Legal Status of the Liquidation Team of the Dissolved Company

1. Legal Status of the Settlement Team

From the fundamental theory of corporate law, a company is organized, established, and operates in accordance with corporate laws, with the purpose of profit-making while also considering social interests. It has the nature of a liquidation organization established for the purpose of liquidation, being an organ of the company in liquidation. Internally, it executes liquidation matters, and externally, it represents the company in settling debts and claims. Within the scope of the liquidation purpose, it holds the same legal status as the board of directors during the normal stage of the company. Under this legal status, the liquidation team, as the manager and executor of the company, rather than a decision-maker, should exercise its functions in a manner comparable to the executive board during the normal stage of the company.

2. Composition of the settlement team

Pursuant to Article 184 of the Company Law, the liquidation group of a limited liability company is composed of shareholders. Consequently, the members of the liquidation group should be the company's shareholders, but there is no clear specification whether it should be all shareholders or a portion of them. However, if a liquidation group is not established within the prescribed time for liquidation, creditors may apply to the People's Court for a group to be formed. According to Article 184 of the Company Law, at this point, the court, based on the specific circumstances of the dissolution of the company, can determine the composition of the liquidation group, which may include the company's shareholders, directors, supervisors, and interested parties or their representatives, or may appoint its own staff as members of the liquidation group.

The authority of the settlement team

Pursuant to Article 185 of the Corporation Law, the liquidation group shall exercise the following powers during the liquidation period: (1) Dispose of the company's assets, prepare balance sheets and lists of assets; (2) Notify and announce to creditors; (3) Handle the company's outstanding business related to liquidation; (4) Pay off the taxes owed and taxes generated during the liquidation process; (5) Settle the company's debts and liabilities; (6) Dispose of the remaining assets after the company's debt settlement; (7) Represent the company in civil litigation activities.

Consequences of Corporate Dissolution and Liquidation

Dissolution does not necessarily result in the termination of a company's legal personality, which varies by country. In the UK, a "wind-up first" system is in place, where dissolution signifies the end of the company's legal personality. In our country, a "dissolve first, wind-up later" system is practiced, as is the case in the US, Japan, and mainland European countries. Such dissolution does not lead to the extinction of the company's legal personality but triggers the liquidation process. It is only after liquidation is completed that the company's legal personality is terminated.

1. Enter the settlement procedure

In cases of dissolution other than by merger or division, the company must undergo liquidation. Through liquidation, the existing legal relationships of the dissolved company are terminated, remaining assets are distributed, and its corporate status is extinguished.

2. The company is still in existence, but should cease active business operations.

During the liquidation period, the company remains in existence but may not engage in active business operations; its activities are limited to those related to the liquidation.

3. The company can still be restored under specific circumstances.

No regulations in China. In Japan, companies that have voluntarily dissolved are allowed to be restored before liquidation is completed, upon resolution by the shareholders' meeting. The same applies in Germany.

Definition of Corporate Dissolution and Liquidation

The dissolution of a company refers to the legal action by which a company that has been established ceases to exist due to certain legitimate reasons.

The reasons for the company's dissolution are categorized into three main types: general dissolution reasons; mandatory dissolution reasons; and dissolution requested by shareholders.

1. Reasons for General Dissolution. Reasons for general dissolution refer to situations where a company can be dissolved upon the occurrence of certain grounds. The general reasons for dissolution stipulated by the Company Law of our country include:

(1) Upon expiration of the term of operation as stipulated in the company bylaws or upon occurrence of other dissolution grounds specified in the company bylaws. However, in such cases, the company may continue to exist by amending the company bylaws, which does not imply that the company must dissolve. If a limited liability company is voted through by shareholders holding more than 2/3 of the voting rights, or if a public company is voted through by shareholders attending the general meeting holding more than 2/3 of the voting rights, the company can continue to operate by amending the bylaws.

(2) Resolution for dissolution by the shareholders' meeting or general shareholders' meeting.

(3) Due to corporate merger or dissolution.

2. Reasons for Compulsory Dissolution. The reasons for compulsory dissolution refer to situations where the supervisory authority or People's Court orders the company to be dissolved. The Company Law stipulates that the main reasons for compulsory dissolution of a company include:

(1) Authority Decision. The state-owned sole proprietorship company shall be dissolved upon the decision made by the institution or department authorized by the state to invest, or the department authorized by the state.

(2) Order to Close. If a company violates laws and administrative regulations and is ordered to close by the competent authority in accordance with the law, it shall be dissolved.

(3) License revoked.

3. Reasons for Dissolution Request. The newly revised company law stipulates that when a company encounters serious difficulties in management and operation, and continuing to exist would result in significant losses to shareholders, and other methods cannot resolve the issue, shareholders holding more than 10% of the company's voting rights can request the People's Court to dissolve the company.