l Our Firm’s Latest Activites
Our Project AnalysisMethod of Remitting Funds Abroad for FIE — — Capital Reduction
l Latest Highlights
Legal Conerns under the Current Epidemic Isolation Control
l New Law Update
Analysis of Questions of General Concern on the “Interpretation by the Supreme People's Court regarding the Application of the Anti-Unfair Competition Law of the People's Republic of China”
【Our Firm’s Activities】
Our Project AnalysisMethod of Remitting Funds Abroad for FIE — — Capital Reduction
Background and Current Situation
As the foreign exchange control of China's capital account has not been fully liberalized, domestic enterprises will be directly or indirectly supervised by the foreign exchange control department when they convert RMB into foreign currencies and make overseas payments. In accordance with the Administrative Regulations of the People's Republic of China on Foreign Exchange and other regulations related to foreign exchange, domestic enterprises making overseas payments under different transaction structures shall be subject to different degrees of supervision. A domestic enterprise may generally make overseas payments according to the following transactions: service fees, payments for goods or dividend, overseas lending and overseas investment by the enterprise, overseas loans secured by domestic guarantee, etc.
In addition, a foreign investor may also remit its funds abroad by way of capital reduction in the domestic company. Shanghai Veritas Law Corporation recently successfully assisted a foreign investor in the capital reduction of its domestic subsidiary. Our relevant experience is summarized as follows:
Capitals Reduction Processes and Points to Note for FIE
In general, capital reduction of FIE may be divided into eight steps: (1)The board of directors formulates a capital reduction plan, which should list out the following items: the total amount of the reduced registered capital of the company; the amount of registered capital reduced by the relevant shareholder(s); the equity structure after the capital reduction; arrangements on protecting creditors’ interests;(2)The finance department of the subject company prepares an up to date asset inventory and balance sheet; (3) To hold shareholders' meeting on adopting resolution on the capital reduction; (4) The Company notifies creditors of the Company's capital reduction within ten (10) days from the date on which the resolution is adopted; (5)The Company publishes an announcement regarding the capital reduction on a newspaper within thirty (30) days from the date on which the resolution is adopted;(6)Settles outstanding debts or provides security within 45 days upon the publication of the announcement on capital reduction;(7)Applies to relevant local AMR for registration;(8)Applyies for changes of foreign exchange status with the bank in which the capital account is opened.
In order to carry out the capital reduction procedure smoothly and reduce the legal risks to shareholders, a number of matters on the actual process require attention. First and foremost, in order to avoid the risk of illegal capital reduction, the subject company must strictly follow the statutory deadlines on notifying creditors and making an announcement; further, some materials that are not required to be submitted to the AMR for examination (such as the balance sheet and the list of assets) should also be prepared in accordance with relevant regulations . In addition, the signatory of capital reduction materials should be the same person as the one listed on the record of the AMR, failing which the newly authorized signatory shall have to be notarized and legalized. Lastly, when a FIE reduces its capital, it is required to adjust its total investment amount accordingly, although the new Foreign Investment Law does not contain provisions regulating total investment amount, yet in actual practice, the item of total investment still remains in the AMR system.
【Latest Highlights】
Legal Conerns under the Current Epidemic Isolation Control
Q: What are the obligations of the parties to the contract when they
are unable to timely discharge such obligations due to epidemic or epidemic prevention and control measures?
A: When the parties to the contract cannot discharge the contract due to epidemic, they should follow the principle of good faith and discharge their obligations such as notification and assistance in accordance with the nature, objective and trading customs of the subject contract. A party who is unable to discharge its contractual obligations due to the impact of the epidemic shall forthwith notify the other party and provide proof of such impact within a reasonable period of time; such other party shall also take necessary measures immediately to mitigate further losses. (Source: Shanghai High People’s Court)
Q: How to determine the validity of the contract when the price is significantly higher than the market price during the epidemic?
A: In principle, freedom of contract of the contractual parties shall be respected. However, if the price gouging for essentials items, such as livelihood commodities, anti-epidemic supplies and other related materials during the epidemic, disturbs the economic order of the market, the relevant pricing clause shall be deemed invalid. Where the parties entered into a contract fraudulently, under duress, or an abuse of their own dominant position, or taking advantage of the other party's precarious state, etc., which renders the contract obviously unfair, the court shall offer protection to the aggrieved party in the event that such party seeks the court’s remedies on treating the contract as voidable. (Source: Shanghai High People’s Court)
Q: Whether or not commercial tenants could claim a reduction in rent during the epidemic?
A: In the event that a tenant of small and micro business and individual business who rented state-owned premises for business operations have had difficulties in operating their business due to epidemic or epidemic prevention and control measures, his/her request shall be supported by the state-owned landlord if such tenant applies to the landlord for rental reduction for a reasonable period pursuant to the relevant policies of Shanghai.
