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Disputes arising from the beneficiary's refusal to accept the amendment of L / C

SOURCE: TIME:2018-09-03

In June 2002, Taiwan a company signed a contract with Shanghai B company for a Sino foreign joint venture of XX Co., Ltd. to jointly invest in the establishment of a Sino foreign joint venture to produce new energy-saving equipment. The joint venture contract stipulates that the registered capital of the joint venture company is US $2 million, Taiwan a company contributes US $1.5 million in cash, accounting for 75% of the total registered capital, Shanghai B company contributes US $500000 in plant and equipment, accounting for 25% of the total registered capital, and both parties share profits and risks according to the proportion of contribution.

The company was officially established with the approval of the relevant authorities and the business license issued by the State Administration for Industry and Commerce of China to the joint venture company. In March 2004, the board of directors of the joint venture company was held. In view of the fact that Taiwan a company, as a shareholder, is located in Taiwan and is inconvenient to participate in the operation and management of the joint venture company, the board of directors made a resolution that Shanghai B company is fully responsible for the production and operation and management of the joint venture company. Taiwan a company takes the way of minimum dividend to share the profits, that is, Taiwan a company can share 25% of its investment amount every year, and Taiwan a company can share the profits Company A shall not bear the risk of business operation, and the profit and loss shall be borne unilaterally by Shanghai company B. Foreign lawyer

In the following years, Shanghai B company and Canada C company reached an investment intention and signed an equity transfer agreement to transfer 15% shares of Shanghai B company to Canada C company. Later, due to fierce market competition, poor management and other reasons, the joint venture company was in a state of loss for a long time, so it refused to pay the profits agreed in the resolution to Taiwan a company.

In accordance with the arbitration clause in the joint venture contract, TaiwanA company filed an arbitration with the Arbitration Commission to terminate the joint venture contract, and demanded the Sino foreign joint venture to return its capital contribution of US $1.5 million and pay the underpaid profit owed. At the same time, as the plaintiff, Canada C company filed a lawsuit of equity confirmation to the people's court, requesting the court to confirm the identity of foreign shareholders of Canada C company in the joint venture company and their corresponding investment.

Opinions of professional foreign lawyers:

1. The board of directors has decided that Shanghai B company shall bear the risks and losses of the joint venture company alone, while Taiwan a company can obtain 25% of the profit of its investment from the joint venture company every year. The resolution violates the agreement in the joint venture contract that both parties share profits and risks in proportion to their capital contributions, and does not conform to the legal principle of joint venture that all parties to the joint venture are required by the law of the people's Republic of China on Chinese foreign joint ventures to jointly operate, share risks and share profits and losses, so the resolution of the board of directors is invalid.

2. The US $1.5 million invested by Taiwan a company in the joint venture company is already the property of the joint venture company, and the disposal of such property shall be settled through the liquidation of the joint venture company. Therefore, company a's request for the return of its investment funds has no reason and should not be supported.

3. The equity transfer agreement reached by all parties of the joint venture company, though approved by the board of directors, is invalid without the approval of the original examination department. Therefore, the court shall not approve the claim for confirming the right of company C in Canada.

[trial result]

The arbitration tribunal adopted the lawyer's opinions of professional foreign lawyers and ruled to terminate the joint venture contract, and Taiwan a company and Shanghai B company shall liquidate the joint venture in accordance with the provisions of Chinese law. The arbitration tribunal rejected the arbitration request of Taiwan a company for the return of its capital contribution and the payment of the underpaid profit owed, which it found had no legal basis.

The Shanghai Higher People's Court adopted the lawyer's opinion of professional foreign lawyers and rejected the application for confirmation of equity of Canada C company.

[notice of professional foreign lawyers]

The case involves Canada, Taiwan Special Administrative Region and many companies in China, involves many legal relations, and involves arbitration and litigation procedures at the same time, the case is complex.

On the issue of guaranteed profits:

A Sino foreign joint venture refers to a foreign company, enterprise, other economic organization or individual and a Chinese company, enterprise or other economic organization that jointly invests, operates, bears risks and bears profits and losses in China in accordance with Chinese laws.

According to Article 4 of the law of the people's Republic of China on Chinese foreign equity joint ventures, "the form of a joint venture is a limited liability company. In the registered capital of a joint venture, the proportion of investment made by the foreign party shall generally not be less than 25%. The parties to the joint venture shall share profits, risks and losses in proportion to their registered capital. If the registered capital of a joint venture is to be transferred, the consent of the parties to the joint venture must be obtained. " In this case, the resolution of the board of directors stipulates that the operation and management power of the joint venture company shall be handed over to Shanghai B company, and Shanghai B company shall bear the risks and losses of the joint venture company alone, while Taiwan a company can obtain 25% of the profit of its investment from the joint venture company every year. This resolution is in violation of the agreement in the joint venture contract that both parties share profits and risks according to the proportion of capital contribution, and does not conform to the joint venture legal principle of joint operation, risk sharing and profit and loss sharing required by the joint venture law. Therefore, this resolution of the board of directors is invalid. There is no legal basis for the claim that Taiwan a company still claims to pay profits when the joint venture company is in a state of loss, which is not supported by the court.

As for the US $1.5 million invested by Taiwan a company in the joint venture company, although it is the capital contribution of a company, after the establishment of the joint venture company, the capital has already belonged to the property of the joint venture company, and the disposal of the property shall be settled through the liquidation of the joint venture company. And the investment of the property is the necessary cost expenditure for Taiwan a company to obtain profits. Since the joint venture has been established


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