Haworth & Lexon Law Newsletter (91)

Haworth & Lexon Law Newsletter
No.6 2009 (Total:No.91) July.15th, 2009
Edited by Haworth & Lexon 

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“Haworth & Lexon Law Newsletter ” is issued every month, mainly introducing the legal change in the fields of Corporate, Securities, Foreign investment, E-commerce, International trade etc. with necessary comment. All the comments do not mean the legal opinion of our firm and the firm does not have any legal liability for such comment. Should you have any interest in any topics or any questions please feel free to contact the firm. You will be expected to have satisfactory response from the professional attorney of our firm.


Guidelines:


Latest Laws and Regulations:

Opinions of the Supreme People’s Court on Several Issues concerning the Correct Trial of Cases about Enterprise Bankruptcy and the Provision of Judicial Protection for the Maintenance of Marketing Economic Order.

Provisions of the Supreme People’s Court concerning the Division of Trial Function on Such Administrative Cases about Intellectual Property Rights as Granting or Confirming Patent, Trademark and the Like.

Measures for the Administration of Pilot RMB Settlement in Cross-border Trade.

Notice on Strengthening the Administration of Virtual Currency in Network Games.

Notice of the State Administration of Taxation on Strengthening the Levy of Personal Income Tax on Proceeds from Share Transfer.

Notice on relevant Issues concerning Regulating Assets Reorganization between State-owned Shareholders and the Listed Companies.

Notice on Distributing and Printing the Relevant Opinions on Regulating Acts of the State-owned Shareholders of Listed Companies.

Notice on Distributing and Printing the Operational Rules for State-owned Property Rights Transactions.

Interim Provisions on Restructuring Small-sum Loan Companies into Village Banks.

Guide of the Anti-monopoly Committee of the State Council for the Definition of the Relevant Market.

Provisions on the Procedure of Investigating and Punishing Monopolistic Agreements and Abuses of Dominant Market Position by the Administration for Industry and Commerce.

Interim Measures on the Establishment of Foreign-Invested Equity Investment Management Enterprise ("FIME") in the Pudong New Area.

 

Latest Laws and Regulations

Opinions of the Supreme People’s Court on Several Issues concerning the Correct Trial of Cases about Enterprise Bankruptcy and the Provision of Judicial Protection for the Maintenance of Marketing Economic Order

The Opinions of the Supreme People’s Court on Several Issues concerning the Correct Trial of Cases about Enterprise Bankruptcy and the Provision of Judicial Protection for the Maintenance of Marketing Economic Order (hereinafter “the Opinions”) is promulgated by the Supreme People’s Court on June 12, 2009.

The Opinions request that the people’s court at various levels shall accept bankruptcy cases according to the law. The enterprises that have the appearance of bankruptcy reasons shall, even if there are non-honesty enterprises that are possible to avoid the debts by bankruptcy, be brought into legal bankruptcy procedures as long as the conditions for the application and acceptance of bankruptcy and liquidation are satisfied; as to such enterprises that conform to national policies on industry adjustment and have the development potential, the people’s court shall fully use the function of bankruptcy reconstruction and bankruptcy reconciliation and positively save such enterprises even of they have the appearance of bankruptcy reasons or are possible to lose the ability to pay the debts.

The Opinions still requests to use the bankruptcy reconstruction and reconciliation procedures properly. Where the parties apply for liquidation, reconstruction and reconciliation at the same time, the people’s court shall, in accordance with the actual situation of the debtor and the will of the parties, as well as on the ground of sufficient reasoning by the parties, legally accept the application for reconstruction or reconciliation if it is possible for reconstruction and reconciliation. Where the parties apply for reconstruction, but the interested right owner rejects the reconstruction even though it is necessary to save such enterprises in difficulty as the scale of such enterprises are small and the costs of reconstruction are obviously higher than the profit thereof, the people’s court may guide the parties to save the enterprise by reconciliation.

The Opinions strengthen that the legal interests of the employees shall be protected in bankruptcy. When voting for the draft of reconstruction plan, the wills of the employees shall be fully respected, and special voting team concerning the creditor’s rights such as salaries owed by the debtor to the employees shall be separately voted; if the draft of reconstruction plan is not passed by the voting team of employee creditors, the people’s court shall not make compulsory approval until the creditor’s rights of the employees that should be paid in priority have been fully paid.


Provisions of the Supreme People’s Court concerning the Division of Trial Function on Such Administrative Cases about Intellectual Property Rights as Granting or Confirming Patent, Trademark and the Like
The Provisions of the Supreme People’s Court concerning the Division of Trial Function on Such Administrative Cases about Intellectual Property Rights as Granting or Confirming Patent, Trademark and the Like (hereinafter “the Provisions”) is promulgated by the Supreme People’s Court on June 22, 2009, and shall come into force as of July 1, 2009.

