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China in focus e-briefing - MOFCOM releases new Divestment Rules

  • China
  • Competition, EU and Trade - Competition e-briefings


On July 5th 2010, China's Ministry of Commerce (MOFCOM) released its "Provisional Rules on Implementing Divestiture of Assets or Businesses" (the "Divestment Rules"). The Divestment Rules came into effect from the day of their publication, without any prior public consultation. The Divestment Rules reflect practices that are in place in both EU and US competition law regimes and are a restatement of the practices that MOFCOM has already put in place in divestment proceedings during the five conditional clearance mergers that have occurred since the implementation of China's Anti-Monopoly Law ("AML").

Two stage procedure

The Divestment Rules establish a two stage procedure for conducting divestments required by MOFCOM as a remedy to any potential anti-competitive effects of mergers, acquisitions or other concentrations under the AML.

The first stage is a "voluntary divestment". During "voluntary divestment" the divestment obligor is responsible for finding an appropriate buyer and concluding a sales agreement and any other necessary agreements, within a time limit stated by MOFCOM in its merger review decision, under the supervision of a supervising trustee.

If the divestment obligor is unable to find an appropriate buyer within the time limit set by MOFCOM, then the divestment will enter the second stage: "entrusted divestment". In this scenario, the divestment is managed by an appointed divestment trustee, who finds appropriate buyers and concludes the sales agreement with them on behalf of the divestment obligor.

Whilst there is no default time limit for how long each individual stage may take, the time limit is to be specified in the individual decision made by MOFCOM. Once a sales agreement has been concluded, MOFCOM requires that the divestment obligor must complete the transfer of the divested business to the buyers and complete any related legal procedures within a three month time frame.

"Supervising Trustees" and "Divestment Trustees"

Divestment obligors are required to appoint a "supervising trustee" during the period of "voluntary divestment" and must inform MOFCOM of their candidates for the position within 15 days of their review decision. The supervising trustee is responsible for overseeing the entire process of the business divestment.

If the divestment obligor enters the "entrusted divestment" stage then they must appoint a "divestment trustee". The divestment obligor must inform MOFCOM of its candidate for the role 30 days before entering into the "entrusted divestment". Once the divestment enters the "entrusted divestment" stage, the divestment trustee is responsible for finding appropriate buyers and for concluding the sales agreement between the divestment obligor and the purchasing company.

According to Article 5 of the Divestment Rules, supervising trustees and divestment trustees must "be a natural person, legal person or other institution that has the resources and abilities necessary for engaging in trustee business" and must be independent from the parties of the notified transaction or the potential purchaser of the divested business. Article 5 states that the supervising trustee and the divestment trustee may be the same person, and so a person appointed as a supervising trustee during the "voluntary divestment" stage, may also serve as the divestment trustee during the "entrusted divestment" stage.

Under Article 6, it is the divestment obligor that enters into a written consignment agreement with the trustees and is responsible for paying the remuneration of the trustees. However, according to Article 5, it appears that the trustees are very much under the control of MOFCOM as both the supervising trustee and the divestment trustee report to MOFCOM and the divestment obligor may not give any instructions to them without MOFCOM's prior approval. Also, the divestment obligor may not terminate the appointment of the trustees without approval from MOFCOM in advance.

Trustee responsibilities

Responsibilities of a supervising trustee, as set out in Article 7 of the Divestment Rules, include:

  • supervising the performance of the obligations of the divestiture obligor and regularly submitting supervision reports to MOFCOM
  • evaluating potential candidates for the purchase of the divestment business as recommended by the divestment obligor and evaluating the sales agreement and related documents before submitting supervision reports to MOFCOM
  • supervising the implementation of the sale agreement and other relevant agreements and regularly submitting supervision reports to the Ministry of Commerce
  • being responsible for mediating any disputes between the divestment obligor and potential buyers arising from the divestment and reporting to MOFCOM
  • submitting other reports relevant to the business divestment as MOFCOM may require.

Article 8 states that the divestment trustee shall, under the supervision of MOFCOM, find appropriate buyers and conclude sales agreements and other relevant agreements in light of the time limit and method stipulated in its review decision. The divestment obligor shall give written authorisation to the divestment trustee to deal with the divestment business independently and the divestment trustee shall regularly report to MOFCOM on its progress in finding a buyer for the divestment business. It is, however, not clear to what extent the divestment trustee should consider the financial interests of the divestment obligor when finding a potential buyer for the divestment business.

The divestment obligor is required to provide the supervising trustee and divestment trustee with all necessary support and information required in order for them to perform their duties. The trustees must preserve the confidentiality of any information imparted to them, or learnt by them, during the course of performing their duties.

Neither the supervising trustee or the divestment trustee are allowed to share any reports that they have prepared as part of their responsibilities as a trustee with the divestment obligor, unless they have the prior permission of MOFCOM to do so.

