We have been doing a lot of due diligence work recently where we investigate a target company for corporate compliance issues. In one recent example, we found that a subsidiary of our target company had been put on the State Enterprise Credit Information Public System’s (Public Credit System, or PCS) list of Abnormally Operating Enterprises, (We’ll call it the list of shame). After reviewing this with company management, it turned out the company didn’t know about the PCS and the company had not published its annual reports on the PCS since its establishment in 2014 as required by regulations.
In the past, each company was required to perform an annual inspection, and to submit its annual audit report to various Chinese authorities each year. This system was substantially changed in 2014, with the publication of the
Interim Regulations on Enterprise Information Publicity
(“the Interim Regulations”). With the publication of the Interim Regulations, the requirement to submit annual reports to multiple different authorities was canceled. Instead, going forward each company would be required by the Interim Regulations to perform an annual audit, submit the audit to the tax authorities, and publish the company’s annual report on the PCS. Companies have until June 30 of each year to publish their annual report on the PCS.
Based on our conversations with the company’s management it seems they were under the impression that the cancellation of the annual inspection had relieved them of all duties other than the audit and reporting to the tax bureau. Someone did not get the memo about the PCS.
What is the list of shame? Companies which find themselves on the list will find that this status is publicized by the PCS. Other government agencies may refuse to accept documentation or official applications submitted by a company on the list. Banks are likely to refuse to open new bank accounts for such a company or to approve a new loan.
If a company remains on the list of shame for 3 consecutive years, it will be demoted to the list of Enterprises in Serious Violation. Believe us when we say that is not where you want to be.
Not sure if your China company is in compliance? Send a message to our China Lawyers now and we can check that out for you. If you are unfortunate to find yourself on the list of shame, we can work with authorities to develop a compliance plan to get your company off the list as quickly as possible.