Viewpoint... Legal personality denial system: parent company and subsidiary personality mixing problem and risk prevention and control research.

Keywords: Legal Personality Denial Identification Standard Property Mix Personality Mix.

In 2005, China first introduced the concept of corporate personality denial system in the "Company Law". The revised "Company Law" published in 2013 clarified the legal personality denial system in Article 20. The law stipulates: "Company shareholders shall abide by laws, administrative regulations and articles of association, exercise shareholder rights in accordance with the law, and shall not abuse shareholder rights to harm the interests of the company or other shareholders; the independent status of the company as a legal person and the limited liability of shareholders shall not be abused to harm the interests of the company's creditors. If a shareholder of a company abuses his rights as a shareholder and causes losses to the company or other shareholders, he shall be liable for compensation in accordance with the law. If the shareholders of a company abuse the independent status of the company as a legal person and the limited liability of shareholders to evade debts and seriously harm the interests of the company's creditors, they shall be jointly and severally liable for the debts of the company." However, the 20 provisions do not specify the specific applicable standards for the denial of legal personality. Only in Article 63 of the Company Law, "If the shareholders of a one-person limited liability company cannot prove that the company's property is independent of the shareholders' own property, they shall bear joint and several liability for the company's debts" stipulates the principle that the shareholders self-certify the independence of property when the legal personality of a one-person company is mixed. However, the above provisions are only provisions in principle, which give judges a certain degree of discretion, leading to the phenomenon of different judgments in the same case when dealing with similar cases.

On January 31, 2013, the No. 15 Guiding Case issued by the Supreme People's Court made discussions and guiding opinions on issues related to the denial of legal personality of affiliated companies. However, there are no clear guidelines on the criteria for determining the confusion of legal personality and the applicable subjects, the identification of affiliated companies, and how to determine the confusion of related companies' personalities in judicial practice, the application of section 20 of the Companies Act requires a combination of factors. Therefore, to clarify the applicable conditions, applicable subjects and identification standards of the mixing of corporate personality is still a hot topic in the academic circles, and it is also the significance of this paper.

1, the legal personality denial system.

The legal person personality denial system is based on the protection of the legitimate rights and interests of third parties, in certain circumstances, because the company's legal personality and the company's shareholders, actual controllers, related related companies have the same personality, shareholders abuse the company's legal personality, at this time should not recognize the independent personality of the company's legal person system. At present, according to the provisions of the Company Law, the third party, I .e. the creditor, can only investigate the shareholder's responsibility when claiming the protection of rights. However, with the continuous development of market economy in reality, more and more companies have related behaviors and related transactions. The personality of related companies is mixed, but it is difficult to investigate the responsibility of shareholders. It is a supplement to the limited liability system of shareholders to deny the personality of related companies, it can effectively correct the imbalance of the shareholder limited liability system in the protection of third parties, I .e. creditors, under certain circumstances.

2. Related companies

The definition of related relationship refers to the relationship between the controlling shareholders, actual controllers, directors, supervisors and senior managers of the company and the enterprises directly or indirectly controlled by them, as well as other relationships that may lead to the transfer of the interests of the company, but the enterprises controlled by the state are not only related because they are controlled by the state. Combined with the "the People's Republic of China Tax Collection and Management Law" (hereinafter referred to as the "Tax Collection and Management Law"), the "Detailed Rules for the Implementation of the the People's Republic of China Tax Collection and Management Measures" (hereinafter referred to as the "Detailed Rules for the Implementation of the Tax Collection and Management Measures") and the "Accounting Standards for Business Enterprises No. 36-Related Party Disclosure (2006)", the current legislation in our country mainly uses the standard of actual control relationship to determine related companies. Mr. Zhu Ciyun pointed out in the article "China's company law should establish the rules of lifting the corporate veil", the mixing of related companies refers to: "the external performance of the relevant companies as their own independent legal entities, but in fact in the production and operation of the same, this phenomenon most often occurs in the parent subsidiary, sister companies and other companies in the collection." [1]

3. Parent companies and subsidiaries

This paper mainly studies how to identify the personality mix between the parent company and the subsidiary company in the affiliated company. A parent company and a subsidiary are corresponding legal concepts, and a parent company is a company that owns more than a certain percentage of shares in another company or is able to enjoy actual control over another company by agreement, and has legal personality. A subsidiary is a company in which more than a certain percentage of the company's shares are held by another company or are under the actual control of another company by agreement. Since the shares are controlled by the parent company, the subsidiary is often dominated and controlled by the parent company in its actual operations.