Buyers of a divested business

Article 9 of the Divestment Rules states that the buyers of divested assets should be independent from the businesses participating in the concentration and should have the necessary resources and abilities to maintain and develop the divested business. The purchase of the divestment business will also be subject to antitrust rules and should not result in the elimination or restriction of competition. The buyers are also required to obtain any other regulatory consents necessary prior to purchasing the divested business.

Article 10 states that any agreement between the divestment obligor and the buyer may not contain clauses which are in violation of MOFCOM's original review decision.

Management of the divested business during the procedure

Article 12 states that before the completion of the divestment, the business operators participating in the concentration must perform a number of obligations in order to ensure the value of the divestment business. Business operators must:

  • keep the mutual independence of the divested business and other businesses and conduct management in a method that best serves the interests of the divested business
  • refrain from any act or omission that might have an adverse influence on the divested business, including recruiting the employees of the divested business and obtaining the trade secrets and other confidential information of the divested business, etc
  • designate a special administrator responsible for managing the divested business and ensuring that the business operators adhere to the above. The administrator shall perform duties under the supervision of the supervising trustee, and the appointment and substitution of the administration shall be subject to approval by the supervising trustee
  • ensure that any potential buyers are able to obtain adequate information on the divested business in a fair and reasonable manner in order to allow them to evaluate the value, scope and commercial potentials of divested business
  • provide necessary support and assistance to the buyer, as required, to ensure the smooth transfer and stable operation of divested business
  • promptly transfer the divested business to the buyer and perform all necessary relevant legal procedures.

The role of MOFCOM during divestment proceedings

Whilst it may seem that most of the administrative burdens of a divestment fall upon the divestment obligor and the trustees, MOFCOM will also fulfil several extremely important roles during the divestment.

Article 11 of the Divestment Rules specifies that MOFCOM's duties include evaluating the potential candidates for supervising trustees, divestment trustees and also potential buyers of the divested business. It will also advise on the consignment agreement, the agreement for the sale of the divested business and other relevant agreements that have to be concluded in order to ensure compliance with its original review decision.

However, the Divestment Rules do not specify a time frame in which MOFCOM will complete these steps and it is unclear whether these will be completed within the three month window for completion of the divestment following signing of the sales agreement.

EU comparison

The Divestment Rules appear to be roughly equivalent to the practices imposed by the "Model Texts for Divestiture Commitments" in the European Union. The European Commission also adopts a two-stage process for divestment. The "voluntary divestment" period is known as the "first divestiture period", and the "entrusted divestment" period is known as the "trustee divestiture period". The rules regarding potential purchasers of a divested business and management of the business during the divestment proceedings are also in line with the EC's best practice guidelines. The role of MOFCOM during the divestment proceedings is also similar to that taken by the European Commission.

However, unlike the Divestment Rules the European Commission sets a default overall timeframe for completion of the divestment - being 6 months in the case of divestment in the first divestiture period and an additional 3-6 months for a case in the "trustee divestiture period".

The provisions on trustee responsibilities in Articles 7 & 8 of the Divestment Rules broadly mirror the EC's best practice guidelines, as they both aim to protect the independence of the trustees and to ensure the performance of their duties. However, one major difference is that, in the EC best practice guidelines, the trustees are allowed to send the divestment obligor a non-confidential version of any reports that they submit to the Commission as part of their duties. Conversely, the Divestment Rules prohibit the trustees from sending a copy of any reports that they prepare for MOFCOM without having the prior approval of MOFCOM to do so.

Another difference between the EC model and the Divestment Rules is that the Divestment Rules actually allow longer than the EC does for nominating a supervising trustee - one week in the EC compared to 15 days in the Divestment Rules. However, the time frame for nominating potential divestment trustees is the same as in EU practice.


The Divestment Rules are a welcome addition to the list of implementing regulations, rules and guidelines already published by MOFCOM (and the other bodies responsible for AML enforcement) and are further evidence that China has adapted quickly and effectively since the implementation of the AML. China has already imposed divestment conditions during its clearance of mergers involving Mitsubushi and Lucite, Pfizer and Wyeth and Inbev/AB and the Divestment Rules seem put into writing the processes followed by MOFCOM in these cases.

The publication of the Divestment Rules reinforces the view that AML merger clearance cannot be ignored. The cases referred to above show that MOFCOM is already looking carefully at foreign mergers that affect China and it has stated its intention to take action against national enterprises which disregard the provisions of the AML despite triggering the notification requirements.

For further information or advice, please contact Peter Corne or Charlie Markillie.

Peter Corne
Managing Director

Eversheds, Shanghai
Tel: +86 21 6137 1001

Charlie Markillie

Eversheds, Leeds
Tel: +44 845 498 4037

© Eversheds LLP, 2010