It is provided by the Provisions that the first and second instance of the following 7 types of cases shall be tried by the intellectual property rights courtroom of relevant intermediate people’s court in Beijing and Beijing Superior People’s Court and the Supreme People’s Court, which include cases not satisfying with the patent review decision and invalidity decision made by competent patent review commission of the patent administration department under the State Council; cases not satisfying with the decision of compulsory patent license as well as the judgment on the royalty of compulsory patent license made by the patent administration department under the State Council; cases not satisfying with the trademark review decision and judgment made by the Trademark Review and Adjudication Board of the State Administration for Industry and Commerce under the State Council; cases not satisfying with the review decision and cancellation decision on the layout design of integrated circuits made by competent administration department of intellectual property rights under the State Council; and etc.

Where the parties are not satisfying with the effective verdict or decision made by the people’s court in respect of the above cases, they may apply to the people’s court at an upper level for re-trial. The intellectual property rights courtroom of the people’s court at an upper level shall be responsible for examining and trying the retrial.


Measures for the Administration of Pilot RMB Settlement in Cross-border Trade
The Measures for the Administration of Pilot RMB Settlement in Cross-border Trade (hereinafter “the Measures”) is promulgated on July 1, 2009 by the People’s Bank of China, the Ministry of Finance, the Ministry of Commerce, the General Administration of Customs, the State Administration of Taxation, and China Banking Regulatory Commission and shall come into force as fo promulgation.

It is provided by the Measures that the State allows specific enterprises that have certain conditions to voluntarily undertake the settlement in RMB in cross-boarder trade, and supports commercial banks to provide RMB settlement services for enterprises in cross-boarder trade.

The pilot enterprises of RMB settlement in cross-boarder trade shall be recommended by competent local department under the coordination of provincial people’s government at the pilot region, and thereafter be examined by such departements as the People’s Bank of China, the Ministry of Commerce, the General Administration of Customs, the State Administration of Taxation and China Banking Regulatory Commission, so as to finally confirm the list of pilot enterprises.

Any pilot enterprise that settles export and import trade in RMB with overseas enterprise may undertakes cross-boarder settlement and liquidation by RMB funds through clearing houses of RMB businesses in Hong Kong and Macau.

The export trade that is settled in RMB may enjoy export tax rebate (exemption) according to relevant provisions. The RMB settlement of pilot enterprises in cross-boarder trade shall not be subject to foreign exchange verification and writing-off and no foreign exchange verification and writing-off form is required when handling the customs clearance and the tax rebate (exemption) for the goods exported.


Notice on Strengthening the Administration of Virtual Currency in Network Games

The Notice on Strengthening the Administration of Virtual Currency in Network Games (hereinafter “the Notice”) is jointly printed and issued by the Ministry of Culture and the Ministry of Commerce on June 4, 2009.

The Notice defines the virtual currency in network games as follows: virtual currency in network game refers to a kind of virtual exchange tool that is issued by the operation enterprise of network games, and is directly or indirectly purchased by game users in certain proportion of legal currency, which is stored in electromagnetic record in the server provided by game enterprise outside the game program and exists in certain digital units. The virtual currency in network game is used for exchange of network game services of appointed scope and time provided by the issuing enterprise, which is appeared as pre-paid card, pre-paid amount or points, excluding the game props obtained in the game.

The Notice has made detailed provision concerning the “virtual currency issuance service in network game” and “virtual currency exchange service in network game” and strengthens the subject management. It is provided by the Notice that “enterprise issuing virtual currency in network games” refers to operation enterprise of network games that issues virtual currency and provides virtual currency service; “enterprise providing virtual currency exchange service in network games” refers to enterprises that provide platform services for users to exchange virtual currency in network games. A single enterprise shall not operate the above two businesses at the same time, and such two businesses are subject to approval. Meanwhile, the Notice has provided the approval procedure for enterprises applying for such two businesses.

Besides, the Notice has made certain provisions and strict requirements in respect of enterprises undertaking the issuance of or providing exchange service for virtual currency in network games. For instance, the scope of use of virtual currency in network games is limited to the virtual service provided by the issuing enterprise, which shall not be used to pay or purchase any physical products or exchange any product or service of other enterprises; where the network game operation enterprise does not support virtual currency trade in network games, it shall take technical measures to prohibit the transfer of virtual currency between accounts of users in network games. Enterprises providing virtual currency exchange service in network games shall set up systems and technical measures to investigate illegal exchange and strictly separate the real exchange information from fake information; if it expressly known or reported and confirmed that the virtual currency in network games is illegally obtained, it shall delete the fake exchange information and cease to provide exchange service timely. Still, the Notice prohibits enterprises providing virtual currency exchange services in network games to provide service to minors.


