Meaning
Specialized banking structures facilitate the final settlement of funds during the closing of a foreign invested enterprise to ensure all liabilities and taxes are paid before exit. The rmb liquidation account is a temporary account opened after the company has entered the formal liquidation phase and its regular operational accounts have been frozen. It governs the receipt of income from the sale of assets and the payment of liquidation expenses, staff salaries, and tax debts.
This account’s function stops when the final liquidation report is approved and the remaining funds are converted and sent to the overseas shareholders.
Fund Segregation
Separation of the liquidation proceeds from the normal business funds is required to provide clarity to the regulators and the creditors. Once a company starts the closure process, it must move all its remaining cash into the rmb liquidation account. This account is monitored more closely by the bank and the foreign exchange authorities than a standard corporate account.
Every payment made from this account must be justified with a specific liquidation purpose and supported by the appropriate documentation. This prevents the directors from spending the company’s remaining money on anything other than the winding up costs. The account acts as a central pool for all the value that is recovered during the disposal of the company’s property and inventory.
Having a single point of control simplifies the final audit.
Payout Priority
Mandatory sequences for the distribution of money ensure that the most important social and legal obligations are met first. The law specifies that the funds in the rmb liquidation account must be used to pay for the liquidation expenses first, followed by outstanding wages and social security for the employees. Next in line are the taxes owed to the state, and only after all these are settled can the remaining money be used to pay general creditors.
This hierarchy is strictly enforced by the liquidation committee and the bank. If the committee pays a creditor before the taxes are settled, they can be held personally liable for the difference. This system protects the rights of the workers and the state in the event of an insolvency.
Closure Deadline
Time limits for the operation of the account are set to prevent the liquidation process from dragging on indefinitely. An rmb liquidation account is generally intended to be used for a period of six months to one year. If the liquidation takes longer, the company must apply for an extension and provide a valid reason for the delay.
Once the final distribution is made to the shareholders, the account must be closed immediately. The bank then issues a certificate of account closure, which is needed for the final deregistration of the company. Any money left in the account that cannot be distributed due to missing shareholders may be turned over to the state.
Proper management of the account ensures that the final exit is smooth and that no funds are trapped in the domestic banking system. This is the last link in the chain of corporate existence.
