Viewpoint | Lawyers handle the specific operation and steps of the free transfer of state-owned property rights of enterprises.

The free transfer of state-owned property rights of enterprises is a special form of the transfer of state-owned assets. It is different from the normal transaction behavior based on the payment of reasonable consideration. This behavior is based on the management of state-owned assets and the administrative adjustment of state-owned property rights. The qualifications are strictly limited, and the transfer behavior can only be operated after the approval of the state-owned assets authority. Compared with the on-site transaction and non-public agreement transfer of state-owned assets, it has certain particularity, but the free transfer requires the protection of state-owned assets through more stringent procedures. Therefore, it is more necessary to pay attention to legal compliance in the process of free transfer of state-owned property rights of enterprises. The relevant issues concerning the free transfer of state-owned property rights of enterprises are summarized as follows:

Free transfer does not fall within the scope of state-owned asset transactions regulated by the Measures for the Supervision and Administration of State-owned Assets Transactions of Enterprises (Order No. 32 of the State-owned Assets Supervision and Administration Commission of the State Council and the Ministry of Finance), and does not apply to Order No. 32. The applicable regulations are mainly:

1. Law on State-owned Assets of the People's Republic of China Enterprises (NPC Standing Committee, Order No. 5 of the President);

2. Interim Measures for the Administration of the Free Transfer of State-owned Property Rights of Enterprises (No. 239 [2005] of the State-owned Assets Supervision and Administration Commission of the State Council);

3. Guidelines for the Free Transfer of State-owned Property Rights of Enterprises (No. 25 [2009] of the State-owned Assets Supervision and Administration Commission of the State Council);

4. Notice on Relevant Matters Concerning Promoting the Circulation of State-owned Property Rights of Enterprises (No. 95 [2014] of State-owned Assets Supervision and Administration Commission of the State Council);

5. Notice on Further Clarifying Matters Relating to the Administration of State-owned Equity of Non-listed Joint Stock Limited Companies (No. 760, Property Rights [2018] of the State-owned Assets Department);

6. Provisions on the Procedures for the Free Transfer of State-owned Assets of Enterprises (Ministry of Finance, Cai Guan Zi [1999] No. 301);

7. Notice on Matters Relating to the Transaction and Circulation of State-owned Assets of Enterprises (No. 39 of the State-owned Assets Regulation (2022));

8. Provisions of the Supreme People's Court on Several Issues Concerning the Trial of Civil Dispute Cases Related to Enterprise Restructuring (Fa Shi [2003] No. 1).

In addition to the above-mentioned laws and regulations, in the actual operation of free transfer, the Civil Code, the Company Law, the Labor Law, etc. may be involved.

Article 2 of the "Interim Measures for the Administration of the Free Transfer of State-owned Property Rights of Enterprises" stipulates: "The free transfer of state-owned property rights of enterprises referred to in these Measures refers to the free transfer of state-owned property rights of enterprises between government agencies, institutions, wholly state-owned enterprises, and wholly state-owned companies. Free transfer".

Article 4 stipulates: "the free transfer of state-owned property rights of enterprises shall follow the following principles: (1) in line with the provisions of relevant state laws and regulations and industrial policies; (II) in line with the needs of the layout and structural adjustment of the state-owned economy; the (III) is conducive to optimizing the industrial structure and improving the core competitiveness of enterprises; and the transfer of (IV) shall be agreed upon by both parties."

One of the first issues to be considered in a gratuitous transfer is the subject qualification of both parties to the transfer. Judging from the above provisions, 100 per cent of the owners (investors) of the main bodies of the transfer parties are state-owned assets, and the transfer is an adjustment made by the competent department of state-owned assets in order to ensure and promote the orderly flow of state-owned assets while the ultimate owner (state) of the transfer target remains unchanged for the sake of strategic integration, strengthening management and improving the competitiveness of enterprises. Therefore, a wholly state-owned enterprise or a wholly state-owned company can be transferred free of charge, but can an enterprise jointly funded by two government departments or an enterprise funded by two wholly state-owned companies be transferred free of charge?

