Liquidation article

As mentioned earlier, try and link this to the production and profitability scales. Typically they are rather woolly in basic drafts, meaning interpretation can creep in and the local government, whose approval is required, may have different ideas as to what is and what is not a liquidation scenario, not least as they will want to maintain employment. The way to deal with this is to have the articles of association worded so as to link the termination clauses to production clauses (this is not in standard drafts). In this way, an economic trigger is identified that can be pulled should the business under-perform. This needs to be built into the articles of association prior to registration with the authorities. If approved, the licensing authority must follow its own approval process for the behavior of the company if it decides to exit for economic reasons. It neatly puts the ability to exit back in the realms of measurable financial performance and away from any ambiguity.  

Chris Devonshire-Ellis is the Senior Partner of Dezan Shira & Associates www.dezshira.com

This is the fourth in a series of articles on this topic. Previous sections have appeared in Issues No. 7, 9 and 11.