Point of View... The determination of the shareholders of the limited company to bear supplementary liability.

Published:

2022-07-25

The the People's Republic of China Company Law, which came into effect on March 1, 2014, stipulates that limited liability is subject to a registered capital subscription system, which is the total amount of capital contributions subscribed by all shareholders of the company and represents the creditworthiness of the company. The implementation of the registered capital subscription system has lowered the threshold for the establishment of a company and greatly stimulated market vitality. However, the company's limited liability has also brought many difficulties to the company's creditors to realize their own rights and interests, because some companies are just a shell and have no Fixed assets and funds have caused the company's creditors to sometimes win the lawsuit and cannot realize their own rights. At this time, in order to realize their own interests, creditors should consider the shareholders to bear supplementary liability in addition to suing the company. The basis for the shareholders of 1. Co., Ltd. to assume supplementary liability. (I) law 1. Companies Act of the People's Republic of China The first paragraph of Article 28 stipulates that shareholders shall pay in full and on time the amount of capital contributions they have paid as stipulated in the articles of association. 2. the People's Republic of China Enterprise Bankruptcy Law Article 35 stipulates that after the people's court accepts the bankruptcy application, if the debtor's contributor has not fully fulfilled its capital contribution obligations, the administrator shall require the contributor to pay the capital contribution paid, without being limited by the time limit of the capital contribution. (II) judicial interpretation 1. The Supreme People's Court on the application<中华人民共和国公司法>(III) on Certain Issues Article 12 stipulates that after the establishment of the company, if the company, shareholders or creditors of the company request that the shareholder withdraw his capital contribution on the grounds that the behavior of the relevant shareholder conforms to one of the following circumstances and damages the rights and interests of the company, the people's court shall support it: (1) making false financial and accounting statements to inflate profits for distribution; (II) transferring his capital contribution through fictitious creditor's rights and debt relationship; (III) transferring his capital contribution through related transactions; (IV) other acts of withdrawal of capital contributions without legal procedures. The second paragraph of Article 13 stipulates that if the creditors of the company request the shareholders who have not fulfilled or fully fulfilled their capital contribution obligations to bear supplementary compensation liability for the unpayable part of the company's debts within the scope of the principal and interest of the unfunded capital contribution, the people's court shall support it; if the shareholders who have not fulfilled or fully fulfilled their capital contribution obligations have already assumed the above-mentioned responsibilities, the people's court shall not support the same request. The second paragraph of Article 14 stipulates that the shareholders of the company's creditors who request the withdrawal of capital contributions shall bear supplementary liability for the part of the company's debts that cannot be paid off within the scope of the principal and interest of the withdrawal of capital contributions, and other shareholders, directors, senior managers or actual controllers who assist in the withdrawal of capital contributions Where the people bear joint and several liability for this, the people's court shall support it. 2. Provisions of the Supreme People's Court on Several Issues Concerning the Alteration and Addition of Parties in Civil Enforcement Article 17 stipulates that as a profit-making legal person subject to execution, the property is not enough to pay off the debts determined by the effective legal documents, and the applicant for execution applies for changes, additional shareholders, investors or shareholders who have not paid or have not paid in full capital contributions in accordance with the provisions of the Company Law. If the promoter who bears joint and several liability for the capital contribution is the person subject to execution, the people's court shall support it. (III) reference Minutes of the National Court Conference on Civil and Commercial Trials (Law [2019] No. 254) 6. Under the registered capital subscription system, shareholders enjoy the benefits of the term in accordance with the law. The people's court shall not support the creditor's request that the shareholders of the outstanding capital contribution period bear supplementary liability for the debts that the company cannot pay off on the grounds that the company cannot pay off the debts due. However, the following circumstances are excluded:(1) in the case of the company as the executed person, the people's court has exhausted the enforcement measures and has no property to enforce, and has the reasons for bankruptcy, but does not apply for bankruptcy;(2) after the company's debts are incurred, the company's shareholders (General Assembly) will decide or otherwise extend the period of shareholders' capital contribution. 