On December 20th, 2021, the Supreme People's Court issued the Regulations on Several Issues Concerning the Compulsory Enforcement of Equity by the People's Courts, which clearly stipulates many issues arising in the enforcement practice. Due Regulations will come into effect from January 1st, 2022. Specific details are excerpted below by Dongjin:
- Clarify the scope of the subject of equity. The so-called equity, includes the equity of limited liability companies and shares of joint-stock companies, but except for the shares of joint-stock companies listed and traded on the stock exchange established by law and traded on other national securities trading venues approved by the State Council, which can be understood at present as the shares of joint-stock companies traded on the Shanghai Stock Exchange, Shenzhen Stock Exchange and Beijing Stock Exchange.
- Clarify the determination of the number of equity freeze caliber. In principle, it is required that the freeze should not exceed the target amount, but at the same time, it is clear that the operation caliber when the amount of equity cannot be determined, and the freeze can be made according to the proportion or quantity of the application for freeze. If the person who is subject to the freeze believes that the freeze is significantly in excess of the target amount, the person may file a written objection to claim relief.
- Clarify the sole authority for equity freeze is the company registration authority.
- Clarify the execution methods for the persons being executed to realize their own prices.
- Clarify the execution methods for equity when the equity cannot be evaluated, meaning that the starting price can be set at an amount appropriately higher than the execution costs. The commencement conditions that must be satisfied at the same time include: 1) the equity reference price needs to be determined through appraisal; 2) the person being executed fails to provide and the People's Court is unable to retrieve the materials required for appraisal; 3) the appraisal agency is unable to issue an appraisal report based on the available materials; 4) an application is made in writing by the applicant for execution, and except where the equity is clearly worthless.
- Clarify the implementation of changes in equity that require approval by the relevant authority. The change of certain military-industrial confidential equity, industry-regulated equity (such as equity of certain financial institutions and equity of insurance institutions) and special entity qualification equity requires the approval of relevant departments. The court shall set out the qualifications or conditions that the bidder should have in the auction announcement, and the buyer shall apply to the relevant department for approval of the change after the auction is completed with the confirmation letter of the transaction, and the court shall make a ruling on the transaction only after the approval procedure is obtained. If the approval is not obtained within a reasonable period of time, the equity will be re-auctioned and the original buyer will not be allowed to participate in the bidding. For those who participate in the auction in bad faith and fail to obtain approval procedures within a reasonable period of time after the transaction, they shall be treated as repentant bidders.
- Clarify the handling methods when equity company increases or decreases its capital resulting that the shareholding percentage of the person being executed changes. After the effective legal instruments are made, in principle, the equity shall be delivered in accordance with the amount of capital contribution.
- Clarify the enforcement mechanism for equity confirmation suit, that is, the parties holding the effective legal instruments will apply to the company where the equity is held, and the company registration authority for the change of equity. In the future, the court will not accept such cases for compulsory enforcement.
If you want to read the complete article, you can refer to the below link (in Chinese only): http://www.shanghaiinvest.com/cn/viewfile.php?id=17059
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Mr. Mike Chang (Partner)