This paper mainly through the interpretation of the "National Court Civil and Commercial Work Conference Minutes" relevant guidelines, the Supreme People's Court guiding cases and the Supreme People's Court open cases of the decision gist, the identification of mixed personality standards to make a comb.

1, independent meaning and independent property.

The determination of whether a parent company and a subsidiary constitute a mix of personality depends on three main aspects: personnel, business and property, of which the mix of property is the key to determining whether a company constitutes a mix of personality.

According to Article 10 of the Minutes of the National Court's Civil and Commercial Work Conference (hereinafter referred to as the "Nine People's Minutes"), the most fundamental criterion for determining whether the personality of the company and the personality of the shareholders are mixed is whether the company has independent meaning and independent property, and the most important manifestation is whether the property of the company and the property of the shareholders are mixed and indistinguishable. In determining whether it constitutes a personality mix, the following factors should be taken into account:

(1) Shareholders use the company's funds or property free of charge without financial records;

(2) The shareholder uses the company's funds to repay the shareholder's debts, or the company's funds are used by the affiliated company free of charge without financial records;

(3) The books of the company are indistinguishable from the books of the shareholders, making the property of the company indistinguishable from the property of the shareholders;

(4) The shareholders' own earnings and the company's earnings do not distinguish, resulting in unclear interests of both parties;

(5) The property of the company is recorded in the name of the shareholder and is occupied and used by the shareholder;

(6) other circumstances of mixed personality.

In the case of personality mixing, the following mixing often occurs at the same time: the company's business and the shareholder's business; the company's employees are mixed with the shareholder's employees, especially the financial personnel; and the company's domicile is mixed with the shareholder's domicile. When the people's court is hearing a case, the key is to examine whether it constitutes a mix of personalities, without requiring the mix of other aspects at the same time, which is only a reinforcement of the mix of personalities.

According to the guiding case No. 15 issued by the guiding case No. 4 of the Supreme People's Court, "Xugong Group Construction Machinery Co., Ltd. v. Chengdu Chuanjiao Industry and Trade Co., Ltd." [2], it can be seen that there are three criteria for judging the mixing of legal personality: personnel mixing, business mixing and financial mixing, of whichPersonnel mix refers to the company in the staffing situation, business mix refers to the company is engaged in similar or the same business, the main judgment criteria for business scope overlap, internal management control and meaning expression confusion three aspects.As for financial mixing, it is reflected in the use of common accounts and the indistinguishability of their respective assets. The reason for the judgment of the second instance of the case for business mixing has such a statement: "the actual operation of the three companies are involved in construction machinery-related business, the distribution process there is a common sales manual, distribution agreement"

(2) Excessive control

There is a relationship of controlling and being controlled between the parent company and the subsidiary company. Therefore, in practice, the parent company often brings the subsidiary company into the management system and system of the parent company to manage together, which easily makes the subsidiary company lose its independent property rights and produces the situation that the parent company controls the subsidiary company excessively. However, excessive control does not necessarily lead to the mixing of the legal personality of the parent company and the subsidiary company.

Excessive control usually refers to the transfer of benefits between parent and subsidiary companies, where the parent company uses its control over the subsidiary to transfer benefits between parent and subsidiary companies or between subsidiaries and affiliates. This abuse of control, if the company's property boundaries are unclear, property is mixed, personality is difficult to distinguish or can not be distinguished, it constitutes the company's personality mix. However, if the abuse of the control right does not result in unclear property boundaries, mixed property, and difficult or indistinguishable personality of each company, it does not constitute mixed personality of the company, and the system of denial of corporate personality is not applicable. Creditors can protect their rights by exercising the right of revocation or claiming that the act is invalid according to law, and the second paragraph of Article 13 of the judicial interpretation (III) of the Company Law applies mutatis, to the extent that the benefits are obtained, the Company shall be liable for supplementary compensation for the portion of the Company's debts that cannot be paid off.

