Administration of Transfer of State-owned Assets and Equity of Enterprises without Consideration Tentative Procedures

Ref no: 2140/2005.08.29

(Promulgated by the State-owned Assets Supervision and Administration Commission of the State Council and effective as of the date of promulgation.)

PART ONE: GENERAL PROVISIONS

Article 1: These Procedures are formulated in accordance with the Supervision and Administration of State-owned Assets of Enterprises Tentative Regulations (State Council Decree No. 378) in order to standardize the act of transfer of State-owned assets and equity of enterprises without consideration, to safeguard the orderly movement of the State-owned assets and equity of enterprises and to prevent the loss of State-owned assets.

Article 2: For the purposes of these Procedures, the term "transfer of State-owned assets and equity of enterprises without consideration" refers to the transfer of the State-owned assets and equity of enterprises between government organizations and institutions, wholly State-owned enterprises, or wholly State-owned companies.

The transferee or the transferor of a wholly State-owned company shall fulfil the relevant provisions of the PRC, Company Law.

Article 3: These Procedures apply to the transfer of State-owned assets and equity of enterprises without consideration by all levels of people's governments that authorize their State-owned assets supervision and administration authorities (hereafter referred to as "State-owned assets supervision authorities") to perform the duties of investors (hereafter collectively referred to as "Investee Enterprises") and its subsidiaries at all levels.

The transfer of State-owned equity without consideration by companies limited by shares shall comply with the relevant State provisions.

Article 4: The transfer of the State-owned assets and equity of enterprises shall abide by the following principles:

1. it shall comply with the relevant State laws and regulations and industrial policy;

2. it shall comply with the requirements of the layout and structural adjustment of the State-owned economy;

3. it shall be favourable to the improvement of the industrial structure and enhancement of enterprise core competitiveness; and

4. the transferor and the transferee shall have reached a consensus in consultation.

Article 5: The ownership of the State-owned assets and equity of enterprises subject to the transfer shall be clear. If the ownership is not clear, or if it is in dispute, no such assets and equity shall be transferred without consideration. The transfer of State-owned assets and equity of enterprises without consideration as security interests shall comply with the relevant provisions of the PRC, Security Law. The transfer of State-owned equity in limited liability companies shall also comply with the relevant provisions of the PRC, Company Law.

PART TWO: PROCEDURE FOR TRANSFERRING STATE-OWNED ASSETS AND EQUITY OF ENTERPRISES WITHOUT CONSIDERATION

Article 6: A feasibility study shall be conducted for the transfer of State-owned assets and equity of enterprises without consideration. The feasibility assessment report for transfer without consideration shall in general set out the following particulars:

1. the industry of the enterprise subject to the transfer and the relevant laws, regulations and industrial policy of the State;

2. the status of the main businesses of the enterprise subject to the transfer and the relationship between the main businesses of both enterprises involved and their development plans;

3. the financial conditions of the enterprise subject to the transfer and its contingent liabilities;

4. the personnel of the enterprise subject to the transfer;

5. the reorganization plans of the enterprise subject to the transfer from the transferee enterprise, including investment plans, sources of funds, projected returns and risk response; and

6. other circumstances which require explanations.

Article 7: The transferor and the transferee shall, on the basis of the feasibility study, deliberate the transfer in accordance with their internal decision-making procedure and form a written resolution.

If the transferee (or the transferor) is a wholly State-owned enterprise, the deliberation shall be held by the working meeting of general managers. If the board of directors is established, the board of directors shall hold the deliberation. If the transferee (or the transferor) is a wholly State-owned company, the board of directors shall hold the deliberation. If no board of directors has been established, the working meeting of general managers shall hold the deliberation. Matters involving the redeployment and placement of staff and workers shall be deliberated and passed by the staff representatives' assembly of the enterprise subject to the transfer.

Article 8: The transferor shall notify the creditors of the enterprise (or unit) of the transfer without consideration and shall formulate a corresponding plan for dealing with its debts.

Article 9: The transferor and the transferee shall organize an audit or settlement verification of the enterprise subject to the transfer in accordance with the relevant provisions and use the audit report issued by an intermediary institution or the settlement verification result approved by State-owned assets supervision authorities of the transferor as the basis for the transfer of State-owned assets and equity of enterprises without consideration.

Article 10: When the transferor and the transferee have reached a consensus in consultation, they shall sign an agreement on the transfer of State-owned assets and equity of enterprises without consideration. This transfer agreement shall cover the following main particulars:

1. the names and domiciles of the transferee and the transferor;

2. the basic circumstances of the enterprise subject to the transfer;

3. the amount of State-owned assets and equity of the enterprise subject to the transfer and the base date for the transfer;

4. plans for redeployment and placement of the staff and workers of the enterprise subject to the transfer;

5. the claims and debts (including money owed to staff and workers) of the enterprise subject to the transfer and plans for dealing with contingent liabilities;

6. liability for breach of agreement by the transferor and the transferee;

7. methods for resolving disputes;

8. conditions on the validity of the agreement; and

9. other clauses deemed necessary by the transferor and the transferee.

