J & T Capital Watch... the nature of the difference and the internal resolution procedures to be performed.

Published:

2022-01-14

There are different views on the nature of the margin make-up in the academic circles and judicial practice, the author through consulting the relevant literature and judicial cases, found that the nature of the margin make-up and the internal resolution procedures that should be performed still have room for discussion, this paper intends to analyze and discuss the above issues from the perspective of case analysis. I. Nature of a deficiency make-up agreement The nature of the differential make-up agreement is currently divided into three main views in judicial practice, as follows: (I) promise to say A guarantee contract is a contract in which the guarantor and the creditor agree that when the debtor fails to perform the debt due or the circumstances agreed upon by the parties occur, the guarantor is required to perform the debt or assume responsibility. The guarantee contract is the subordinate contract of the main creditor's debt contract. If the main creditor's rights and debts contract is invalid, the guarantee contract is invalid, unless otherwise provided by law. It is common in judicial practice to characterize the "Deficiency Make-up Agreement" as a guarantee contract, and it is also one of the views held by many scholars. Case: dispute over guarantee contract between huarong international trust co., ltd. and kaidi ecological environment technology co., ltd. [(2019) supreme law civil judgment no 560]] Referee's point of view: Whether it is from the core provisions of the "Deficiency Make-up Contract" for the interpretation of the text, or from the interpretation of the contract system, the nature of the contract is in line with the legal characteristics of the guarantee contract. (II) Debt Joins Say According to the general principle of civil law, debt accession means that a third party joins the existing debt relationship, and in terms of the debt itself, the debtor is jointly and severally liable to the creditor, and its legal effect is equivalent to the debt accession creating an independent debt for itself. In contrast to a guarantee, the debt of the debtor is heavier than the debt of the guarantor. Case: Dispute over Securities Trading Contract between Zou Chenghui and Huaxin International Trust Co., Ltd. [(2021) Jingminzong No. 97]] Referee's view: The nature of Zou Chenghui's commitment to make up the difference to Huaxin Trust Company is a debt addition, not a guarantee or guarantee, let alone a subordinate attribute. (III) independent contract says There is also a view that the obligation to make up the difference as a credit enhancement measure, the "difference to make up the agreement" should be an independent contract, not the company to provide external guarantees. Case: Contract Dispute between Anhui Zhongan Financial Asset Management Co., Ltd. and Gansu Gangtai Holding (Group) Co., Ltd. [(2020) Wan 01 Min Chu No. 639]] Referee's point of view: The "Difference Make-up Agreement" in this case is an independent contract, which should be distinguished from the "Guarantee Contract", and the obligation to make up the difference stipulated in the "Debt Restructuring Difference Make-up Contract" is the direct compensation obligation of the difference-making person to the creditor under certain circumstances. To sum up the three cases, the difference in different situations is of a different legal nature. Although the current law of China does not clearly define the nature of the difference make-up agreement, but the Minutes of the National Court Civil and Commercial Trial Work Conference 91. [Nature of the letter-adding document] and the Supreme People's Court on the application of<中华人民共和国民法典>Article 36 of the Interpretation on the Guarantee System (that is, the third party provides similar commitment documents such as balance compensation and liquidity support to creditors as credit enhancement measures, which means to provide guarantee. If the creditor requests the third party to bear the responsibility, the people's court shall determine whether it is guarantee or debt joining according to law, and if it is difficult to determine whether it is guarantee or debt joining, the people's court shall determine it as guarantee. When the commitment document provided by the third party to the creditor does not conform to the guarantee and does not conform to the debt accession, the obligations and responsibilities of the third party to be performed are determined on the basis of the commitment document) and so on. In practice, the company should make a difference-making agreement in accordance with the law, taking into account the true purpose of the agreement and the true intention of the parties. II. Internal company resolution procedures to be performed to make up the difference At present, the laws and regulations have not yet made clear provisions on the specific procedures to be performed for the difference make-up matters, and this paper intends to make a preliminary discussion on the internal resolution procedures to be performed for the difference make-up based on the different nature of the difference make-up. The internal resolution procedure to be performed (I) the shortfall of a guarantee nature. Case: Dispute over Financial Loan Contract between Chongqing Jieer Medical Equipment Co., Ltd. and Chongqing Jiulongpo Sub-branch of Industrial and Commercial Bank of China [(2018) Civil Judgment No. 165 of Chongqing Minchu]] Judging point of view: Article 16 of the company law stipulates that "if a company invests in other enterprises or provides guarantee for others, it shall be decided by the board of directors or the shareholders' meeting or the general meeting of shareholders in accordance with the provisions of the articles of association; if there is a limit on the total amount of investment or guarantee and the amount of individual investment or guarantee in the articles of association, it shall not exceed the prescribed limit. Where a company provides a guarantee for the shareholders or actual controllers of the company, it must be resolved by the shareholders' meeting or the general meeting of shareholders". In this case, in accordance with the provisions of the articles of association of the Company (the obligor of the difference payment) when the "Letter of Commitment to Make up the Difference" was issued on November 20, 2017, a decision on the Company's investment in other enterprises or the provision of guarantees for others shall be made with the unanimous consent of the Board of Directors in advance, otherwise the decision shall be invalid. Jieer Company and ICBC Jiulongpo Sub-branch (creditors) both recognize that the Letter of Commitment for Deficiency Compensation is a guarantee. However, ICBC Jiulongpo Sub-branch has not submitted evidence to prove that the issuance of the Letter of