According to Article 11 of the "Minutes of the National Court Civil and Commercial Work Conference" (hereinafter referred to as the "Nine People's Minutes"), the company's controlling shareholders over-dominate and control the company, manipulate the company's decision-making process, and make the company completely lose its independence and become The tools or bodies of controlling shareholders seriously damage the interests of the company's creditors, and the company's personality should be denied, and the shareholders who abuse control shall bear joint and joint liability for the company's debts. Common situations in practice include:

(1) Transfer of benefits between parent and subsidiary companies or between subsidiaries;

(2) Transactions between parent and subsidiary companies or subsidiaries, the proceeds go to one party, but the losses are borne by the other party;

(3) first withdraw funds from the original company, and then set up a company with the same or similar business purpose, to avoid the debts of the original company;

(4) Dissolve the company first, and then set up another company with the original company's premises, equipment, personnel and the same or similar business purposes to avoid the debts of the original company;

(5) Other situations of excessive domination and control.

According to the guidance case No. 163, Jiangsu Textile Industry (Group) Import and Export Co., Ltd. (hereinafter referred to as "Provincial Textile Import and Export Company") and its five subsidiaries substantially merged bankruptcy reorganization case, the brief introduction of the case is as follows:

The registered capital of Jiangsu Textile Import and Export Company is 55 million billion yuan, of which Jiangsu Textile (Group) Corporation (hereinafter referred to as the Provincial Textile Group) accounts for 60.71 percent and the company's trade union accounts for 39.29 percent. The registered capital of provincial light textile company, provincial knitting company, provincial mechanical and electrical company, Wuxi new Su textile company and provincial clothing company (hereinafter referred to as the five subsidiaries) are 10 million yuan, 5 million yuan, 6.37 million yuan, 10 million yuan and 10 million yuan respectively. The provincial textile import and export company accounts for 51% of the investment in the five subsidiaries, and the remaining shares of the five subsidiaries are held by employees.

The case involves the operation and management of six companies,(1) with the exception of Wuxi New Su Textile Company, the rest of the case involves companiesare registered at the same address, and there is a situation where the legal representatives cross-hold positions with each other,In addition, the legal representatives of the five subsidiaries are all senior executives of the provincial textile import and export company, and the financial personnel and administrative personnel also share the same situation. Among them, the five subsidiaries share the financial personnel with the provincial textile import and export company for accounting, and the final approval personnel for payment and reimbursement are the same. (2) The existence of the provincial textile import and export company and five subsidiaries.Business cross-mixingIn the case, the business of the five subsidiaries is specifically arranged by the provincial textile import and export company, and there are a large number of related debts and guarantees between the provincial textile import and export company and the five subsidiaries.

In this case, the court found out after examination that there was a high degree of personality mixing among the six companies involved in the case, which was mainly manifested in:Personnel are highly cross-cutting and have not formed a complete and independent organizational structure. Sharing financial and examination and approval personnel and lacking an independent financial accounting system; The business is highly cross-mixed, forming a highly mixed business entity, which objectively makes it difficult to properly distinguish the income of the six companies. There are a large number of related debts and guarantees among the six companies, resulting in the assets of each company not being completely independent of each other and the liquidation of creditor's rights and debts is extremely difficult.

In this case, the court held that the merger and reorganization of the related enterprises with highly mixed personality and the substantive merger of the related enterprises in a timely manner are in line with the principle requirements of the bankruptcy law on the fair liquidation of creditor's rights and debts and the fair protection of the legitimate rights and interests of creditors and debtors.

From the above-mentioned guiding cases, it can be learned that when the people's court hears a case, the key is to examine whether it constitutes a mix of personality, without requiring other aspects of the mix at the same time, which is only a reinforcement of the mix of personality. When the people's court determines whether a company constitutes a mixed personality, it should make a judgment based on a variety of factors, such as the place where the company is established, the situation of the company's shareholders, controllers and key financial personnel, the company's main business and the purpose of transactions between the company and other companies, the company's tax situation, and the background and performance of specific creditors when signing contracts with the company, should be included in the scope of investigation.

