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International Law

Greenberg Traurig-China Newsletter

Chinese Court Guidance on FIE Disputes

On August 5, 2010, China's Supreme Court published the Provisions Regarding Hearing Cases of Disputes involving Foreign-invested Enterprises (Part I) (the "FIE Dispute Guidance"). The FIE Dispute Guidance clarify  many important issues related to disputes involving foreign-invested enterprises (FIEs). Two key provisions of the FIE Dispute Guidance are summarized below.

Validity of Side Agreements

The FIE Dispute Guidance confirms that side agreements entered into by shareholders of an FIE but not approved by Chinese authorities are valid as long as such agreements do not make any "significant or material change" to the FIE contracts approved by Chinese authorities. "Significant or material change" is defined to include changes to the registered capital, corporate form, business scope, term of operation, subscribed capital contribution, for of contribution, merger, division and share transfer. The FIE Dispute Guidance marks the first time Chinese courts will recognize the validity of side agreements among FIE shareholders, which are usually entered into by shareholders to supplement joint venture contracts / articles of association, the latter but not the former are submitted Chinese authorities for approval. It is good news for private equity/venture capital firms that typically need to obtain special rights with respect to liquidation, share transfer, dividend and management, which may be challenged by the authorities if submitted for approval.

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Greenberg Traurig-China Newsletter Oct 2010.pdf