Study On The Legal Problems Arising From Foreign Investors' Acquisition Of The Assets Of Domestic Non-FIEs

Running through the course of the acquisition by a foreign investor of the assets of a domestic non-foreign invested enterprise ("non-FIE"), this thesis, mainly from the perspectives of foreign investment laws as well as corporate laws and to some extent with reference to the US legal system with regards to assets acquisition, analyzes and explores the major problems arising from such acquisitions in China. Based on the analysis and explorations above, the author proposes some suggetions, which the author hopes could be helpful to improve the China's legal system regarding foreign investors'acquisition of the domestic non-FIEs. Except the Preamble and Conclusion, this thesis is divided into four chapters, the abstracts of which are as follows:Chapter One is mainly dedicated to explaining the basic notion of a foreign investor's acquisition of the assets of a domestic non-FIE by discussing the concept of a foreign investor's acquisition of the assets of a domestic non-FIE as well as the meanings of its elements. As a foreign investor's acquisition of the assets of a domestic non-FIE can be classified in nature as a form of mergers & acquisitions ("M&A") as well as a kind of foreign direct investment, the author explains its concept from both the aforesaid perspectives. When analyzing the meanings of the elements, the author discusses the standards applicable to judge whether an individual or entity is a foreign investor, the different statutory provisions regarding sales of assets by different types of domestic non-FIEs as a result of the legal regime established based on the nature of the ownership of enterprises as well as the meanings of"assets"and different internal and external approval requirements for sales of different percentage of assets owned by a domestic non-FIE.Chapter Two, roughly under the framework of the Temporary Provisions on Foreign Investors'Merge and Acquisition of Domestic Enterprises, mainly introduces the different implementation schemes by which a foreign investor may acquire the assets of a domestic non-FIE and meanwhile analyzes the problems arising therefrom. In accordance with the different sequences of the implementation of the assets acquisition and the establishment of a new foreign invested enterprise ("FIE") by a foreign investor, three schemes are available, namely in short form, simultaneous acquisition and establishment, acquisition after establishment and acquisition before establishment. While acquisition after establishment may circumvent mandatory provisions, acquisition before establishment may give rise to issues such as uninterrupted operation of the acquired assets and business and the coordination between the appraisal value of the assets when purchased and the capital verification requirement for such assets when transferred to a FIE as a kind of capital contribution by the foreign investor. Simultaneous acquisition and establishment may involve third party beneficiary and obligor contracts or the validity of authorization depending on who acts as the specific acquiring party. The author discusses all the issues above and thereby put forward some suggestions.Chapter Three mainly discusses issues arising from the determination and the payment of the acquisition price for the assets that a foreign investor acquires from a domestic non-FIE. Currently in China, state-owned assets and non-state-owned assets are subject to different price mechanism. While the state-owned assets shall go through the dedicated assets appraisal and the open market transfer proceedings in a legally qualified equity exchange center before a final price may be fixed therefor, the non-state-owned assets may be transferred at a price as agreed by the foreign investor and the domestic non-FIE seller based on the appraisal value thereof. The author respectively analyzes the related issues in such price mechanism and thereby provides some suggestions. With regard to the payment of the acquisition price, major issues such as the coordination between the payment of such price to the domestic non-FIE seller and the contribution of the acquired assets to a new FIE by the foreign investor as well as the payment schedule of the acquisition price for state-owned assets are discussed.Chapter Four mainly deals with the assumption of the related liabilities where a foreign investor acquires the assets of a domestic non-FIE. Firstly, the author discusses the concepts, categories and characteristics of the liabilities and thereby explores the suitable possible arrangement or disposition. Secondly, the author elaborates the rationale underlying the principle that the domestic non-FIE, as the acquired party, shall continue to be responsible for its own liabilities incurred prior to its sale of assets to a foreign investor, the statutory provisions reflecting such principle and the shortcomings of such principle. Finally, the author analyzes the different situations where the foreign investor or the proposed FIE, as the acquiring party, shall assume the liabilities as stated above pursuant to its agreement with the domestic non-FIE or the relevant mandatory statutory provisions. The principle that liabilities shall be attached to the related assets is criticized and certain suggestions are proposed by the author in the hope of improving the legal system regarding the assumption by the acquiring party of the liabilities incurred by the acquired parties prior to its sale of assets by referring to the US well-established judicial practices.