Notice of the State Administration of Taxation on Strengthening the Levy of Personal Income Tax on Proceeds from Share Transfer
The State Administration of Taxation promulgated the Notice of the State Administration of Taxation on Strengthening the Levy of Personal Income Tax on Proceeds from Share Transfer (hereinafter, “Notice”) on May 28, 2009.

According to the Notice, from the execution of the share transfer agreement and completion of the share transfer transaction to registration of the change of shares, the transferor or transferee who is responsible for paying or withholding tax shall declare the tax at the administration of taxation, and then handle the change of share formalities at the administration of industry and commerce with the tax-paid proof or tax-exemption or no-need-to-pay-tax proof concerning personal income tax on proceeds from share transfer issued by the administration of taxation. If the share transfer agreement has been executed but the share transfer transaction has not been completed, the enterprise shall, when applying for share transfer registration at the administration of industry and commerce, fill in the Statement for Change of Personal Shareholders and declare to the administration of taxation.


Notice on relevant Issues concerning Regulating Assets Reorganization between State-owned Shareholders and the Listed Companies
The State-owned Assets Supervision and Administration Commission of the State Council promulgated the “Notice on relevant Issues concerning Regulating Assets Reorganization between State-owned Shareholders and the Listed Companies” (hereinafter, “Notice”) on June 24, 2009.

Assets reorganization between the state-owned shareholders and the listed companies shall refer to assets injection into, purchase from or replacement of listed companies by state-owned shareholders or potential state-owned shareholders (being the state-owned shareholders of listed companies after this assets reorganization, hereinafter collectively referred to as state-owned shareholders), which involve change of shares held by the state-owned shareholders in the listed companies.

If before disclosure of the relevant matters concerning assets reorganization between state-owned shareholders and the listed companies, there is some hearsay on the market, or the trade on securities or derivatives of the listed companies is extraordinary, the state-owned shareholders shall positively cooperate with the listed companies on fulfilling the information disclosure obligation; and it shall procure the listed companies to apply for share trade suspension at the stock exchange, if necessary. If the prices of securities or derivatives of listed companies vary unusually, which has significant influence on the assets reorganization, the state-owned shareholders shall adjust the assets reorganization plan, or even suspend the reorganization if necessary, and the state-owned shareholders shall not restart it within three months.

The state-owned shareholders and the listed companies shall also, after finishing internal procedures, submit the requested documents to the state-owned assets supervision and administration commission at the provincial level or above for approval.


Notice on Distributing and Printing the Relevant Opinions on Regulating Acts of the State-owned Shareholders of Listed Companies
The State-owned Assets Supervision and Administration Commission of the State Council promulgated the Notice on Distributing and Printing the Relevant Opinions on Regulating Acts of the State-owned Shareholders of Listed Companies (hereinafter, “Opinions”) on June 16, 2009.

The Opinions have the following main requirements on the state-owned shareholders of the listed companies: (1) to be the good example to protect the healthy development of the capital market; (2) to enhance the information disclosure obligation. If there is any significant information which may cause unusual variation of prices of securities or derivatives of the listed companies arising from the act of its own, the state-owned shareholders shall notify the listed companies promptly in writing and ensure the punctuality and fairness of publicity of information; (3) to lawfully exercise the rights of shareholders and strictly perform the obligations; (4) to actively promote the overall restructuring and listing of state-owned enterprises, and advance the resources integration in order. The state-owned shareholders shall, according to the development plan of the enterprise, realize the overall business to be listed or overall listing according to the business industry in a proper way, to stress the main business. (5) to enhance the quality of listed companies, and the core competition of the listed companies; (6) to regulate the change of shares held by the state-owned shareholders in the listed companies. It is requested that the change of shares held by it should be regulated in strict compliance with the regulations, and inside trading, share price manipulation or other behaviors damaging the lawful rights and interests of other investors should be prohibited. If the state-owned shareholder loses its controlling status on the listed companies after transfer of all or part of shares, the state-owned assets supervision and administration commission shall submit it to the people’s government at the same level for approval; (7) to regulate share pledge. The number of shares to be pledged shall not exceed 50% of shares held by it in the listed companies, and the pledge shall only be conducted for its own or the subsidiaries wholly owned or controlled by it.


