreign investment enterprise do not fulfill their obligations of submitting reports for approval in the time of effective verdict, peoples court shall support his action. This regulation provides a judicial relief for the assignee to accomplish the changes in the Equity Interest and gives him the initiative to obtain administrative examination and approval.

2nd ,for protecting the interest of assignee whose equity change was not accomplished due to the unapproved procedure, the Provisions gives the assignee right for terminating the contract and the claiming for indemnification . According to the Provisions, when the assignee sues the assignor and foreign invested enterprises for such reasons, People's Court shall support assignee for terminating the contract and claiming for indemnification. The scope of damages shall include loss of equity, equity earnings and other reasonable losses. This Provision shall push the assignor and foreign invested enterprises to fulfill the obligation activity.

3rd, In order to protect the interest of assignee whose equity change agreement didnt pass the approval, the Provision gives the right for Assignee to request the return of transfer amounts and claim for indemnification . Because of assignor and foreign invested enterprises didnt perform the duty of submitting for approval and assignee start a separate action, People's Court shall support the assignee to request assignor to return the transfer that have been paid. When assignees claim for compensation, the Peoples Court shall determine whether the assignor shall bear the compensation responsibility and the specific amount of compensation.

In conclusion, The publication of Provisions of the Supreme Peoples Court on Some Issues in the Adjudication of Foreign Invested Enterprises Dispute Case made clear the rights and obligations on equity change transfer agreement for both parties ,given the assignee the route of judicatory relief when the assignor and foreign invested enterprises didnt perform the duty of submitting for approval, protecting the lawful rights and interests of assignee

by: Sino-Link Consulting

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