Modifications to Security Censorship of Foreign Investors' M&A of Domestic Enterprises
14-09-2011

With respect to meger and acquisition of Chinese domestic enterprises, foreign investors must pay attention to the Regulations on Implementation of Security Censorship on Foreign Investors' Merger and Acquisition of Domestic Enterprises ("Regulations") issued by the Ministry of Commerce on August 25, 2011. The said Regulations made some modifications to the Provisional Regulations issued in this early March. For Example, Article 2 of the Regulations provides that the security application should be submitted within five working days, adding the timing of submission to the Provisional Regulation.

Mergers and acquisitions are always preferred options in entering a new market. However, you need to pay attention to the potential risks during the operation of mergers and acquisitions. Yi Zhou and Hao Wang of RayYin & Partners are prominent China mergers and acquisitions lawyers. For more information of their practices in mergers and acquisitions in China, please refer to the website of RayYin & Partners.

On August 25, 2011, the P.R.C. Ministry of Commerce issued Regulations on Implementation of Security Censorship on Foreign Investors' Merger and Acquisition of Domestic Enterprises ("Regulation"), which made some modifications to the March 4, 2011 Provisional Regulations on Relevant Affairs of Implementation of Security Censorship on Foreign Investors Merger and Acquisition of Domestic Enterprises ("Provisional Regulation").

One of the most important modifications is in Article 2 of the Regulation, which says that, if an M&A transaction has not been submitted to the Ministry of Commerce for a security review, then the local administrative authority of commerce should suspend processing of that transaction and instruct the applicant to submit the security review application within five working days. The requirement that the security application be submitted within five working days was added to the Provisional Regulation, which did not address the timing of the submission.

Another change is that, Article 8 under the Provisional Regulation has become Article 3 in the Regulation. This provision indicates that the relevant governmental authorities, industrial associations, and enterprises can suggest that the Ministry of Commerce conduct a security review. The change in the placement of this provision is intended to encourage the parties involved in M&A transactions to voluntarily submit a security review application, by highlighting the fact that, if they do not do so, other entities may be able to put themselves in a position to supervise and affect the transaction.

In addition, there are revisions in the Regulation that have been made in order to tailor or detail the Provisional Regulation in order to make the procedures clearer. The Regulation has been carried out from September 1, 2011.

RayYin's corporate practice provides comprehensive services in all types of corporate matters, including mergers and acquisitions. For further information or to schedule an appointment to discuss how we can assist your company with an M&A deal or other corporate matters, please contact Hao Wang at wh@rayyinlawyer.com or Yi Zhou zy@rayyinlawyer.com.