In case that it would be obviously unfair for tenant who rented non-state-owned permises for operation has to continue to pay rent in accordance with the tenancy agreement and that such tenant is having no operating income or a significant decrease in operating income, the affected parties could be guided to negotiate and mediate, utilizing the Shanghai's policies on rental reduction and exemption as reference, when the subject tenant applies to his/her landlord to reduce or exempt the rent, or grant an extension of the tenancy term or a deferral of rental payment. If the negotiation and mediation failed, and that the elements of the provisions in Article 533 of the Civil Code of the People's Republic of China are satisfied, the subject tenancy agreement may be varied according to the principle of fairness in light of the actual situation of the case. Where a premises cannot be used normally due to the epidemic or epidemic prevention and control measures, and that the subject tenant requests the landlord to reduce or exempt the rent for a certain period of time, his/her case may be supported if the circumstances deemed appropriate. (Source: Shanghai High People’s Court)
【New Law Update】
Analysis of Questions of General Concern on the “Interpretation by
the Supreme People's Court regarding the Application of
the Anti-Unfair Competition Law of the People's Republic of China”
The Supreme People's Court issued on March 16, 2022, the Interpretation by the Supreme People's Court on Several Issues Concerning the Application of the Anti-Unfair Competition Law of the People's Republic of China (hereinafter 'Interpretation'). The Interpretation contains 29 articles covering a number of existing provisions of the Anti-Unfair Competition Law of the People's Republic of China (hereinafter 'Anti-Law'), such as general provision articles, confusion articles, false advertising articles, commercial defamation articles, Internet articles, legal liabilities, jurisdiction of courts, and the connection between the old and new laws of the Anti-Law. Our analysis on some the articles of concern in the Interpretation is as follows:
I. The Interpretation clarifies the application of the general provisions articles. Articles 1 to 3 of the Interpretation stipulate that the application of the general provisions articles of the Anti-law, which clarify the limitations of the court's application of Article 2 of the Anti-law, reiterate that only acts not specifically enumerated in the special provisions of Chapter II of the Anti-law can be of application. The Interpretation further clarifies the supplementary nature of Article 2 of the Anti-Law.
II. The Interpretation clarifies that where an act is concurrently in breach of both unfair competition and intellectual property infringement, only one of these acts can be legally protected under PRC Laws. Where a tortious action concurrently satisfies all three conditions namely, the 'same offender', 'targeting the same subject matter', and 'committed at the same time and geographical scope', the court shall only choose either the Anti-Law or the Intellectual Property Law as the applicable law.
III. The Interpretation clarifies the identification of 'competitive relationship' and 'commercial ethics', adopting a board interpretation on competitive relationship, which also includes potential competitive relationship, that is, the existence of a relationship which may probably competes for trading opportunities, and may damage competitive advantages'. The Interpretation emphasizes that the term 'commercial ethics' in the Anti-Law shall be a code of conduct that is generally followed and recognized in specific commercial fields, rather than simply be equated with general ethical standards. A court judging whether an operator’s act violates commercial ethics shall sum up all the specific circumstances of the case, and comprehensively consider factors such as industry codes or business practices, the subjective state of the operator, the choice of the counterparty in the transaction, the impact on the rights and interests of consumers, the order of market competition, and social and public interests.
IV. The Interpretation further explains and expands the articles on 'counterfeiting and confusion' under the Anti-Law. Article 4 of the Interpretation defines that both“having a certain market reputation' and“having a prominent feature that distinguishes the source of the commodity' situations can form the basis for defining a situtation which is 'having a certain degree of influence' . Articles 5 and 7 of the Interpretation refer to the provisions of the Trademark Law, detailing and clarifying that prohibited trademark shall not be used as protection of commercial marks, and the identification concept of the distinctiveness of marks, etc.
V. Articles 14 and 15 of the Interpretation clarify the scope of the rules of 'selling behavior' and 'assisting behavior', and further clarify that a seller is covered under the confusion articles and that 'a person who deliberately provides warehousing, transportation and other convenient conditions for others to conduct the confusion behavior shall constitute an accessory to tort .
VI. The Interpretation also lists out 'false propaganda' and 'misleading commercial propaganda', and clarifies the burden of proof of the aggrieved party in an action for'commercial defamation', and the legal responsibilities of disseminators of false or misleading information. Article 21 and Article 22 of the Interpretation have not further enumerated new behaviors in the articles of Internet, but providing details on these Internet articles.
VII. The Interpretation not only provides a clear basis for statutory compensation for relevant illegal acts but also supplements the jurisdiction of the court, explicitly excluding 'choosing arbitrarily the court of the place of receipt of the goods' as the jurisdictional court.
About Veritas
Shanghai Veritas Law Corporation is a comprehensive law corporation in China that provides perfect and comprehensive legal services to clients. With our professional skills and in-depth understanding of business, we provide a complete set of value-added legal service solutions for clients at home and abroad to help them achieve business goals.
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