As of 1 May 2012, State-owned enterprises that are owned by the
Chinese central government ("Central
SOEs") are no longer permitted to invest in non-core
businesses outside of Mainland China. Although they can be exempted
from this prohibition in special circumstances, it can result in
delays and longer and more difficult negotiations. This new
development is therefore especially relevant for clients who plan
to attract investments from Central SOEs or sell assets to
Central SOEs, such as PetroChina, SinoChem, Chinalco and AVIC,
undertake a large part of Chinese outbound investments. In the past
six years Central SOEs have made over 100 investments abroad
of at least USD100 million each. However, some of these
investments have resulted in substantial losses. In order to
mitigate these foreign investment risks, Interim Measures have
recently been issued by the PRC State-Owned Asset Supervision and
Administration Commission ("SASAC").
Under the Interim Measures, Central SOEs - including their
wholly owned overseas subsidiaries and companies in which they have
a controlling stake - are not allowed to invest in non-core
businesses outside of Mainland China. If there is a special
circumstance which makes it necessary to make a non-core investment
outside of Mainland China, Central SOEs need to obtain prior
approval from SASAC. Unfortunately, the Interim Measures do not
provide definitions of "non-core businesses" or
"special circumstances". This therefore needs to be
discussed with the relevant Central SOE, which in turn might need
to discuss this with SASAC. Unless properly managed, this can
result in delays when implementing a transaction.
In order to request SASAC's approval for a non-core
investment outside of Mainland China, a Central SOE needs to file a
feasibility and due diligence report, risk control report and such
other materials as SASAC deems necessary. SASAC's review will
focus on the necessity of the project, influences on the core
business and the implementation of risk control measures. Although
the approval period officially is 20 working days, in practice
SASAC can extend it by asking for more materials.
If a Central SOE invests in a core business outside of Mainland
China, it only needs to file certain documents with SASAC. However,
SASAC reserves the right to object to transactions that increase
the risk profile of the foreign investments. As a result this
filing procedure can also effectively become an approval
Finally, we note that the Interim Measures provide that if a
Central SOE violates the provisions thereof and suffers a major
loss, the Central SOE and the related responsible individuals will
be held liable.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Ministry of Corporate Affairs notified on June 5, 2015 that certain provisions of the Companies Act, 2013 shall not apply to private limited companies or shall apply with such exceptions or modifications as directed in the notification.
With the e-commerce boom and the growing trend of commercial transactions being concluded by way of internet, execution of contracts by electronic means has become quite prevalent.
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