The State-owned Assets Supervision and Administration Commission of the State Council issued the ''Notice on Promoting the Transfer of State-owned Property Rights of Enterprises'' in 2014, stipulating that between wholly-owned state-owned enterprises or between wholly-owned state-owned enterprises and wholly-owned state-owned enterprises or wholly-owned companies, with the unanimous consent of all shareholders of both parties, Its equity holdings can be transferred free of charge. Accordingly, wholly state-owned enterprises also have the subject qualification of free transfer.

It can be seen from this that the free transfer is generally carried out between pure state-owned property rights units. Therefore, in the process of free transfer of state-owned property rights, the main body should be qualified, and the main body of the free transfer of state-owned property rights should be strictly limited to the state-owned wholly-owned main body., That is, government agencies, institutions, wholly state-owned enterprises, wholly state-owned companies, and wholly state-owned enterprises (companies).

However, it should be noted that Article 5 of the notice on matters related to the transaction and circulation of state-owned assets of enterprises stipulates that the internal reorganization and integration of state-owned holding and actual control enterprises shall be approved by the state-funded enterprises, between the state-owned holding and actual control enterprises and their directly or indirectly wholly-owned subsidiaries, or between their directly or indirectly wholly-owned subsidiaries, the property rights of enterprises held can be transferred in accordance with the relevant provisions of the management of the free transfer of state-owned property rights. Therefore, the free transfer of assets between a state-controlled, de facto controlled enterprise and its wholly-owned subsidiaries, as well as between the two wholly-owned subsidiaries of the state-controlled and de facto controlled enterprise, can also be carried out in accordance with the relevant provisions of the free transfer management.

Article 21 of the Interim Measures for Free Transfers stipulates: "Free transfers of physical assets of enterprises, etc. shall be carried out with reference to these Measures." According to this provision, the regulations do not prohibit the extension of the scope of gratuitous transfers to assets such as physical assets, and clarify that gratuitous transfers such as physical assets are carried out with reference to the provisions on the transfer of state-owned equity. Therefore, the scope of free transfer generally refers to the transfer of state-owned property rights (including but not limited to equity, debt, etc.), but can also be transferred to physical assets.

Regarding whether intangible assets (patents, etc.) can be used as the scope of transfer, patents are not prohibited as the subject of transfer in relevant laws and regulations at present, and the subjects of free transfer are strictly limited to the state-owned wholly-owned subjects. Therefore, there is no problem of loss of state-owned assets. Judging from the verified cases (classic case of free transfer of state-owned assets-Academy of Electric Sciences: transferor: Telecom Science and Technology Research Institute Co., Ltd., Ltd., Datang Telecom Industry Holding Co., Ltd; transferee: CITIC Branch Mobile Communication Technology Co., Ltd.; subject of transfer: Datang Mobile Communication Equipment Co., Ltd.; more than 8000 patents and other assets held by the Academy of Electric Sciences and Datang Holdings), there is already a precedent for the use of patents as a free transfer of assets, therefore, we believe that patents can be included in the scope of free transfer.

In addition, according to the relevant provisions of the guidelines for the free transfer of state-owned property rights of enterprises, in principle, restructuring should be carried out before the transfer can be carried out, but in practice, there are many precedents of directly transferring enterprises owned by the whole people to corporate enterprises, which can not be generalized.

In summary, the following conditions should be met as the subject of the free transfer of state-owned property rights of an enterprise: first, the property rights recognized by law.

According to the relevant provisions of Articles 6, 7, 8, 9, 10 and 11 of the Interim Measures for Free Transfer, the procedures for the free transfer of property rights of state-owned enterprises are as follows:

1. Feasibility study on the free transfer of state-owned property rights

Before the free transfer of state-owned property rights, the two parties shall conduct a feasibility study and form a feasibility demonstration report for the free transfer. The feasibility study report of free transfer generally includes the following contents:

(1) The industry in which the transferred enterprise is located and the relevant laws, regulations and industrial policies of the State;

(2) The main business of the transferred enterprise and its relationship with the business and development plans of the transferring and transferring party;

(3) The financial position and contingent liabilities of the transferred enterprise;

(4) The personnel of the transferred enterprise;

(5) The transfer party's restructuring plan for the transferred enterprise, including investment plan, source of funds, benefit forecast and risk countermeasures;

(6) Other circumstances that need to be explained.