When the transfer without consideration has been approved in accordance with these Procedures, the transfer agreement shall be valid. Prior to the validity of the transfer agreement, neither of the parties involved shall implement it in full or in part.

Article 11: The transferor and the transferee shall implement financial adjustments in accordance with the relevant approval documents and the transfer agreement, and handle procedures such as registration of assets and equity according to provisions.

PART THREE: APPROVAL OF THE TRANSFER OF STATE-OWNED ASSETS AND EQUITY OF ENTERPRISES WITHOUT CONSIDERATION

Article 12: Where State-owned assets and equity of enterprises are transferred without consideration between Investee Enterprises of the same State-owned assets supervision authority, it shall be submitted jointly by the Investee Enterprises to State-owned assets supervision authority for approval.

Where State-owned assets and equity of enterprises are transferred without consideration between Investee Enterprises of different State-owned assets supervision authority, it shall be submitted for approval respectively by such Investee Enterprises of the State-owned assets supervision authority at the same level in accordance with the ownership of the assets and equity of the transferor and the transferee.

Article 13: In respect of an enterprise which separates enterprises from administration, where there is transfer of State-owned assets and equity without consideration to Investee Enterprises or their subsidiaries, it shall be approved respectively by the same level of State-owned assets supervision authority and the department in charge.

Article 14: Where there is transfer of the State-owned assets and equity of an Investee Enterprise of a lower level government State-owned assets supervision authority to an Investee Enterprise of a higher level government State-owned assets supervision authority or to the subsidiaries thereof, it shall be approved respectively by the lower and higher level government State-owned assets supervision authorities.

Article 15: The internal transfer of State-owned assets and equity of enterprises without consideration between Investee Enterprises shall be approved by the Investee Enterprises and reported to the State-owned assets supervision authority at the same level.

Article 16: To approve the transfer of the State-owned assets and equity of enterprises without consideration, the following written materials shall be examined:

1. the application document for transfer without consideration;

2. the resolutions passed by the working meeting of general managers or board of directors concerning the transfer without consideration;

3. certificate of registration of the assets and equity of the transferor and the transferee, and of the enterprise subject to the transfer;

4. the feasibility assessment report for transfer without consideration;

5. the agreement for transfer without consideration signed by the transferor and the transferee;

6. the audit report from an intermediary institution on the base date of transfer of the enterprise subject to the transfer, or an approval document on settlement verification from the same level of State-owned assets supervision authority;

7. plans for settling the debts of the transferor enterprise;

8. plans adopted by the staff representatives' assembly of the enterprise subject to the transfer for the redeployment and placement of staff and workers; and

9. any other relevant documents.

Article 17: If the approval has been granted for the transfer of State-owned assets and equity of enterprises without consideration, and there is an adjustment of the ratio of the assets and equity being transferred by the transferor and the transferee or there is a major change to the transfer agreement, it shall be submitted for approval again in accordance with the stipulated procedures.

Article 18: Transfer without consideration shall not be implemented in any of the following circumstances:

1. if the main business of the enterprise subject to the transfer is not in compliance with the main business and the development plans of the enterprise subject to the transfer;

2. if the intermediary institution issues an adverse opinion, disclaimer opinion or qualified opinion on the financial report on the base date of transfer of the enterprise subject to the transfer;

3. if the transfer without consideration involves the redeployment and placement of staff and workers but has not been deliberated and passed by the staff representatives' assembly of the enterprise subject to the transfer;

4. if there has been no proper plan made by the enterprise subject to the transfer for contingent liabilities; or

5. if the transferor enterprise has no proper plan for debt settlement.

Article 19: The financial adjustments of the following matters of transfer without consideration shall be made directly on the basis of an audit report from an intermediary institution for the preceding year (or the most recent period) for the enterprise subject to the transfer, or a settlement verification provided by the State-owned assets supervision authority and registration of assets and equity in accordance with provisions:

1. where the government decides that the State-owned assets and equity of one of its Investee Enterprises shall be transferred without consideration to another Investee Enterprise of the same level of the State-owned assets supervision authority;

2. where the government at a higher level decides on the transfer of State-owned assets and equity without consideration of its Investee Enterprises between higher and lower levels of government State-owned assets supervision authorities;

3. where there is a transfer of State-owned assets and equity of enterprises without consideration by Investee Enterprises decided on by the government between State-owned assets supervision authorities which is not under the jurisdiction of the same government State-owned assets supervision authorities;

4. where the government decides that the separation of enterprises and administration applies to an enterprise, its State-owned assets and equity to be transferred without consideration shall be held by a State-owned assets supervision authority; and

5. other matters on transfer without consideration as decided on by the government or by State-owned assets supervision authorities for reasons of layout or structural adjustment of State-owned economy and reorganization.

PART FOUR: SUPPLEMENTARY PROVISIONS

Article 20: The procedures for the transfer of State-owned assets and equity of enterprises to overseas or by foreign enterprises shall be formulated separately.

Article 21: The transfer of physical objects and fixed assets of enterprises without consideration shall refer to these Procedures.

Article 22: These Procedures shall be effective as of the date of promulgation.