Notice on Distributing and Printing the Operational Rules for State-owned Property Rights Transactions
The State-owned Assets Supervision and Administration Commission of the State Council distributed and printed the “Operational Rules for State-owned Property Rights Transactions” (hereinafter, “Rules”) on June 15, 2009, which shall be implemented from July 1, 2009.

The Rules shall apply to the state-owned property rights transactions carried out at the property rights exchange determined by the state-owned assets supervision and administration commission at the provincial level or above. State-owned property rights transactions shall refer to the activities of the state-owned property rights transferor, after completing the relevant decision and approval procedures, transfer the state-owned property rights by the way of publicizing the transfer information and quotation at the property rights exchange.

The acceptance of application for property rights transfer shall be undertaken by the property rights exchange. The transferor shall specify the main transaction conditions to be accepted by the transferee, including but not limited to: (1) quotation price of the subject matter, payment means and time limit; (2) whether there is any requirement on continuing employment of the employees of the subject matter; (3) requirements on disposal of creditor’s rights and debts concerned; (4) requirements on existence and development of the subject matter. The transferor may also set out qualifications of transferee according to the practical circumstances of the subject matter. The property rights transfer announcement shall make it clear on which bidding way to adopt to decide the transferee if there are two or more qualified intentional transferees. Deposit for transactions may be requested.

The state-owned property rights transfer information shall be publicized on the provided publications, and the initial period for information publicity shall not be less than twenty working days, which shall start from the first date of publicity on the newsletter or magazines at the provincial or above level. If there is no intentional transferee in the publicity period, the transferor may extend the information publicity period according to the agreement on the property rights transfer announcement without changing the contents of the announcement. Each extension shall not be less than five working days.

The intentional transferee may, within the information publicity period, submit the application for accepting the property rights and relevant materials to the property rights exchange. The property rights exchange shall register the intentional transferees one by one and the qualifications of the transferees shall be checked separately by property rights exchange and the transferor. The intentional transferees who pass the qualification check shall pay the deposit (time when the deposit is paid in the designated account of the property rights exchange shall be deemed as the payment time) to the property rights exchange within the provided time period and then get the qualification for bidding.

On the expiry of the period on announcement of property rights, if there are two or more intentional transferees qualified for the above conditions, the property rights exchange shall organize the public bidding by the way provided in the announcement; if there is only one qualified intentional transferee, the property rights exchange shall organize the parties concerned to conclude the contract according to the quotation price and the principle of whoever quotes highly.

The transferee shall, within the time period agreed in the property rights transaction contract, make the payment to the settlement account of the property rights exchange. The deposit paid by the transferee shall be changed to the transaction payment according to the relevant agreement. If the payment provided in the contract is in installments, the first installment shall not be lower than 30% of the transaction amount.


Interim Provisions on Restructuring Small-sum Loan Companies into Village Banks

On June 12, 2009, China Banking Regulatory Commission has promulgated the Interim Provisions on Restructuring Small-sum Loan Companies into Village Banks (hereinafter referred to as the “Interim Provisions”) which shall come into force on the date of promulgation.

These Interim Provisions shall apply to the small-sum loan companies established upon the approval of the competent departments of the provincial governments, registered at the industrial and commercial administrations and founded in regions at or below the county (city) level according to the Guiding Opinions on the Pilot Operation of Small-sum Loan Companies.

The procedures of restructuring a small-sum loan company into a village bank are: (1) forming of a preparation group; (2) appraisal of the fixed assets and circulating funds of the small-sum loan company; (3) confirming the net assets results and signing a letter of confirmation by the preparation team, the small-sum loan company and the intermediary institution, and disposal of net assets according to the disposal plan approved by (general) meeting of shareholders of the small-sum loan company; (4) submission of the application materials for the administrative license on the establishment-preparing and business-opening of the village bank by the preparation group (The gap between the benchmark date of the appraisal of fixed assets and circulating funds and the application date for establishment preparation shall not exceed three months.); and (5) The preparation group shall, after receiving the approval document for opening business, wind up the small-sum loan company and write off the business license according to the statutory procedure and, upon the strength of the financial license issued by the banking regulatory body, handle the industrial and commercial registration formalities.

 

Guide of the Anti-monopoly Committee of the State Council for the Definition of the Relevant Market

On May 24, 2009, the Anti-monopoly Committee of the State Council promulgated the Guide of the Anti-monopoly Committee of the State Council for the Definition of the Relevant Market (hereinafter referred to as the “Guide”).

Relevant market refers to a commodity scope and geographic scope within which business operators compete with each other in a certain period of time regarding particular commodities or services (hereinafter collectively referred to as commodities). Relevant commodity market refers to a market comprised of a group or a category of commodities that are considered by consumers to have a relatively strong substitution relationship based on the characteristics, uses and prices of the commodities. Relevant geographic market is a scope of geographic areas within which consumers can acquire commodities that have a relatively strong substitution relationship.