The free transfer of state-owned property rights is to transfer the property rights of the transferred enterprise from the transferring party to the transferring party on the premise of complying with the relevant national laws, regulations and industrial policies, and in line with the needs of the layout of the state-owned economy, structural adjustment and enterprise restructuring. It needs to be considered from the perspective of being conducive to the adjustment of industrial structure and enterprise property rights structure, and improving the operational efficiency of state-owned assets. Therefore, the free transfer requires that the main business of the transferred enterprise should be compatible with the main business and development planning of the transferring party and the transferring party.

2. Workers' Diversion and Resettlement Scheme

The placement of employees is a matter that must be considered in the free transfer of property rights of state-owned enterprises. The free transfer involves the transfer of employees of the transferred enterprise and the change of labor contract. It is necessary to formulate a plan for the diversion and placement of employees, which shall be deliberated and approved by the workers' Congress of the transferred enterprise. If the free transfer of state-owned property rights does not involve the diversion and resettlement of employees, it is not necessary to formulate a separate diversion and resettlement plan for employees.

3. The transfer party shall notify the creditors and formulate a debt disposal plan.

The biggest difference between gratuitous transfer and property right transfer is that the transferring party transfers the property right or assets to the transferring party without compensation, which is equivalent to reducing the assets of the transferring party in disguise, resulting in the decline of the transferring party's solvency and the risk of damaging the interests of creditors. Therefore, the Interim Measures for the Administration of the gratuitous transfer of state-owned property rights of enterprises clearly stipulates the right to know of the creditors of the transferring party, however, the method does not explicitly require the consent of creditors for the debt disposal plan and the gratuitous transfer, so the debt disposal plan can be considered and approved by the transferring party and the state-owned regulatory authority.

It should be noted that, in practice, the transfer-out party's notification to creditors and even obtaining the creditors' approval of the gratuitous transfer is entirely out of the perspective of ensuring the effectiveness of the gratuitous transfer and safeguarding the interests of both parties to the gratuitous transfer: in the case of the transfer-out party's inability to pay off its debts or its solvency is significantly weakened, if the transfer-out party still transfers assets to the transfer-out party, the actions may be identified as abuse of the rights to the creditor, at this time, the creditor has the right to require the transferring party to bear joint and several liability within the amount of the free transfer of assets, and at the same time, if the transfer party's free transfer affects the realization of the creditor's claim, the creditor has the right to apply to the court to cancel the free transfer. As the transferring party receiving the state-owned property rights for free, when receiving the free transfer of property rights, when knowing or should know that the transferring party is insolvent, the transferring party still cooperates with the transferring party to transfer the property rights, then the transferring party is subjectively obviously at fault, infringing the legitimate property rights and interests of the creditors of the transferring party, and shall bear the liability for infringement within the scope of receiving the state-owned property rights.

In addition, laws and regulations do not allow or prohibit whether the state-owned property rights (target equity) that have been transferred without compensation are paid in. In practice, there are also cases where the unpaid state-owned property rights are transferred to the transferring party without compensation. The paid-in obligation of the transferred state-owned property rights is then transferred to the transferring party. If the transferring party has a large amount of debt, it obviously does not have the ability to pay the registered capital of the transferred enterprise, after the transfer of the subject matter of the transfer to the transferring party, the transferring party or the transferring party incur external debts, and the relevant creditors may argue that the transferring party does not have the ability to pay the transferred state property rights, and that the free transfer of the transferring party and the transferring party collude to the detriment of the interests of the creditors and demand confirmation that the transfer is invalid. Therefore, the implementation of gratuitous transfer should take into account the assets of the transferring party and the transferring party, properly handle the claims and debts of both parties, and avoid disputes.

