On July 5, 2010, the Ministry of Commerce of China (MOFCOM) issued the Interim Regulations on Implementing the Divestiture of Assets or Businesses in Concentration of Business Operators. The regulations were enacted to implement MOFCOM’s divestiture decision and to ensure the smooth consummation of the divestiture of assets or business pursuant to the Measures for Examination on Concentration of Business Operators (view a newsletter from the MWE China Law Offices on these measures).
The regulations refer to the divestiture of the assets or businesses and the behaviors in connection to the divestiture of the business operators (or divestiture obligors) participating in the concentration who have an obligation to divest their assets or businesses pursuant to a MOFCOM decision. The part of the assets or businesses of the divestiture obligor that are subject to divestiture are referred to as “divested businesses.”
Time Limit of a Divestiture
The divestiture obligor shall, within the time limit specified in the Examination Decision, find a proper purchaser and enter into the sales agreement and other relevant agreements. This is known as a default divestiture. In the event the divestiture obligor fails to complete a default divestiture within the specified time limit, the party who is entrusted with divestiture, the divestiture trustee, shall find a proper purchaser within the time limit specified in the Examination Decision and reach the sales agreement or other relevant agreements. This is known as an entrusted divestiture.
The divestiture obligor shall, within three months after the date of the execution of the sales agreement and other relevant agreements, transfer the divested businesses to the purchaser and go through all the legal procedures relating to ownership transfer. MOFCOM may, subject to the application and explanations provided by the divestiture obligor, extend the time limit for such business transfer at its own discretion.
Supervision Trustee and Divestiture Trustee
The divestiture obligor shall, pursuant to the requirements set forth in the Examination Decision, entrust a supervision trustee and entrust a divestiture trustee in the phase of entrusted divestiture. A supervision trustee refers to the natural person, legal entity or other organization entrusted by the divestiture obligor to carry out thorough supervision on the divestiture of businesses. A divestiture trustee refers to the natural person, legal entity or other organization entrusted by the divestiture obligor to find a proper purchaser and reach the sales agreement and other relevant agreements.
The divestiture obligor shall, within 15 days after MOFCOM makes an examination decision, submit the candidates for supervision trustee to MOFCOM; it shall submit the candidates for divestiture trustee to MOFCOM 30 days prior to entering into the phase of entrusted divestiture.
The supervision trustee and the divestiture trustee must be a natural person, legal entity or other organization equipped with the resources and capabilities necessary for conducting trust business, and shall be independent from and have no substantial interest in the business operator participating in the concentration and the purchaser of the divested businesses. The supervision trustee and the divestiture trustee can be the same natural person, legal entity or other organization.
The supervision trustee and the divestiture trustee are accountable to MOFCOM and shall report their work thereto. Without the consent of MOFCOM, the divestiture obligor shall not give instruction to the supervision trustee and the divestiture trustee.
Agreement of Entrustment
The divestiture obligor shall enter into an agreement of entrustment in writing with the supervision trustee and the divestiture trustee respectively in which duties and obligations of both parties shall be expressly set forth. The supervision trustee shall perform its duties commencing from the date of the execution of the agreement of entrustment until the consummation of the divestiture of businesses; the divestiture trustee shall perform its duties commencing from the date of the execution of the agreement of entrustment until the completion of the phase of entrusted divestiture.
Without the consent of MOFCOM, the divestiture obligor shall not terminate or amend the agreement of entrustment it signs with the supervision trustee and the divestiture trustee. The remuneration of the supervision trustee and the divestiture trustee shall be paid by the divestiture obligor, the amount and payment method of which shall not harm the independence of work efficiency of the supervision trustee and the divestiture trustee in the performance of their duties.
Duties of a Supervision Trustee
The supervision trustee shall, based on the principle of diligence and conscientiousness, perform the following duties independently from the divestiture obligor, subject to the supervision of MOFCOM:
- Supervise the divestiture obligor in the performance of its obligations prescribed in Article 12 hereof, and submit supervision reports to MOFCOM periodically
- Evaluate the candidates for purchasers as recommended by the divestiture obligor and the contemplated sales agreement and other relevant agreements, and submit evaluation reports to MOFCOM
- Supervise the exercise of the sales agreement and other relevant agreements, and submit supervision reports to MOFCOM periodically
- Be responsible for coordinating the dispute arising from the divestiture between the divestiture obligor and the potential purchaser, and report to MOFCOM
- Submit other reports relating to the divestiture of businesses, per the request of MOFCOM
The foregoing duties of the supervision trustee shall be expressly set forth in the agreement of entrustment with the supervision trustee.
