The Transferee Has Participated in Operation of the FIE and Obtained Some Benefit, but the Qquity Transfer Failed, How to Deal With This Situation?

2020/1/8

The equity transfer contract of a foreign-invested enterprise requires the approval of the foreign-invested enterprise's approval authority. But the capital market is changing rapidly, and many enterprises can't wait for the approval of the approval authority before they begin to hand over related matters of management. 

It probably happens in practice that an equity transfer contract has been entered into, but not been accepted by the government and the investors have already begun to participate in the business of FIE and obtained some benefit. Later the transferor didn't want to continue the contract. In this case, the transferor may claim, by litigation, the transferee to exit operation and management, and claim the transferee to return the income earned during his management after deducting the relevant costs, which claim should be supported by the court.

Then, the next question is who should provide evidence? For the benefit obtained by the transferee during his management, the transferor should provide evidence. But if the transferor has quit from the FIE and the transferee has controlled the FIE completely, then the transferor should provide preliminary evidence, and further evidence should be provided by both parties depending on actual situations.

Theoretically, legal protection should precede the operation of capital. But considering the fleeting opportunities in the capital market, we recommend that foreign investors should hire Chinese lawyers to clear the barriers to investment for themselves.