4. Audit or liquidation and assessment

The free transfer of state-owned property rights shall be based on the audit report issued by the intermediary or the results of the liquidation and capital verification approved by the state-owned regulatory agency of the transferring party as the basis for the free transfer of state-owned property rights of the enterprise, and no separate evaluation is required.

According to the Interim Measures for the Administration of the Free Transfer of State-owned Property Rights of Enterprises, the following free transfer matters can be directly adjusted according to the audit report of the transferred enterprise in the previous year (or the latest) issued by the intermediary or the results of the liquidation and capital verification approved by the state-owned regulatory agency, and according to the provisions of the property rights registration and other procedures:(1) decided by the government of the state-owned property rights of the funded enterprise free transfer to the state-owned regulatory agencies at the same level of other funded enterprises;(2) decided by the higher government of the state-owned property rights of the funded enterprise free transfer between the state-owned regulatory agencies at the upper and lower levels of the government;(3) The free transfer of the state-owned property rights of the funded enterprise decided by the government of the transferring and transferring party between the state-owned assets regulatory agencies of the non-subordinate government;(4) The state-owned property rights of the enterprises decided by the government are transferred to the state-owned assets regulatory agency for free;(5) Other free transfer matters decided by the government or the state-owned assets regulatory agency according to the needs of the state-owned economic layout, structural adjustment and reorganization.

However, it should be noted that when the transferred property rights or physical assets are used to pay in the registered capital of the company and cause changes in the paid-in capital, the portion of the asset used for the paid-in shall be evaluated. If the appraisal is not carried out and the paid-in capital is recorded directly in accordance with the results of the audit or liquidation at the time of the transfer, and the appraised value of the aforementioned assets is lower than its subscribed registered capital, the contributor may be deemed to have contributed untruthfully, and the creditor or other shareholder shall have the right to require it to fully perform its obligations as a contributor and bear the corresponding responsibilities.

5. Internal decision-making on the free transfer of state-owned property rights

The two parties to the free transfer of state-owned property rights shall, on the basis of the feasibility study, perform internal decision-making procedures in accordance with laws and regulations and the articles of association of the company:

(1) If the transferring party (the transferring party) is a wholly state-owned enterprise, it shall be reviewed by the general manager's office meeting; if a board of directors has been established, it shall be reviewed by the board of directors;

(2) If the transferring party (the transferring party) is a wholly state-owned company, it shall be reviewed by the board of directors; if the board of directors has not yet been established, it shall be reviewed by the general manager's office meeting;

(3) If a wholly state-owned enterprise, a wholly state-owned company, a one-person limited liability company invested and established by a state-owned institution and a one-person limited liability company reinvested and established as the transferring party (transferring party), the free transfer matters shall be considered by the board of directors; If there is no board of directors, the shareholders shall make a written resolution and affix the shareholder's seal.

It should be noted that the "three important and one large" decision-making regulations clearly require state-owned enterprises to write party building work into the company's articles of association. In practice, most state-owned enterprises specify the relevant provisions for the establishment of party organizations in the company's articles of association, and at the same time clearly make the party organization decision. As a pre-procedure for major business management matters. Therefore, if the articles of association of the company clearly stipulate that the free transfer of state-owned property rights needs to be deliberated by the party organization of the transferring party and the transferring party, it shall be deliberated and approved by the party organization of the company.

