Not a Lexis Advance subscriber? Try it out for free.
LexisNexis® CLE On-Demand features premium content from partners like American Law Institute Continuing Legal Education and Pozner & Dodd. Choose from a broad listing of topics suited for law firms, corporate legal departments, and government entities. Individual courses and subscriptions available.
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.To view or download the entire article, please click on the Attachment: link at the top of the post