According to the contents of the Jiangsu Provincial Higher People's Court (2019) Su Min Zhong No. 1285 Civil Judgment, the brief introduction of the case is as follows:

On November 5, 2014, Liu Wenshan borrowed 60 million yuan from Jialong Company for a period of 6 months at a monthly interest rate of 1%. Liu Wenshan did not need Jialong Company's consent to transfer the creditor's rights. On November 6, 2014, the Financial Investment Guarantee Company signed a Guarantee Contract with Liu Wenshan, agreeing that the Financial Investment Guarantee Company would provide guarantee to Liu Wenshan in the form of joint and several liability guarantee. From November 12 to 28, 2014, Liu Wenshan transferred 60 million yuan to Jialong Company through his designated account number. However, when the loan matured, Jialong failed to repay it as scheduled. The investment guarantee company informed Liu Wenshan in writing that he was liable for compensation. On April 2, 2017, Liu Wenshan transferred the above-mentioned claims to Shengqiang Company and signed a debt transfer agreement between the two parties, and notified Jialong Company and Financial Investment Guarantee Company. In fact, the financial investment guarantee company is a wholly-owned subsidiary of the financial investment holding group, and its finance, personnel and business are all managed by the financial investment holding group. Shengqiang Company sued Jialong Company, Rongtou Guarantee Company and Rongtou Holding Group, claiming that Jialong Company should return the principal of the loan of 60 million yuan and the loss of interest. Rongtou Guarantee Company and Rongtou Holding Group have mixed personalities and should bear joint and several liability.

Nantong Intermediate People's Court and Jiangsu High People's Court believe that the finance, personnel and business of Rongtou Guarantee Company are under the unified management of Rongtou Holding Group. However, Shengqiang Company has no evidence to prove that the two companies constitute a mix of personalities. Therefore, Shengqiang Company claims that Rongtou Holding Group shall bear joint and several liability on this grounds and will not support it. Shengqiang company refused to apply for retrial.The Supreme Court retrial held that the substantive factor of personality mixing lies in the existence of property mixing,Although there is a large amount of financial transactions between the two companies, the direct funds of the two companies are independent and do not constitute a mix of personalities. Shengqiang Company's retrial application for joint and several liability of the second company is not supported.

The focus of the dispute in this case is whether there is a mix of personalities between the investment guarantee company and the investment holding company, and the main points of the Supreme Court's decision in this court are as follows:

First, from the perspective of equity structure. The ownership structure of the financial investment guarantee company and the "agreement" formed between it and the financial investment holding group. the financial investment guarantee company is a subsidiary of the financial investment holding group. the financial investment holding group carries out unified management of the personnel, business and finance of the financial investment guarantee company. it cannot be directly considered that the financial investment holding group and the financial investment guarantee company have personality mixing.

Second, in terms of funding. Although there are a large number of capital exchanges between Rongtou Guarantee Company and Rongtou Holding Group, according to the "Measures for the Administration of Capital Settlement" and evidence such as on-the-record settlement vouchers and reconciliation letters, the capital ownership of the above-mentioned transactions remains unchanged and is a business model of independent financial accounting. Therefore, it cannot be considered that Rongtou Holding Group and Rongtou Guarantee Company are mixed in property.

Third, from the perspective of cross-personnel. As the Financial Investment Holding Group was established later than the Financial Investment Guarantee Company, and the two companies belong to the parent and subsidiary companies, it is inevitable that the Financial Investment Holding Group will be established with the Financial Investment Guarantee Company.The cross-employment of a small number of personnel and the payment of insurance premiums, but the above-mentioned circumstances are not sufficient to determine that there is a mix of personalities between the two companies.

Based on the above cases, the "Nine People's Minutes" cannot amend the "Company Law" and related judicial interpretations. It is only used as a guide for judges in judicial practice, and cannot be directly cited in judgments. In addition, our country belongs to the background of traditional statutory law countries. Guiding cases are only used as the guiding opinions of judges. This principle should be used for judgments. For non-guiding cases disclosed by the Supreme People's Court, there is no legally binding force on similar cases. Therefore, in judicial practice, the details of each case are different, and the actual situation of the parent and subsidiary companies is different, and the above-mentioned judgment cannot be directly invoked.