In the performance by the supervision trustee of the foregoing duties, the divestiture obligor shall provide necessary support and convenience, including providing the supervision trustee with the information of the parties concerned in the divested businesses, books and records of the divested businesses, the information the divestiture obligor provided to the potential purchaser, the information of the potential purchaser, the divestiture progress, and other information and support.
A potential purchaser refers to the business operator who satisfies the standards prescribed in Article Nine hereof and addresses its intention of purchasing the divested businesses to the divestiture obligor.
Without the consent of MOFCOM, the supervision trustee shall not disclose to the divestiture obligor any reports it submits to MOFCOM during the performance of its duties. The supervision trustee shall keep in confidence the business secrets and other confidential information it acquires during the performance of its duties.
Duties of a Divestiture Trustee
The divestiture trustee shall find the proper purchaser and reach the sales agreement and other relevant agreements in accordance with the time limit and the methods prescribed in the Examination Decision, subject to the supervision of MOFCOM.
The divestiture obligor shall provide the divestiture trustee with authorization in writing to handle the divested businesses independently, and shall provide necessary support and convenience to the divestiture trustee in the performance of its duties.
Without the consent of MOFCOM, the divestiture trustee shall not disclose to the divestiture obligor the information relating to the performance of its duties. The divestiture trustee shall periodically report to MOFCOM the progress of the performance of its duties, and shall keep in confidence the business secrets and other confidential information it acquires during the performance of its duties.
Purchaser of the Divested Business
The purchaser of the divested business shall satisfy the following requirements:
- Maintain independence from and have no substantial interest in the business operator participating in the concentration
- Come equipped with necessary resources and capabilities, and willing to maintain and develop the divested businesses
- Must not result in eliminating or restricting competition
- If subject to the approval of any other relevant authority, the purchaser shall have the necessary conditions required for obtaining approvals from competent authorities
Any agreements signed between the divestiture obligor and the purchaser, including the divested businesses sales agreement, transition agreement, etc., shall not contain any clauses in violation of the Examination Decision.
Assessment of MOFCOM
MOFCOM will conduct evaluation on the candidates for supervision trustee, divestiture trustee and purchaser of divested businesses, power of attorney and contemplated divested businesses sales agreement and relevant agreements to ensure the foregoing are in compliance with the requirements of the Examination Decision. The time spent by MOFCOM for such evaluation will not be included in the time limit of divestiture.
MOFCOM shall conduct supervision and evaluation on the conditions with respect to the performance by the supervision trustee and the divestiture trustee of their respective duties.
Duties of the Concentrating Parties
Prior to the consummation of divestiture, the business operator participating in the concentration shall perform the following obligations to ensure the value of the divested businesses:
- Maintain independence of the divested businesses from other businesses, and carry out management in the best interest of the divested businesses
- Shall not adopt any act that has an adverse impact on the divested businesses, including recruiting of the employees of the divested businesses, and acquiring the business secrets and other confidential information of the divested business
- Designate a person specifically responsible for managing the divested businesses and performing the obligations prescribed in the first two paragraphs of this article; the manager shall perform his/her duties under the supervision of the supervision trustee, and his/her appointment or replacement is subject to the consent of the supervision trustee
- Ensure the potential purchaser is fully able to acquire the information of the divested businesses in a fair and reasonable manner that may enable the purchaser to evaluate the value, scope and commercial potential of the divested businesses
- Provide the purchaser with necessary support and assistance at his/her request to ensure the smooth transfer and stable operation of the divested businesses
- Transfer the divested businesses to the purchaser in a timely manner and go through relevant legal procedures
Click here to view a translated version of the Interim Regulations on Implementing the Divestiture of Assets or Businesses in Concentration of Business Operators.
中文版