Research On Management Buy-out

In this paper, basing on the discussion of meaning of management buy-out and its basic theory, the author gives a practical analysis on the legal difficulties we are facing in the management buy-out in China and related solutions from the perspective of development history of Chinese enterprises management buy-out, differences on management buy-out between China and overseas and the experiences that we can learn from the overseas management buy-out. Meanwhile, deep research has been made on the key point of main legal system of management buy-out, financing laws and a pricing of transferring national assets. There are four parts in the article, and the main idea of each part is as follows:First Part: Basic legal theory of management buy-out. The main content in this part is the definition of management buy-out and features etc. First of all, the author briefly introduces the understanding of management buy-out definition and legal features, including specified quality of purchase subject, high financial leverage effect of purchase financing and the changing of enterprise form caused by management buy-out. Secondly, the category of management buy-out: mainly includes subsidiaries of purchase group or branch institutions, state-owned company purchasing to realize private possession, public companies purchasing and bankrupt companies purchasing or the ones in crisis. Thirdly, the basic mode of management buy-out includes the start, financing arrangement and rights and interests. Fourthly, the significance of management buy-out is highlighted. Through the introduction in the first part, the author believed that management buy-out provides a new road to the property right reform of Chinese enterprises, which is also a new means to perfect the structure of control in Chinese enterprises, meanwhile, the management buy-out should be conducted in a complete legal environment so as to properly handle the national assets protection issues.Part two the history of domestic and overseas management buy-out development. In this part, after discussing the overseas management buy-out development, the author analyzes the development of management buy-out in China, and divides it into three stages: 1. exploring period in small scale (from the end of 1980s to 1998). The key mission in this stage is to reform, and save the bankrupt small-sized state-owned companies in the market full of furious competition, with strict regulation on employee arrangement and comparatively irrelative with property right, so the influence is limited.2. Drawing attention stage (1998-2002), in this period, both the theoretical circle and practical circle believe that as one of the major approaches of national assets retreating, management buy-out has a bright perspective. However, because of the incompleteness of related laws and imperfect operation, the implementation of management buy-out is still facing all-round restrictions and risks. Therefore, the management buy-out is still in the primary attempt stage in small scope in China. 3. Primary establishment of related laws stage (since 2002), in this period, the regulations and laws are issued successively to standardize the management buy-out. Therefore, it becomes standard step by step, but there are still something need completing. Basing on the three stages, the author discusses the management buy-out features and reasons for Chinese enterprises and the legal and political environment of management buy-out in China. The author is convinced that the significance of local management buy-out is to improve the property right reform for state-owned companies and collective corporations. Chinese enterprises have got preliminary condition to implement management buy-out: the gradual breakthroughs in reform ideas of state-owned enterprises provide politic opportunities for management buy-out and the regulatory reform of standardizing management buy-out has basically formed.Part three: difficulties that management buy-out is facing in China. In this part, the author discusses this issue in three aspects: 1. legal difficulties that purchase subject faces. On the basis of summarizing the main types of management buy-out in domestic enterprises, the author points out the existed restrictions of all purchase subjects: (1) restrictions of employee stock ownership meeting as purchase subject. Ever since Aug. 22, 2001, Temporary Rules for Employee Stock Ownership Meeting Registration in Foreign Economic and Trade Pilot Enterprises, issued by the all-China Federation of Trade Unions, Foreign Trade and Economic Cooperation Department, and State Industrial, Commercial and Administrative General Bureau, the purchase subject of the target enterprise will not be the employee stock ownership meeting any more. (2) The new built shell company is the restriction as purchase subject. Whether the trading cost we saved from purchasing the target company as purchase subject will overtake the increased tax it brings, is a vital question that the management layer of quasi-buyer should carefully think about. (3) There are mainly two defects in the restriction of the management layer taking the status of a natural person as purchase subject. That is the number of people there, the ability to invest, financing problem and the unlimited liability and high risk the company should take when the individuals play as transaction participants. (4)Dormant purchase of management layer has restrictions. The biggest risk of dormant purchase is that the status of being actual investor is unstable, which makes the management difficult to protect their benefits of investment through other legal approaches. 2. Legal difficulties in purchasing financing. The author systematically analyzes the current management buy-out financing state and major modes and its restrictions as well, believing that the existing management buy-out financing modes such as capital accumulated by means of individual wealth or personal credit equity pattern, employee stock ownership meeting mode, stock collateral loan pattern and financing mode of government or original property subject all have restrictions in some extent. As to the national assets protection in the management buy-out, basing on the systematic analysis of current state of pricing the asset transfer, the author points out that there are some problems in the pricing of asset transfer which would bring legal risks to the national assets protection as a result of the lack of national assets law.Part four: Countermeasure of difficulties that management buy-out is facing in China. On the purchase subject aspect, it is believed that as the main type of purchase subject in the future, trust institution has certain advantages, but its strength and credit basis should be further improved, the improper legal restriction should be abolished and its tax system need completing as well. On the perspective of purchase financing, the author is convinced that the breakout of difficulties the management buy-out financing is facing depends on the issue of Industrial Fund Law and the release of financial control. The enterprises should be freer in financing as well as more financing opportunities. As to the protection of national assets, the author proposes several legal suggestions on its perfection, such as creating a catalogue of the state-owned enterprises that can implement management buy-out, founding a special commission on asset transfer evaluation and pricing programs, prioritizing the public biding as the uniform procedure in transferring national assets, increasing the rationality of asset transfer pricing through asset ratchet wheel, completing the information disclosure system in management buy-out and issuing National Assets Law as soon as possible to solve the problem of nominal owner of national assets.