[By Adam Livermore, Senior Associate, Dalian office, and Marie Bi, Manager, Beijing office, Dezan Shira & Associates]
As we have already explained, when liquidating a company, salaries, mandatory welfare benefits and severance payable to employees are paid second only to liquidation expenses themselves. For companies with a large workforce, this can be a large cost and needs to be quantified accurately.
Only once the “workforce” has been clearly defined can the liability be assessed. Therefore the fi rst step should be to cross-reference the full list of employees with the corresponding labour contracts and information concerning salary payments. Employees should have been paid their salaries in full up to the end of the month preceding the announcement of the liquidation. The labour contracts will also tell you how long each employee has officially worked at the company – compensation for termination of employment will be calculated based on the salary and length of employment. Finally, evidence of payment of the various mandatory welfare benefits should be checked to ensure there is no money owed.
Checking the contractual obligations should be a relatively straightforward task. The date of contract commencement and its term should be stated on the document. Most employment contracts will have a length of one year and there will be a section where the employee signs to extend the contract every year. For employees that have worked for the company less than ten years, there is effectively no severance pay because the liability for the company is limited to the period left on their employment contract.
Business
Internet
China.com
Mar
07
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Risks in just “walking away” for foreign investors
Accurately assessing liabilities - Employees
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