What is Company Liquidation? Company Liquidation Review

1. Concept

The liquidation of a company refers to the actions and procedures for clearing and disposing of the company's unsettled business, property, and creditor-debtor relationships in order to terminate the various legal relationships to which the company is a party and eliminate the company's legal personality when the company is dissolved.

Company liquidation occurs when a company faces termination. There are two reasons for company termination: dissolution of the company and bankruptcy, which means the company is terminated based on bankruptcy. Both situations will lead to company liquidation, but the liquidation organization and liquidation procedures are different.

The liquidation of a company is an act performed by the subject who is responsible for the liquidation of the company in accordance with the methods and procedures prescribed by law. In the liquidation of a company, it is particularly important to clarify the subject of the obligation for the liquidation of the company. The subject of the liquidation of a company should be the subject of the obligation based on the rights and interests in the company's assets.

China's Company Law stipulates that the liquidation group of a limited liability company is composed of shareholders, and the liquidation group of a joint stock company is composed of persons determined by the board of directors or the general meeting of shareholders.

The scope of company liquidation is the review of the company's capital contribution, assets, claims and debts. The purpose of company liquidation is to eliminate the rights and obligations between the company and other social entities, thereby providing a reasonable basis for the termination of the company. The termination of a company involves the vital interests of many stakeholders, and the relevant rights and obligations must be handled and resolved. Therefore, only after the company is liquidated can the relevant rights and obligations be eliminated and transferred, and the company can finally be terminated.

Company liquidation can be divided into bankruptcy liquidation and non-bankruptcy liquidation according to different liquidation procedures. Liquidation requires the issuance of a "Company Cancellation and Liquidation Report".

II. Bankruptcy Liquidation

Bankruptcy liquidation refers to the liquidation carried out in accordance with the provisions of the bankruptcy law when a company is unable to repay its due debts. Article 191 of the Company Law of the People’s Republic of China [3] provides that “if a company is declared bankrupt according to law, bankruptcy liquidation shall be carried out in accordance with the relevant laws on corporate bankruptcy.”

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The Enterprise Bankruptcy Law of the People's Republic of China came into effect on June 1, 2007. [4] According to the Enterprise Bankruptcy Law of the People's Republic of China, if an enterprise legal person cannot repay its due debts, and its assets are insufficient to repay all debts or it obviously lacks repayment capacity, the debtor or creditor may file a bankruptcy liquidation application with the people's court. The people's court shall decide whether to accept the bankruptcy application within 15 days of receiving it. When deciding to accept the bankruptcy application, the people's court shall designate an administrator for the bankrupt enterprise.

program

1. Bankruptcy declaration

The bankruptcy declaration shall be served on the debtor and the administrator within five days from the date of the ruling of the People's Court, and shall be notified to known creditors within ten days from the date of the ruling and announced.

2. Bankruptcy property valuation plan

The bankruptcy property valuation plan is drawn up by the administrator and submitted to the creditors' meeting for discussion and approval.

3. Price change

The administrator shall sell the bankruptcy property by auction in accordance with the bankruptcy property valuation plan adopted by the creditors' meeting or decided by the People's Court, unless otherwise resolved by the creditors' meeting.

4. Pay off

The bankruptcy property shall be paid off in the following order. If the bankruptcy property is insufficient to pay off the claims in the same order, it shall be distributed in proportion.

(1) bankruptcy expenses and common debts;

(2) Wages and medical, disability and pensions owed by the bankrupt to its employees, basic pension insurance and basic medical insurance expenses owed to it that should be transferred to the employees' personal accounts, and compensation that should be paid to employees as required by laws and administrative regulations. The wages of directors, supervisors and senior managers of a bankrupt enterprise shall be calculated based on the average wage of the enterprise's employees;

(3) Social insurance expenses owed by the bankrupt other than those specified in the preceding paragraph and taxes owed by the bankrupt;

(4) Ordinary bankruptcy claims.

5. End

If the company has no property to distribute or the final distribution is completed, the administrator shall request the People's Court to rule to terminate the bankruptcy procedure. If the People's Court decides to terminate the bankruptcy procedure, it shall make an announcement.

Within ten days from the date of termination of the bankruptcy proceedings, the administrator shall, with the People's Court's ruling on termination of the bankruptcy proceedings, apply to the bankrupt's original registration authority for cancellation of registration.

3. Non-bankruptcy liquidation

Non-bankruptcy liquidation refers to the liquidation carried out in accordance with the provisions of the Company Law when the company is dissolved and the property is sufficient to repay the debts. In non-bankruptcy liquidation, the company's property is used to pay the liquidation expenses, employee wages, social insurance expenses and statutory compensation.

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Pursuant to Articles 181 to 184 of the Company Law of the People's Republic of China, if a company is dissolved due to the following circumstances, a liquidation group shall be established within 15 days from the date on which the reason for dissolution occurs to begin liquidation.

(1) The business term prescribed by the company's articles of association expires or other grounds for dissolution prescribed by the company's articles of association occur;

(2) the shareholders' meeting or the general meeting of shareholders resolves to dissolve the company;

(3) Its business license is revoked, it is ordered to close down or it is abolished in accordance with the law;

(4) If the company encounters serious difficulties in operation and management and its continued existence will cause significant losses to the interests of its shareholders, and the problem cannot be resolved through other means, shareholders holding more than 10% of the total voting rights of all shareholders of the company may request the People's Court to dissolve the company.

