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As a further sign of increasing awareness of the need to have tight controls over the operation of banks and other financial institutions, in November 2001 the State Council promulgated the "Regulations on dissolution of financial institutions", which contained 38 articles in all.

The Regulations describe the term "dissolution" as compulsory administrative measures taken by the People's Bank of China (PBOC) to terminate business operations of financial institutions (that were established with its approval and with the status of a legal person) in accordance with the law.

Under the Regulations, a financial institution can be dissolved if:

  • its business operations are out of line with or in violation of existing regulations; or
  • it performs poorly in terms of business operations and management; or
  • it would seriously endanger financial order or harm public interests if it is not dissolved.

The PBOC is responsible for implementing the Regulations and should make public announcements regarding any financial institution dissolution and have notice of such dissolution published in newspapers.

In the same vein as many existing regulations in China, the Regulations merely set forth a framework for dissolution. Upon dissolution, a liquidation team will be appointed to handle the affairs of the closed financial institution. While the role of the liquidation team is not expanded in detail, the Regulations do confirm that the liquidation team would determine a liquidation scheme after checking and verifying the status of the assets of the financial institution to be dissolved. Of note is a provision in the Regulations that principal and interest owing to individual savings account holders of the financial institution would be paid in priority to other creditors.

There also appears in the Regulations a statement (and another warning) that management personnel or officials found to be derelict in their duties towards dissolved financial institutions will be subject to sanctions.

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