Recovering Value in the PRC | FTI Consulting

Recovering Value in the PRC

Corporate Finance & Restructuring

August 12, 2014

To maximize recoveries for distressed Chinese companies registered in the Caribbean, our on-the-ground professionals draw on their extensive experience and the expertise of a multi-disciplinary team of specialists located in multiple jurisdictions with proven skills in forensic accounting, investigations, asset tracing, computer forensics and litigation to conduct a comprehensive recovery process and advise on effective solutions with maximized returns.

Over the last two decades, offshore companies have played a key role in bringing foreign investment into the People’s Republic of China (PRC). International investors have structured billions of dollars of investment through offshore holding companies or special purpose vehicles, with the British Virgin Islands (BVI) and Cayman Islands often being the domiciles of choice. Since 2009, changes in PRC regulatory policy on foreign direct investment have also led to BVI and Cayman registered entities being used in Variable Interest Entity (VIE) structures, which allow PRC companies to receive foreign investment in restricted or prohibited sectors and are a means by which PRC entities can list on international stock exchanges.

Today, BVI and Cayman Islands registered entities are common features of PRC and Hong Kong corporate structures:

  • There are over 460,000 active BVI companies and 80,000 Cayman companies in existence;
  • It is estimated that over 50% of these have operations in Asia, especially the PRC; and
  • Around 60% of Hong Kong listed companies are incorporated in the Cayman Islands.

Even though there are many challenges to dealing with distressed investments in the PRC, whether held through VIE structures, Hong Kong listed structures or otherwise, recovering value is by no means impossible. Our experience shows that optimal recoveries are usually made by studiously avoiding a formal insolvency process over an operating entity in the PRC, but rather by gaining control over it, through an appointment over the offshore BVI or Cayman holding company.

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