As I wrote a few weeks ago, in a post entitled, “China Manufacturing: “We’re Bringing It Back Home,“ we are getting a rapidly increasing amount of work helping American companies shut down their operations in China. Rising wages in China, coupled with a rising Renminbi and rising costs overall are causing American companies to reaccess China and many are determining they can operate more cheaply and/or efficiently from the United States or elsewhere. I am absolutely convinced this is a trend that will hit warp speed very soon, particularly as I believe China will be forced to increase the value of currency to combat inflation.
Be that as it may, this post is about what it takes to shut down your company in China and, as I love to do, I am simply going to pull an email co-blogger Steve Dickinson wrote to a client who is in the process of figuring out how to exticate itself from China in such a way that if things change at some point down the road, it will not be precluded from returning.
Here’s Steve’s email to that client, scrubbed, of course, of any identifiers. Please also note that the advice to this client is based on this client’s particular situation and does not necessarily apply to all foreign company closures in China.
Here is the basic situation with respect to your company in China.
If you decide to close your China company, you are required to liquidate it. If you liquidate the company and you are not able to pay all of your debts, then Article 188 of the Company Law provides that the liquidation committee MUST refer the matter to the court for processing through bankruptcy. This creates a number of complications:
• Bankruptcy is done entirely by the court. This means you will have virtually no control.
• Bankruptcy is expensive.
• In a strange catch-22, if the court is busy, they may refuse to accept the bankruptcy. This is not at all uncommon.
• As the shareholder, [US Company] will probably be “black listed” from future investment in Beijing or maybe even all of China.
It is therefore to your benefit to avoid bankruptcy. This can be done in one of two ways:
1. Continue to operate your China company in a very minimal fashion, while working on resolving the payables and receivables over time.
2. Find a way to liquidate that avoids bankruptcy, primarily through agreements with creditors outside of bankruptcy, that would allow for a “clean” liquidation.
We can assist you a plan. To proceed with that we would need the following initial information:
1. All China company registration materials, such as the articles of association, the capital verification report and other registration materials.
2. The China company’s credit and debt information, such as the creditors’ and debtors’ list, debt amounts, and the related business contracts. Invoicing status and any communications are also important.
3. The company’s assets information, such as office property and equipment, vehicles, etc.
4. The management team information and current status of employees.
If you decide to operate your China company in the future with minimal/no staff, I have provided you with two contacts who can assist you with that.
Please let me know how you wish to proceed. I am sure you will have questions.
