We succeeded in collecting an off-shore company debt in Mainland China I brief the case as following.
1.The client, one of the well-known football clubs in Campeonato Brasileiro(Brazil) entered in into a Sponsor Contract with the debtor, a limited company in Anguilla, with it’s head quarter in Mainland China. The debtor defaulted a sponsor fees around R$（BRL）one million. The client contacted us and sought for legal service in China via his Brazilian law firm, who have cooperated with us for over 10 years.
2.Upon doing some investigation, we found that the debtor was just a shell corporation. We further asked the client to provide us with historical wire transfer documents, finding that the address of the payer is in Mainland China, which is just as the same as the debtors’ Chinese headquarter. We then suggested to try collecting this debt against its Chinese company.
3.After conducting a deep investigation, we found that the Chinese company was applying dissolving in a fast track. We then filed an objection to the fast track dissolving procedure together with supporting documents to the local company registration authority.
4.The Chinese company’s attorney then contacted us and denied it’s payment obligation under the Sponsor Contract, and asked us to claim this debt against the debtor in Anguilla. We then presented further information, indicating that the two companies were actually running by the same group people, and one is actually the other’s alter ego. In the meanwhile, we advised that we’ll file lawsuit against the two companies in Chinese court by the client’s instruction and claim the two companies’ joint and several liability payment obligation under this claim, if we didn’t receive an acceptable solution within 5 business days.
5.The debtor contacted our client and finally reached a settlement by the client’s acceptance of a little discount.
We believe there were two key factors of success in collecting this off-shore debt in Mainland China in this case, which is also supporting our very aggressive demand against the Chinese company.
(1)We filed an objection to the fast track dissolving procedure together with supporting documents to the local company registration authority.
(2)We succeeded in finding some key information, and claiming the debtor and the Chinese companies is actually the other’s alter ego, and threatening by legal action against the two companies, which would bring some troubles to the Chinese company’s dissolving procedure and the shareholders.
Now, let me introduce the Summary Deregistration procedure in China.
I. What’s the Fast Track of Dissolving Procedure?
We call the fast track of dissolving company as "Summary Deregistration”. According to the Guidance of Summary deregistration enacted by National Industrial and Commercial Bureau. It was decided that the reform of the Summary Deregistration of enterprises shall be comprehensively implemented nationwide as of March 1, 2017.
In the track of Summary Deregistration, an enterprise that has not commenced business or has no creditors or debts and intends to apply for Summary Deregistration is only required to make an announcement on the deregistration in a simplified manner for 45 days (calendar days) free of charge in the national enterprise credit information publicity system, and upload the letter of commitment of all shareholders, with no need to make an announcement on newspapers. The said enterprise may officially apply to the original registration authority for Summary Deregistration within 30 days (natural days) upon expiry of the announcement period.
II.How does a creditor file objection Summary Deregistration?
With regard to the issue of the time limit for the announcement on the cancellation, in accordance with the provisions of Article 185 of the Company Law, the liquidation group shall make an announcement on newspapers for at least 45 days, and the relevant creditors may declare their claims within the announcement period. To fully protect the legitimate rights and interests of the relevant interested parties, the Guidance provide that the time limit for an enterprise to make an announcement on deregistration in a simplified manner in the national enterprise credit information publicity system is 45 days.
During the announcement period, the relevant interested parties and government departments may raise an objection and briefly state reasons therefor through the "Message on Objection"（“异议留言”）function of the special column "Announcement on Summary Deregistration"(“简易注销公告”） of the National Enterprise Credit Information Publicity System. The "Message on Objection" function will be closed upon expiration of the announcement period.
Where, after the expiry of the announcement period but before the registration authority makes a decision to approve the Summary Deregistration or after the registration authority makes a decision to approve the Summary Deregistration, the relevant interested party submits a written objection application to the administration for industry and commerce, the administration for industry and commerce may take such objection application as the basis for not approving the Summary Deregistration or as a clue to the handling of the relevant case.
