When a China company is closing down the law requires appointment of a “Liquidation Committee” to be responsible for managing the closure and liquidation of the company’s assets. The law outlines who many participate in the Liquidation Committee and its formation, but nothing is mentioned about how the Committee is to conduct its business, or how to handle a disagreement between members of the committee.
It is best to avoid potential disputes by setting forth some procedural ground rules. This can be done through a simple rules document, signed by the Shareholder, and each of the Liquidation Committee Members. The rules should make clear that unanimous decisions are the goal of the Committee, but should provide for some agreed manner for tie breaking, or deciding on a course of action when members are split. This can be done by giving the Chairman of the Committee tie breaking power, or adopting a Majority rules system.
It is important that all decisions are set out in writing. Sometimes one Liquidation Committee member may be tempted to take unilateral action without consulting others. This may be avoided by making clear in the rules that violation will be harmful to the company and its shareholders and expose the violator to legal liabilities under Chinese law.