State-owned assets supervision. Can state-owned shareholders exit the company they invest in by reducing capital.
Published:
2021-03-22
Recently, a consultant we serve entrusted us to provide a plan for its proposed withdrawal from a mining company in which it invests and controls. Upon inquiry, we found that the mining company is a limited liability company consisting of two shareholders (Company A holds 55% of the shares and a natural person holds 45% of the shares). Among them, Company A is of a state-owned nature (the actual controller is SASAC).
After studying the relevant laws and regulations, we propose that in addition to liquidation, equity transfer and other means, we can also achieve exit through capital reduction, in order to achieve the purpose of the consultant's control over the mining company.
Analysis of 1. state-owned shareholders withdrawing from the invested company through capital reduction
(I) laws and regulations do not explicitly prohibit state-owned shareholders from withdrawing through capital reduction.
1. After searching the relevant laws and regulations, we have not found that there are laws and regulations that explicitly prohibit state-owned shareholders from withdrawing from the company through capital reduction.
2. After searching the relevant cases, we found that there have been many cases in practice in which state-owned shareholders have realized the withdrawal of the company through capital reduction, for example, Nanjing Public Development Co., Ltd. has a targeted capital reduction to withdraw from the shareholding company (September 2019), Guangdong Shaogang Songshan Co., Ltd. has reduced capital to withdraw from the shareholding company Baosteel Special Steel Co., Ltd. (April 2018), and China Hangfa Southern Industry Co., Ltd. The company reduced its capital and withdrew from the holding company Shenzhen Sanye Precision Machinery Co., Ltd. (December 2017), etc.
State-owned capital supervision procedures involved in the withdrawal of state-owned capital in (II).
1. About the approval procedure
According to Articles 21 and 22 of the Interim Regulations on the Supervision and Administration of State-owned Assets of Enterprises, the capital reduction of wholly state-owned enterprises and companies needs to be reviewed and approved by the state-owned regulatory agency; the capital reduction of state-owned holding and state-owned shareholding companies needs to be appointed by the state-owned regulatory agency. The shareholder representative shall express opinions, exercise voting rights in accordance with the instructions of the state-owned regulatory agency, and report to the state-owned regulatory agency.
According to the "Measures for the Supervision and Administration of State-owned Assets Transactions of Enterprises" and other regulations, Company B is a state-owned holding company. It should refer to the state-owned shareholding company stipulated in Article 22 of the above-mentioned "Interim Regulations on the Supervision and Administration of State-owned Assets of Enterprises" to perform relevant capital reduction decision-making procedures. After obtaining the instructions (or approval) of the state-owned assets regulatory agency (or authorized group company) for this capital reduction, through a mining company's board of directors, shareholders will form a valid resolution after the implementation.
2. About evaluation
According to the provisions of Article 6 of the Interim Measures for the Evaluation and Administration of State-owned Assets of Enterprises, if an enterprise has any of the following acts, the relevant assets shall be evaluated:(1) the whole or part of the enterprise shall be converted into a limited liability company or a joint stock limited company;(2) foreign investment with non-monetary assets;(3) merger, division, bankruptcy and dissolution;(4) changes in the proportion of equity of state-owned shareholders of non-listed companies;(5) Transfer of property rights;(6) Transfer and replacement of assets;(7) Leasing of whole or part of assets to non-state-owned units;(8) Repaying debts with non-monetary assets;(9) Litigation of assets;(10) Acquisition of assets of non-state-owned units;(11) Acceptance of non-monetary assets from non-state-owned units;(12) Acceptance of non-monetary assets from non-state-state-state-owned units;(13) Other matters requiring asset evaluation as prescribed by laws and administrative regulations. Therefore, if Company A intends to reduce its shareholding in a mining company from 55% to zero, or at least cease to hold a controlling stake in the company, it shall perform the asset valuation procedures of a mining company in accordance with the above provisions.
3. About entering the transaction
According to the Measures for the Supervision and Administration of State-owned Assets Transactions of Enterprises (2016), the state-owned assets transactions of enterprises that need to be publicly conducted in legally established property rights trading institutions include the transfer of enterprise property rights, the increase of enterprise capital, and the transfer of major assets of enterprises, excluding state-owned enterprises Capital reduction. At present, laws and regulations do not clearly stipulate that state-owned enterprises need to enter the transaction for capital reduction, and because there is no counterparty to the capital reduction, they cannot actually enter the transaction.
(III) capital reduction operation process
If the consultant unit withdraws from a mining company through capital reduction, the following procedures shall be carried out: 1. Perform the decision-making process of state-owned assets approval; 2. Entrust an asset evaluation agency to evaluate the assets of a mining company; 3. The board of directors of a mining company shall formulate a capital reduction plan; 4. Convene a shareholders' meeting to vote on the company's capital reduction resolution; 5. Sign a capital reduction agreement; 6. Notify creditors and announce; 7. Amending the articles of association; 8. Registration of industrial and commercial changes; 9. Registration of tax changes.
2. Risk Alert
1. Fairness risk of capital reduction
If there are defects in the fairness of the price, it may lead to a dispute between other shareholders of a mining company and Company A, or a creditor of a mining company to request the withdrawal of the capital reduction.
2. The creditor of a mining company claims the risk of rights.
If the company's capital is reduced, the creditor has the right to require the company to pay off its debts or provide corresponding guarantees. If a mining company fails to notify creditors in a timely manner or fails to formulate a reasonable debt settlement in the process of capital reduction, it may lead to the creditor's disagreement with a mining company's capital reduction or the creditor's claim that the capital reduction procedure is flawed, which may lead to the avoidance or compensation litigation that claims that a mining company's capital reduction procedure harms the interests of creditors.
3. Risk of joint and several liability for debt arising from the controlling shareholder's delay in liquidation
This type of risk occurs mainly in situations where the company loses its controlling position through capital reduction, but is not yet a minority shareholder of the company. Its main basis is the Supreme People's Court on the application of <中华人民共和国公司法> Article 18 of the (II) of Provisions on Certain Issues "If the shareholders of a company fail to perform their obligations, resulting in the loss of the company's main property, account books, important documents, etc., and cannot be liquidated, and the creditors claim that they are jointly and severally liable for the company's debts, the people's court shall support them in accordance with the law".
Therefore, when the capital reduction completes the control right conversion, Company A should properly keep the evidence of transferring the management right of a mining company to a mining company or natural person shareholders, including the relevant company's license seal, financial documents, contracts and other transfer certificates of all company information, to prove that Company A as a minority shareholder of a mining company does not constitute "neglect to perform obligations", and propose a liquidation motion when a mining company becomes insolvent, thus, there is no need to assume joint and several liability for the debts of a mining company because it cannot be liquidated.
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