2. Judgment Rules on Supplementary Liability of Shareholders of Limited Companies (I) Judgment Rules: If the company's property is not sufficient to pay off the debts determined by the effective legal instrument, the applicant for execution shall have the right to apply for the change or additional withdrawal of capital contribution as the executed shareholder, and the shareholder who has withdrawn the capital contribution shall bear supplementary liability for the part of the company's debt that cannot be paid off within the scope of the principal and interest of the capital contribution. Case 1: Xinjiang xingwo machinery technology service co., ltd., yin qun and Zhang yingcai, Xinjiang fuxing new materials co., ltd., Hangzhou Huiqun industrial investment co., ltd. and Kuqa xinfa mining co., ltd. applied for execution of the second instance civil judgment of objection [Xinjiang Uygur autonomous region higher people's court (2021) xinmin zong no 101] The court held that it was necessary to determine whether the following circumstances existed when it was found that the shareholders who had withdrawn their capital contributions had to bear supplementary liability for the unliquidated portion of the company's debts within the scope of the principal and interest of the withdrawn capital contributions: 1. Determine whether the company as the executed person belongs to the situation of "the company's property is insufficient to pay off the debts determined by the effective legal instrument". After court investigation, it is sufficient to confirm that Xinfa Company has not actively promoted the extension of the validity period of the prospecting right and has the auction conditions, resulting in Xingwo Company's creditor's rights to Xinfa Company still unable to be paid since 2016. The current property status of Xinfa Company belongs to the situation that "the company's property is insufficient to pay off the debts determined by the effective legal documents. 2. Determination of whether shareholders constitute a withdrawal of capital contributions (1) Determine whether the payment and other related actions are normal business practices of the company. That is, even if the ultimate interests of the company are impaired as a result of the relevant transaction, the transaction should not be considered as a withdrawal of capital contributions if the shareholders are not subjectively malicious at the time of the transaction and it is a normal operation of the company. In short, it cannot be concluded that a related company transaction is a withdrawal of capital contributions solely on the basis that the transaction ultimately results in actual damage to the company's interests. (2) If the capital is transferred out after the registered capital is paid in, although it cannot be directly identified as the withdrawal of capital contribution, when the time and amount of the transferred money are derived from the registered capital, and there is reasonable doubt about the existence of the withdrawal of capital contribution, since the creditor cannot query the bank accounts or financial books of the target company and its shareholders, the target company or its shareholders can only provide rebuttal evidence, it is proved that the transferred capital contribution is reasonable, is used for the normal operation of the company, and has gone through the legal procedures of the company, otherwise it shall bear the adverse consequences of the failure of the proof. Case 2: Shandong Weishan Lake Mining Group Co., Ltd., Jin Han Construction Co., Ltd. and other outsiders executed the second instance civil judgment of objection [Shandong Zibo Intermediate People's Court (2022) Lu 03 Min Zhong No. 158] The court held: 1. Weishan Lake Mining Group claimed that the above-mentioned 19 million transfer was the normal operation of the enterprise, but it could not explain the purpose of the money involved in the case and did not submit relevant basic transaction evidence. Therefore, Weishan Lake Mining Group constituted a withdrawal of registered funds from Jiuxing Longtai Company. 2. The above-mentioned frozen and sealed-up property of Jiuxing Longtai Company is not enough to pay off the debts determined by its effective judgment, and Weishan Lake Mining Group is added as the person to be executed, and it is in accordance with the law to assume responsibility within the scope of the withdrawal of capital contributions. (II) Judgment Rules: If a shareholder reduces the capital contribution without legal procedures, he shall be liable for supplementary compensation for the company's unliquidated debts. Case: Hebi Haichuang Industrial Transformation and Development Investment Fund, Zibo Haoxiang Wear-resistant Material Co., Ltd. and others have decided to apply for retrial and review of civil rulings on contract disputes [Henan Higher People's Court (2021) Yu Min Shen No. 8169] The court held that the shareholders of a limited liability company should not only fulfill the obligation of full capital contribution, but also that the capital contribution paid by the shareholders shall not be withdrawn or reduced without legal procedures. In this case, under the condition that Changye Chemical Company failed to fulfill its notification obligation to creditor Haoxiang Company, its shareholder Haichuang Fund and others reduced their capital through the resolution of the company's shareholders' meeting, which violated the principle of unchanged capital and capital maintenance of the company. It is no different in essence from the infringement of creditors' interests caused by shareholders' failure to fulfill their capital contribution obligations and withdrawal of capital contribution. Therefore, the company's shareholders cannot be exempted from the responsibility for the capital reduction. Although the company law theoretically distinguishes between substantial capital