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Supervisor's role in China

In 1993, the Chinese company law, introduced the role of the Supervisor in China, both for public and private companies. This role is confirmed in the new company law, in force since January 1, 2006 (New Company Law, hereinafter NCL), which requires both WFOEs (wholly foreign-owned companies) and national companies to adopt a Supervisor.

Although the Sino-Foreign Joint Venture has an obligation to adopt a Supervisor if established after 1 January 2006. The number of expected Supervisor is not the same for all companies: Articles 52-57 of the NCL specifically regulate the role and the powers of the Supervisor in the Limited Liabilities Company (similar to the Italian Srl) for which it is also permitted to have a single Supervisor; Articles 118-120 of the NCL instead define specific rules regarding the role of the Supervisor in the Joint Stock Company (similar to the Italian SpA) for which the right to appoint a panel of at least three Supervisor (Board of Supervisors) is essential and the shareholders are granted the right to appoint two-thirds of the board, while the remaining third is appointed by the workers.

The Supervisors remain in office for three years, which may possibly be extended. The role of Supervisor cannot be assumed by everyone and causes of incompatibility are foreseen: the company administrator and members of the board cannot take the position of Supervisor simultaneously to their office (Art.52 NCL), so such as public officials, subjects declared bankrupt, those whose business license has been revoked or who have a substantial amount of outstanding debts. If these subjects are equally elected, the appointment is to be considered invalid. No provision governing the case of appointment of Supervisor external to the company, or imposes as a requirement of the residence in China.

The Supervisor has the power to control the company's financial statements, business management, the compliance of the decisions of the directors with the decisions of the shareholders' meeting. He can also monitor the actions that the directors take in the implementation of their duties, request them to refrain from taking any action that may violate the criminal law or the bylaws of the company, or take the necessary remedies to protect the interest of the company. These requests are not binding, but in any case, the Supervisor can propose the revocation of the managers, administrators, and legal representative at the shareholders' meeting.

Possible criminal liability

The general obligation of loyalty and diligence of the Supervisor (foreseen by art.148 of the NCL also for managers and administrators) is reinforced by provisions of criminal law, the purpose of which is to guarantee the impartial execution of duties and at the same time of protecting company property and assets from theft or "temporary diversion" from its staff. As a rule, the Supervisor does not hold decision-making powers, except for the sole power of administration of the company's assets, and as a rule, he is also immune from indirect liability for corporate crimes. Its powers to control the company's financial statements can potentially lead to liability for indirect corruption crimes by non-state parties (Article 163 of the Criminal Law). Since he can be part of the liquidators of the company, any dissimulation or transfer of ownership will be punished by way of embezzlement (Article 271 Criminal Law) or embezzlement (Article 272 Criminal Law). Other provisions apply to the same actions if they are committed by state personnel to whom tasks have been delegated by private companies.


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