Restructuring

Investment restructuring is often required if the business has for a long period of time performed quite well, or sometimes the initial expectations of investment are not met. Other reasons may be changes in the foreign parent company, in particular the acquisition by another company which also has presence in China. Finally disputes among the partners of a JV may as well call for organization restructure.

Chinese law allows various forms of restructuring, such as (a) merging of several companies, (b) transfer of business operations from one company to another, (c) establishment of a direct holding company by foreign investors provided that a certain size threshold is met. This holding company then acts as the new shareholder of the existing mainland China subsidiaries, (d) transfer of shares, and also (e) the closure of businesses.

In addition, Chinese law also contains provisions pursuant to which certain changes concerning the shareholders abroad also impose legal consequences in China, especially from a tax point of view.

For the restructuring of a JV it is necessary to reach an agreement between the partners, if the JV contract does not already contain clear instructions on this matter. There are a broad range of choices for the restructuring. They range from a simple liquidation and distribution of remaining assets among the partners, to the takeover by one of the partners or the transfer of all shares to a third party. The transfer of the shares of the foreign partner to a third party - including another company affiliated to the original foreign investor - will be substantially simplified if the foreign investor holds its shares in an offshore jurisdiction through a special purpose vehicle. Then, the share transfer or exit by transfer can take place through the transfer of this holding company, which is often quicker and easier to implement in an offshore jurisdiction such as Hong Kong or Singapore.

In almost all cases, restructuring measures in China have tax consequences that shall be taken into account when choosing the forms of the corporate restructuring.

Our consulting services concerning corporate restructuring in China include:

• Preparation of the restructuring strategy based on comprehensive study on legal, practical and tax aspects (in cooperation with specialized local experts)
• Preparation and negotiation of contracts required for the restructuring
• Communication with employee representatives and management of labor issues
• Preparation of all required application documents
• Guidance on/Following through the overall restructuring process
• Handling applications for permits according to antitrust regulations where applicable