The basic elements for defining the relevant market include substitution analysis, demand substitution and supply substitution. The Guide has regulated the major factors to be considered in defining the relevant commodity market and the relevant geographic market. For example, the factors which shall be considered in defining the relevant commodity market shall include: evidence showing that demanders shift or consider shifting to other commodities due to changes in the price or any other competitive factor of the commodities; price differences among commodities; and the factors which shall be considered in defining the relevant geographic market shall include: evidence showing that demanders shift or consider shifting to other geographic areas to buy commodities due to changes in the price or any other competitive factor of commodities; and transport costs and transport features of commodities. The Guide has also made some description of the analysis approach of the hypothetical monopolist test. As an analytical method for defining the relevant market, hypothetical monopolist test can help solve the uncertainties that may arise from the definition of the relevant market.

 

Provisions on the Procedure of Investigating and Punishing Monopolistic Agreements and Abuses of Dominant Market Position by the Administration for Industry and Commerce

On June 5, 2009, the Provisions on the Procedure of Investigating and Punishing Monopolistic Agreements and Abuses of Dominant Market Position by the Administration for Industry and Commerce (hereinafter referred to as the “Provisions”) was promulgated by the State Administration for Industry and Commerce, which shall come into force on July 1, 2009.

The State Administration for Industry and Commerce shall be responsible for the enforcement of anti-monopoly works in the fields of monopolistic agreements and abuses of dominant market position, and the State Administration for Industry and Commerce shall investigate and punish monopolistic conduct which has a great nationwide impact or is within its jurisdiction as decided by the State Administration for Industry and Commerce.

The provincial administrations for industry and commerce may be authorized to investigate and punish monopolistic conduct which: (1) occurs within their administrative districts; (2) occurs across provinces, autonomous regions or municipalities directly under the Central Government but mainly occurs within their administrative districts; and (3) is the conduct that the State Administration for Industry and Commerce may authorize to fall within the jurisdiction of provincial administrations for industry and commerce.

Pursuant to the Provisions, any entity or individual is entitled to report any suspected monopolistic conduct, and the relevant regulations on the disposal of such report by the Administration for Industry and Commerce are stipulated in details by the Provisions.

The Provisions have also regulated on some conditions and methods of the enforcement of anti-monopoly works by the Administration for Industry and Commerce. For example, according to the Provisions, at least two enforcement officials shall participate in investigation, and those officials shall present their certificates for the enforcement; during the investigation of any suspected monopolistic conduct, the administration for industry and commerce may require the operators under investigation, interested parties or other relevant entities or individuals to provide some written documents within a specified period; and the administration for industry and commerce may, according to the application of investigated operators and upon considering the nature, duration, consequence, social impact and other specific conditions of the conduct, suspend the investigation and make a decision on the suspension of the investigation.

 

Interim Measures on the Establishment of Foreign-Invested Equity Investment Management Enterprise ("FIME") in the Pudong New Area

On June 2, 2009, Interim Measures on the Establishment of Foreign-Invested Equity Investment Management Enterprise ("FIME") in the Pudong New Area was promulgated by the government of the Pudong New Area, which shall be effective from the date of promulgation till June 30, 2010.

According to its definition, “FIME under these Interim Measures refers to an enterprise established by foreign companies, enterprises, or other economic organization or individual in the form of an EJV, CJV or WFOE in Pudong New Area, which as entrusted by an equity investment enterprise, engages in the equity investment management as its main business scope.

The term of "equity investment management" can be used to indicate the industry in a FIME’s enterprise name. The business scope for a FIME is as entrusted by an equity investment enterprise, to engage in the investment management and related consulting service.

Under these Interim Measures, the establishment of a “FIME” or alternation of a company from other business type to “FIME” shall be subject to the currently applicable polices of Pudong, and shall satisfy the following conditions:

(1) a FIME shall at least has one investor (shareholder) whose business scope or the business scope of whose affiliated entity (the entity that controls or is controlled by the investor, or is under a same controller with the investor) includes equity investment or equity investment management; (2) when applying for establishment, a FIME shall have at least two senior management specialists, each with more than two years of experience in equity investment or equity investment management and more than two years of experience in senior management positions; (3) a FIME shall be established in the form of a limited liability company with its registered capital of no less than US$ 2 million (at least 20% of the registered capital should be contributed by its shareholders within 3 months upon the issuance of the business license and the rest should be contributed in 2 years).