Foreign investors in such situations have three major options: selling their equity stake, abandoning their investment or liquidating the enterprise. Sale of equity will often not be an option, since it will be difficult to find a buyer for a loss-making business. Also, if the equity of a foreigner is sold to a Chinese party, then the enterprise will lose its status and the benefits of a foreign invested enterprise.
If the enterprise has more debts than assets, some investors just "walk away" and abandon the enterprise without properly closing it. This is not a good solution, since it might close the door for other investments in the future.
The proper way of closing an enterprise is liquidation. Liquidation of a Foreign Invested Enterprise must be approved by MOFTEC and certain procedures must be followed. Creditors must be notified in order to guarantee that all debts are repaid. A liquidation committee must be formed that is in charge of carrying out the liquidation. If the assets are not sufficient to satisfy all claims, bankruptcy must be declared in order to guarantee that all creditors are treated fairly. If there are assets to be distributed to the investors, they may be remitted, after all outstanding liabilities, including taxes, have been paid.