It should be noted that all objection information in the national enterprise credit information publicity system shall be recorded in the enterprise's Summary Deregistration announcement, and the public can view all contents of objection via the publicity system. No matter whether there is any objection during the announcement period, the announcement period of 45 days (calendar days) shall not be interrupted.
III.How Will the Registration Authority do?
According to the Guidance, the registration authority shall conduct formal examination on the application materials and deal with them depending on different circumstances. If the enterprise fails to meet the conditions for Summary Deregistration, the registration authority shall make a decision not to accept the application according to law. If the application materials are incomplete or inconsistent with the statutory form, it shall, on the spot or within 5 working days, inform the applicant of all the contents to be supplemented and corrected once for all and make a decision on rejection of the application. Where the application materials of an enterprise are complete and in the statutory form and the application shall be accepted, but an objection is raised against such enterprise within the announcement period, the registration authority shall, within three working days, make a decision on not approving the Summary Deregistration according to the law. Where the application materials submitted by an enterprise are complete and in the statutory form, the enterprise is accepted and no objection is raised against the enterprise within the announcement period, the registration authority shall, within three(3) working days, decide to approve the Summary Deregistration in accordance with the law.
IV.How to protect the creditors, and/or punish the applicant?
(1)Where an enterprise conceals the true information or practices fraud in the Summary Deregistration, the registration authority may revoke the deregistration in accordance with the law.
(2)An enterprise, whose registration is cancelled or its business entity qualifications are resumed, shall be included in the list of enterprises with serious breaches of law and discredited enterprises, and be publicized in the National Enterprise Credit Information Publicity System.
(3)The relevant interested parties may claim their corresponding rights through civil actions. Where a party evades debts or infringes upon the legitimate rights of others by maliciously making use of the Summary Deregistration procedures, the relevant interested parties may, through civil actions, claim against the investors for their corresponding civil liability, including the provisions of Article 20 of the Company Law that "where any shareholder of a company evades debts or seriously damages the interests of any creditor of the company by abusing the independent status of the company as a legal person or the limited liability of shareholders, it shall bear joint and several liability for the debts of the company".
(4)Where the investors violate laws and regulations, constituting a crime, they shall be prosecuted for criminal liabilities.
V.In what Circumstances that Summary Deregistration procedure is not applicable?
(1)a foreign-invested enterprise that is subject to special administrative measures for market access prescribed by the State;
(2) it has been included in the list of enterprises operating abnormally or the list of enterprises with serious breaches of law and discredited enterprises;
(3) its equity (investment rights and interests) is frozen or pledged or its movables are mortgaged;
(4) it is being placed on file for investigation or is subject to administrative enforcement, judicial assistance or administrative penalty;
(5)any of its affiliated non-corporate branches fails to be deregistered;
(6) its Summary Deregistration procedures have been terminated;
(7)it is required by laws, administrative regulations or decisions of the State Council to be approved before deregistration; or
(8)other circumstances where the Summary Deregistration of enterprises is not applicable.
VI.How to protect the interests of creditors in the event of malicious dissolution by the company?
An enterprise that maliciously dissolved has generally become insolvent, and the interests of its creditors are often realized by "piercing the corporate veil" and holding the shareholders accountable for their false capital contribution, illegal withdrawal of capital contribution, etc.
According to the relevant law and regulation, If you had obtained a judgment against the company:
(1)Where a company, as the party subject to execution, has gone through the formalities for Deregistration without going through liquidation procedures, resulting in its failure to conduct such liquidation, and the party applying for execution files an application is entitled to alter or add the party subject to execution to its shareholders, directors and controlling shareholders who are jointly and severally liable for the repayment of the company's debts.
(2)Where a legal person or an unincorporated organization, as the party subject to execution, handles the Deregistration without going through liquidation procedures in accordance with the law, a third party makes a written commitment to bear the liability to pay off debts of the party subject to execution when the Deregistration is handled with the registration authority concerned, and the party applying for execution files an application is entitled to alter or add the third party to the party subject to execution who is liable for paying off debts within the scope of commitment.
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