The liquidation group of a limited liability company shall be composed of shareholders, and the liquidation group of a joint stock company shall be composed of persons determined by the board of directors or the general meeting of shareholders. If a liquidation group is not established for liquidation within the prescribed time limit, the creditors may apply to the People's Court to designate relevant persons to form a liquidation group for liquidation.

Article 188 of the Company Law of the People's Republic of China stipulates that if the liquidation team finds that the company's property is insufficient to repay debts after clearing the company's property and preparing the balance sheet and property list, it shall apply to the People's Court for bankruptcy declaration in accordance with the law. At this time, the company liquidation will be transferred from the non-bankruptcy liquidation procedure to the bankruptcy liquidation procedure.

program

1. Liquidate company assets and formulate liquidation plan

(1) Investigate and liquidate the company's property. The liquidation team shall prepare the company's balance sheet, property list and creditor's rights and debts list based on the creditors' declarations and the investigation and liquidation of the company's property.

(2) Formulate a liquidation plan. After preparing the company's financial and accounting reports, the liquidation group shall formulate a liquidation plan and propose specific arrangements for collecting claims and repaying debts.

(3) Submit to the shareholders' meeting for approval or report to the competent authority for confirmation. A company's liquidation plan should be submitted to the shareholders' meeting for approval by a joint stock company; a limited liability company should submit to the shareholders' meeting for approval. For a company that is dissolved and liquidated due to violation of the law, the liquidation plan must also be submitted to the relevant competent authority for confirmation.

(4) If the liquidation group finds that the company's assets are insufficient to pay off debts when clearing the company's assets and preparing the balance sheet and property list, the liquidation group has the responsibility to immediately apply to the People's Court with jurisdiction to declare bankruptcy. After the People's Court makes a ruling to declare bankruptcy, the liquidation group shall transfer the liquidation affairs to the People's Court.

2. Settle the company's claims and debts

(1) Handling the company's unfinished business. During the liquidation period, the company shall not carry out new business activities. However, the liquidation committee has the right to handle the company's unfinished business for the purpose of liquidation.

(2) Collecting company debts. The liquidation group shall promptly request the company debtor to pay off the company debts that have matured. For company debts that have not matured, the debtor shall be required to pay off in advance as much as possible. If the debtor does not agree to early repayment, the liquidation group may repay in disguised form by transferring the debts, etc.

(3) Pay off the company's debts. After the liquidation team has cleared the company's property, prepared the balance sheet and property list, and confirmed that the company's existing property and claims are greater than the debts owed and are sufficient to repay all the company's debts, it shall pay off the debts to the creditors in accordance with the statutory order. First, the company's liquidation expenses shall be paid, including the expenses required for the evaluation, storage, sale and distribution of the company's property, the announcement expenses, the remuneration of the liquidation team members, the fees for entrusting registered accountants and lawyers, and the litigation expenses; secondly, the wages, social insurance expenses and statutory compensation of employees shall be paid; thirdly, the taxes owed shall be paid; and finally, other company debts shall be repaid.

When repaying company debts, you should pay attention to the following points:

1. Repayment of company debts generally has no order of precedence, but the company's assets must be able to pay off the company's debts;

2. Before the expiration of the deadline for urging creditors to file their claims, the company shall not generally pay off its debts in advance;

3. The company's property shall not be distributed to shareholders before all company debts are paid off.

After clearing the company's assets, preparing the balance sheet and property list, the liquidation group shall formulate a liquidation plan and submit it to the shareholders' meeting, the general meeting of shareholders or the people's court for confirmation.

The remaining property of the company after paying liquidation expenses, taxes owed and company debts shall be distributed in proportion to the shareholders' capital contributions in a limited liability company and in proportion to the shares held by shareholders in a joint stock company.

During the liquidation period, the company shall continue to exist, but shall not carry out any business activities unrelated to the liquidation. The company's property shall not be distributed to shareholders before repayment is made in accordance with the provisions of the preceding paragraph.

3. Distribution of the company's remaining assets

According to Article 187 of the Company Law of the People's Republic of China, for the remaining property of a company after paying off all its debts, a limited liability company shall distribute it in proportion to the shareholders' capital contributions, and a joint stock company shall distribute it in proportion to the shareholders' shareholdings. The right to obtain distribution of the remaining property of the company is an important part of the company's shareholders' interests and is a basic right of the company's shareholders.

4. Free Liquidation

Optional liquidation is also called free liquidation, which means that the company is liquidated according to the will of shareholders and the provisions of the company's articles of association. This type of liquidation generally has no sequential procedures, and regardless of whether the full amount can be paid, the unpaid claims will not be extinguished due to the completion of liquidation. Optional liquidation is usually applicable to general partnerships and unlimited companies.

Legal liquidation refers to liquidation that must be conducted in accordance with the procedures prescribed by law. Legal liquidation has a sequence for the liquidation of company property. When legal liquidation is completed, the company's legal person status is eliminated in accordance with the procedures. All liquidations stipulated in my country's Company Law are legal liquidations.