Newsletter
PROVISIONAL RULES ON SALE OF STATE HOLDINGS IN EN-TERPRISES
In order to regulate transfers of state ownership rights in enterprises and to enhance the supervi-sion of transactions involving such rights, on 31 December 2003 the State-Owned Assets Super-vision and Administration Commission of the PRC State Council and the PRC Ministry of Fi-nance jointly issued the Provisional Regulations on Transfers of Enterprise State Assets, which took effect on 1 February 2004. The provisional regulations apply to transactions by which agencies charged with the supervision of state-owned assets, and enterprises that hold state-owned capital, sell their holdings of state ownership rights to a party inside or outside the PRC. But transfers of state ownership rights in financial institutions, and transfers of state shareholdings in listed companies, are governed by other national legislations.
The provisional regulations require a sale of state ownership rights in an enterprise to be conducted publicly at a lawfully established institution for trading in ownership rights, by auction, tender, negotiated transfer, or other means provided for by legislation. Such sale may not be subject to restrictions based on region, sector of economic activity, contribution of capital, or affiliation. To ensure openness and transparency and to broadly attract buyers, the seller should disclose infor-mation on the sale in a publicly distributed eco-nomic or financial newspaper or magazine with at least province-wide distribution, and on the website of the rights trading institution for at least 20 working days.
On approval of a sale of state ownership rights, the seller should initiate an asset and capital verification of the enterprise that is the subject of the sale, and instruct an accounting firm to un-dertake a full audit. Immediately upon comple-tion of the verification and audit, the seller should engage a competent asset valuation or-ganization to conduct an asset valuation, as a basis for determining the sale price. If the sale price is less than 90% of the assessed value, trading should be suspended except with the consent of the relevant authorizing agency.
If during the sale procedure the seller, the enter-prise that is the subject of the sale, or a buyer contravenes the relevant provisions, the state-owned asset supervisory agency or the agency authorizing the sale should order the seller to terminate the sale, and if necessary should institute court proceedings to declare the sale invalid. The provisional regulations also explicitly define the legal liabilities of rights trading institutions, authorizing agencies, and other persons if they act unlawfully.