Liquidation and Bankruptcy

Shenzhen company lawyer

As China liquidation lawyer, we handled company liquidation matters across China, especially in Guangdong area. Liquidation or 'Winding Up' is a process for the ‘winding up’ of a company's financial affairs in order to provide for an orderly dismantling of the company's structure.

Types of liquidation

There are three types of liquidation; compulsory, members' voluntary and creditors' voluntary liquidations. The distinction between 'compulsory' and 'voluntary' liquidations lies in the fact that a compulsory liquidation is imposed on the company by a court order, whereas a voluntary liquidation is commenced by the company's own resolution.

This involves the undertaking of appropriate investigations and a fair distribution of the company's assets to its creditors. This occurs either because the company cannot pay all of its debts or when its members decide to end the company's existence, for various reasons.

When a company is declared bankrupt the Court has the power to ‘wind it up’ and appoint a Liquidator, whose responsibility is to turn the assets into cash and distribute it in the order set out under China law. The creditor and the liquidator firstly recover their costs, followed by certain entitlements to employees. The balance is distributed among unsecured creditors.

Compulsory winding up proceedings are handled in a Chinese court, as opposed to voluntory liquidation, which is handled by the company itself. Guangdong Huashang Law Firm’s liquidation specialists can assist you by filing an Originating Process. If the Court is satisfied that the company is trading insolvent, it can then appoint a liquidator.

The bankruptcy process

Bankruptcy is a process that arises when a debtor is found to be unable to pay their debts from their own resources. A debtor may be unable to pay their debts if:

- They can pay their debts eventually but do not have sufficient resources to pay those debts which are due to be paid now
- Taking a long-term view, they have insufficient resources to cover their liabilities.

If a debtor is unable to pay their debts in either of these ways, they are declared to be 'insolvent' and susceptible to bankruptcy proceedings.

On the making of a bankruptcy order against them, the debtor becomes a bankrupt and their properties will vest in their trustee in bankruptcy and be distributed among their creditors.

Liquidation of a company

An insolvent company may be put into liquidation whereby all its assets are taken and shared between its creditors. Liquidation differs from bankruptcy in that at the end of the liquidation, the company ceases to exist.

There are also arrangements other than liquidation that enable a company to survive insolvency. The terms 'liquidation' and 'winding-up' are synonymous, both describing the process by which the existence of a company is brought to an end and its property administered for the benefit of its creditors and members.

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