reduction and formal capital reduction, there is no clear distinction in China's current company law. Moreover, whether the company's capital reduction is substantial capital reduction or formal capital reduction, the beneficiaries of the capital reduction are all shareholders of the company. As for whether Haichuang Fund has recovered the capital reduction from Changye Chemical Company, it is its internal operation and does not affect its external responsibility. In summary, Haichuang Fund shall bear supplementary liability for the debts owed by Changye Chemical Company to Haoxiang Company within the scope of capital reduction. (III) Judgment Rules: If a prominent shareholder withdraws his capital contribution, he shall bear supplementary liability for the company's debts within the scope of the capital contribution. Case: Jiangsu Yangzhong Port Investment Development Co., Ltd., China Shipping Engineering Construction General Administration Co., Ltd. and other construction project contract disputes second-instance civil judgment [Hubei Higher People's Court (2021) E Min Zhong No. 133] The court held that: the case formed a complete chain of evidence, sufficient to prove that Yangzhong Development Company in the Shenghao Port Company after the capital contribution of 0.2 billion yuan to the use of fictitious creditor's rights and debts to transfer the capital contribution, constitute a withdrawal of capital contribution, should bear the corresponding legal responsibility. Yangzhong Development Company claims that the relationship between it and Shenghao Investment Company is an equity holding relationship, the Court believes that even if the holding is true, according to the effectiveness of the equity registration publicity, does not affect the legitimate rights of creditors to prominent shareholders, Yangzhong Development Company in the withdrawal of capital contribution of 0.2 billion yuan to bear the corresponding supplementary liability. (IV) Judgment Rules: If the period of contribution has not expired, the shareholders shall not be liable for compensation for the company's debts within the scope of the unfunded principal and interest. Case: Chongqing Shangcheng Landscape Art Co., Ltd. and Shanxi Boxin Construction Engineering Co., Ltd., Shanxi Shanggu Tourism Development Co., Ltd. and other construction project contract disputes retrial civil judgment [Shanxi Higher People's Court (2020) Jin Min Zai No. 270] The court held that the second paragraph of Article 13 of the "(III) of the Supreme People's Court on Several Issues Concerning the Application of the the People's Republic of China Company Law" stipulates: "The company's creditors request shareholders who have not fulfilled or fully fulfilled their capital contribution obligations to be within the scope of the principal and interest of the unfunded capital contribution. If the company's debts cannot be repaid, the people's court shall support it." This provision applies to the situation where the shareholder's capital contribution is due and fails to fulfill the capital contribution obligation. According to the second paragraph of Article 3 of the the People's Republic of China Company Law, which was amended and implemented on March 1, 2014, "the shareholders of a limited liability company shall be liable to the company to the extent of the amount of capital contribution they have paid; the shareholders of a joint stock limited company shall be liable to the company to the extent of the shares they have subscribed." It can be seen that the registered capital of a limited liability company is subject to a subscription system, under which shareholders enjoy the benefits of the term. The ancient travel company in the company's articles of association agreed that the shareholder subscription period is October 18, 2025, there is no violation of the law. Therefore, in accordance with the provisions of Article 13, paragraph 2, of the (III) of the Supreme People's Court on the Application of the the People's Republic of China Company Law, the original court ruled that Shangcheng Garden Company should bear supplementary compensation liability to Boxin Construction Company for the unpayable part of the debts of the ancient tourism company within the scope of the unfunded principal and interest. (V) Judgment Rules: In the case of the company as the executed person, the people's court has exhausted the enforcement measures and has no property to enforce, and has the reasons for bankruptcy, but does not apply for bankruptcy, the shareholders who have not reached the period of capital contribution shall bear supplementary liability for the debts that the company cannot pay off within the scope of capital contribution. (VI) Judgment Rules: After the company's debts arise, if the company's shareholders (large) will resolve or otherwise extend the period of shareholders' capital contribution, the shareholders who have not made the period of capital contribution shall bear supplementary liability for the company's unpayable debts within the scope of the unfunded capital contribution. (VII) Judgment Rules: After the People's Court accepts the bankruptcy application, if the debtor's contributor has not fully fulfilled its capital contribution obligations, the administrator shall require the contributor to pay the capital contribution paid, and the contributor shall bear supplementary liability for the company's unpayable debts within the scope of the unfunded contribution, without being limited by the period of contribution.</中华人民共和国公司法>

Key words:

Supplement, company, capital contribution, shareholder, commitment, liability, compensation, settlement, can not.