6. External approval of free transfer of state-owned property rights

After fulfilling the internal decision-making, the free transfer of state-owned property rights also needs to be reported to the state-owned regulatory agency or the competent department (hereinafter referred to as the "approval agency") for approval. Depending on the nature of the transfer party and the transfer party and the different approval agencies, the institutions that approve the free transfer of state-owned property rights are also different:

(1) If the state-owned property rights of an enterprise are transferred free of charge between enterprises funded by the same state-owned regulatory agency, the funded enterprises shall jointly report to the state-owned regulatory agency for approval;

(2) Where the state-owned property rights of an enterprise are transferred free of charge between enterprises funded by different state-owned regulatory agencies, the invested enterprise shall, on the basis of the ownership of the property rights of the two parties, report to the state-owned regulatory agency at the same level for approval;

(3) For enterprises that implement the separation of government and enterprises, if their state-owned property rights are transferred free of charge to the invested enterprise or its subsidiaries, they shall be approved by the state-owned regulatory agency and the competent department at the same level;

(4) If the state-owned property rights of an enterprise funded by a state-owned regulatory agency of a lower-level government are transferred free of charge to an enterprise funded by a state-owned regulatory agency of a higher-level government or its subsidiaries, they shall be approved by the lower-level government and the state-owned regulatory agency of the higher-level government respectively;

(5) If the state-owned property rights of an enterprise are transferred free of charge within the invested enterprise, the invested enterprise shall review and approve and report to the state-owned regulatory agency at the same level.

When the state-owned property rights are transferred without compensation, the transferring party and the transferring party shall submit the materials for the transfer of state-owned property rights without compensation to the corresponding examination and approval authority for examination and approval, including:

(1) Application documents for free transfer;

(2) Resolutions of the general manager's office meeting or the board of directors on free transfer;

(3) The property rights registration certificate of the transferring parties and the transferred enterprise;

(4) Feasibility demonstration report of free transfer;

(5) Transfer agreement signed by both parties without compensation;

(6) The audit report issued by the intermediary institution on the base date of the transfer of the transferred enterprise or the approval document of the results of the liquidation and capital verification by the state-owned regulatory institution at the same level;

(7) The plan for the disposal of the debt of the transferring party;

(8) The scheme for the diversion and resettlement of employees adopted by the workers' congress of the transferred enterprise;

(9) Other relevant documents.

It should be noted that after the free transfer of state-owned property rights of an enterprise has been approved, if the transfer party and the transfer party adjust the transfer proportion of property rights or there is a significant change in the transfer agreement, it shall be re-submitted for approval in accordance with the prescribed procedures.

7. Preparation and signing of gratuitous transfer agreements

After the two parties to the transfer have reached a consensus and the matter of the free transfer of state-owned property rights has been approved by the internal decision-making and examination and approval authority, an agreement on the free transfer of state-owned property rights of the enterprise shall be signed, and at this time, the free transfer agreement shall take effect. Prior to the entry into force of the transfer agreement, the transfer parties shall not perform or partially perform. The gratuitous transfer agreement shall include the following main contents:

(1) the names and domiciles of the parties to the division;

(2) the basic situation of the transferred enterprise;

(3) The amount of state-owned property rights of the transferred enterprise and the base date of transfer;

(4) The scheme for the diversion and resettlement of employees involved in the transferred enterprise;

(5) The claims, debts (including debts owed to employees) and contingent liabilities involved in the transferred enterprise;

(6) Transfer the liability of both parties for breach of contract;

(7) the way to resolve disputes;

(8) Conditions for the entry into force of the agreement;

(9) Transfer of other terms deemed necessary by both parties.

8. Procedures for alteration of property rights

After the gratuitous transfer is approved, both parties to the transfer shall, in accordance with the relevant approval documents and the transfer agreement, make accounting adjustments and go through formalities such as property rights registration in accordance with the provisions.

According to Article 3 of the "Provisions of the Supreme People's Court on Several Issues Concerning the Trial of Civil Dispute Cases Related to Enterprise Restructuring" (Fa Shi [2003] No. 1), the competent government department is in the process of administrative adjustment and transfer of enterprise state-owned assets. If the parties file a civil lawsuit in the people's court, the people's court will not accept it.

The free transfer of state-owned property rights of enterprises is more reflected in the administrative behavior of the government, so the disputes arising from the free transfer of state-owned property rights of enterprises can not be regarded as civil disputes, and disputes in the process of free transfer of state-owned assets of enterprises, should be submitted to the examination and approval or the competent department for settlement.