Meaning
Statutory hierarchy established by the PRC Company Law for the distribution of remaining assets among creditors and stakeholders during a formal winding-up process. Under the PRC Company Law, corporate liquidation priority mandates that liquidation expenses, employee wages, social insurance, and taxes be paid before general creditors or shareholders.
Initial Settlement
Funds must first cover the expenses of the liquidation committee. These costs include court fees and asset valuation charges.
Labor Preference
Workers must be compensated before taxes are paid to the state or debts are settled with unsecured lenders. This part of corporate liquidation priority covers all unpaid wages, medical subsidies, and basic social insurance premiums. If the remaining assets are insufficient to cover all employee claims, the available funds are distributed proportionally based on the amount owed to each worker.
The liquidation committee must verify these claims against the official payroll and social insurance records. Only after these obligations are fully met can the company move to settle its tax liabilities with the government.
Residual Order
Shareholders receive the remaining funds only after every other class of creditor has been satisfied. The distribution follows the proportion of capital contribution or the specific shareholding percentage held by each investor.