(The above cases are only the combing of relevant cases by lawyers of Shandong Zhongcheng Qingtai (Jinan) Law Firm, as a practical point of view, for readers' reference and research only.)

According to the above, the parent company's unified management and control of the personnel, business and finance of the subsidiary company, such as the integrated management and consolidated statements of the subsidiary company, is not of course recognized as the mixing of legal personality between the parent company and the subsidiary company. In judicial proceedings, the existence of a large number of capital transactions, financial reports and other objective evidence to prove the mixing of corporate finance is not of course recognized as the mixing of legal personality.

In practice, with the rapid development of multi-element economization such as the continuous expansion of the company's business scope and the development of the company's group operation mode, many companies will set up subsidiaries and have close ties in business, personnel, finance and other aspects. The behavior itself is not illegal, but the parent company and the subsidiary company should standardize their operations to ensure the independence of legal person expression and legal person property. Specifically, the risk prevention and control of personality confusion should be carried out from the following four aspects.

Based on the industrial and commercial archives and basic information of the enterprise, the domicile registration place of the parent company and the subsidiary company, I .e. the main business place, shall be distinguished to avoid the mixing of the same domicile, factory building, office building, office facilities and equipment and other infrastructure facilities that can be materialized, so as to prevent and control the mixing of the domicile of the company with the domicile of the shareholders and the domicile of the related companies.

According to the gist of the Supreme People's Court's No. 15 guidance case, it can be concluded that if there is overlap between the parent company and the subsidiary company in the business scope, the sharing of sales manuals and distribution agreements in the distribution process should be avoided; the information of the parent company and the subsidiary company should be distinguished when conducting external publicity. In addition, pay attention to the division of business areas, carefully distinguish between the official seals and business seals of the parent company and subsidiaries, and prevent confusion in the use of the official seals of the parent company and subsidiaries, resulting in the confusion of the business of related companies.

Property mixing is the key to determine whether the related company constitutes personality mixing, mainly reflected in the company does not have an independent and sound financial management system. In practice, the parent company's inclusion of subsidiaries in integrated management and consolidated statements is not ipso facto considered to be a mix of personalities, but there is a risk that there is a mix of property between the parent company and subsidiaries in situations where the parent company and subsidiaries share financial books, accounts, and share earnings and share debt and operating expenses.

In the course of the company's operation, the company shall, in accordance with the Company Law, the the People's Republic of China Accounting Law, the Law on the Administration of tax Collection, the basic Standards for Enterprise Accounting and other relevant provisions, strictly and standardize the production of the company's accounting books, accounting statements, and entrust audit institutions to issue professional audit reports, so as to clearly reflect the specific ownership of cash flow from the statement level.

In the use of funds, the company shall use the unit account to carry out business activities abroad, and shall not use the accounts of subsidiaries or shareholders of its own company. No illegal fund transactions shall be conducted between the Company's accounts and the accounts of management personnel, shareholders and affiliated companies, and shareholders and subsidiaries shall not allocate the Company's funds at will to ensure the financial independence of the Company.

In the guidance case No. 15 of the Supreme People's Court, the appointment and removal of senior managers of Nakagawa Communications Industry and Trade Company was controlled by Sichuan Communications Machinery Company, and the court used the relationship between the appointment and removal of senior managers between the companies as an important basis for the determination of organizational mix.

The corporate governance structure mainly includes the institutions that make the intention, including the board of directors, the supervisory board, senior managers and important middle managers. In practice, the parent company and subsidiary companies often have the same appointment of corporate governance structure personnel, and there is consistency in the appointment of the board of directors, the supervisory board, senior managers and important middle managers of the company. Based on the board of directors, the board of supervisors and senior managers, the more overlapping positions of the parent company and the subsidiary company's governance structure personnel, the higher the degree of mixing of the company's governance structure, and the subsidiary company is likely to lose its independent legal personality and decision-making autonomy, resulting in personality mixing. As a result, parent companies and subsidiaries avoid hiring the same personnel at the corporate governance structure level to prevent mixing of corporate governance structures.