Commitment for Deficiency Compensation has been unanimously approved by the shareholders and the board of directors of Jieer Company. Therefore, the creditor's claim that the obligor for deficiency compensation shall bear joint and several guarantees is not supported. Lawyer's Summary: As far as the difference compensation agreement with the nature of guarantee is concerned, the relevant cases (for example, the Supreme People's Court (2019) Supreme Law Civil Judgment No. 560, (2019) Supreme Law Civil Judgment No. 877) have been clearly defined, and the resolution procedures of the board of directors or the shareholders' meeting shall be carried out in accordance with the Company Law and the articles of association of the company. (II) internal resolution procedures to be performed to make up the difference in the nature of debt accession. Case: Dispute over Financial Loan Contract between Beijing Branch of China CITIC Bank Co., Ltd. and Letv Information Technology (Beijing) Co., Ltd. [(2019) Supreme Law No. 1438]] Judgment View: The Supreme People's Court held that although LeTV's act of joining its shareholder LeTV Holdings's debt is not an act of providing guarantees for shareholders, the company's commitment to the debt to join this direct responsibility should be resolved by the general meeting of shareholders. If the company's participation in shareholder debt is not regulated, it will undoubtedly indulge the parties to circumvent the provisions of Article 16 of the Company Law by joining the debt, making the bar useless. LeTV's intention to join the debt of its shareholder LeTV Holdings has not been passed without a resolution of the general meeting of shareholders or a resolution of the board of directors, which violates the relevant provisions of the "Company Law. As a listed company, LeTV's articles of association are publicized to the public. The articles of association have clear provisions on the company's external guarantees, resolutions of the general meeting of shareholders, and the powers of the board of directors. According to the "Company Law" and the regulations of the industry regulatory authorities, China CITIC Bank should do the necessary duty of care for LeTV's debt joining behavior. Compared with the guarantee liability, the debt borne by the joiner is heavier than that of the guarantor, so the debt joining should comply with the resolution procedure of the general meeting of shareholders or the board of directors stipulated in Article 16 of the Company Law. As a result, it is determined that CITIC Bank is at fault and cannot be identified as a bona fide counterpart. The letter issued by LeTV to CITIC Bank was deemed invalid due to failure to perform the procedures of the shareholders meeting or the board of directors resolution, and it is not binding on LeTV. Lawyer's Summary: As far as the difference compensation agreement with the nature of debt accession is concerned, on the one hand, the liability for debt accession is obviously heavier than that for guarantee contract. At this time, if the agreement is not subject to the internal resolution procedure of the company, according to the legal principle of "light to light", the difference compensation agreement is likely to be deemed invalid. On the other hand, article 23 of the Ninth Minute makes it clear: "The legal representative agrees with the debtor in the name of the company to join the debt and notifies the creditor or expresses to the creditor his willingness to join the debt, and the validity of the agreement is dealt with in accordance with the relevant rules of this summary on the company's provision of security for others." That is, debt accession must be based on the resolution of the company's shareholders (general) meeting, board of directors and other corporate organs as the basis and source of authorization. Therefore, the shortfall that is deemed to be in the nature of debt accession shall be subject to the resolution procedures of the board of directors or shareholders' meeting in accordance with the Company Law and the Articles of Association of the Company. (III) internal resolution procedures to be performed for the shortfall of an independent contract. Case: Contract Dispute between Anhui Zhongan Financial Asset Management Co., Ltd. and Gansu Gangtai Holding (Group) Co., Ltd. [(2020) Wan 01 Min Chu No. 639]] Judgment point of view: the court held that judging from the contents of the contract signed on the same day, the "debt restructuring balance compensation contract" is not the same as the "debt restructuring guarantee contract". The "debt restructuring balance compensation contract" is an independent contract different from the guarantee contract, and the internal examination and approval decision-making procedures for providing external guarantee stipulated in Article 16 of the the People's Republic of China Company Law and the articles of association of Gangtai Holding Company are not of course applicable. The Deficiency Agreement in this case is an independent contract and should be distinguished from the Guarantee Contract. The obligation to make up the difference stipulated in the "Debt Restructuring Balance Making up Contract" is the obligation of the balance making up the difference to the creditor under certain circumstances. The obligation to make up the difference cannot be generalized to the act of providing external guarantees, and the company cannot provide guarantees for others. The relevant provisions of the resolution of the board of directors or the shareholders' meeting or the shareholders' meeting. The debtor's resolution to make up the shortfall should be valid as an independent contract rather than a guarantee contract, even if it has not been subject to an internal decision-making process. Lawyer's Summary: As far as the difference-making agreement is considered as an independent contract is concerned, there are different judgments in judicial practice, and the author tends to think that whether the difference-making agreement with an independent contract needs to perform the internal resolution procedure of the company needs to be judged in combination with the specific content of the difference-making agreement. Three this article summary and suggestion Based on the above analysis, the author recommends the following: 1. In practice, based on the principle of civil law autonomy, judicial cases generally affirm the validity of the obligation to make up the difference. However, in order to avoid disputes, the parties should have a clear understanding of the purpose to be achieved by the difference replenishment document when designing the difference replenishment document, whether it is intended to be used as a guarantee, debt addition or other form of agreement, it is recommended that the relevant agreement be clearly defined around the purpose to be achieved. 2. The difference compensation agreement with the nature of guarantee or debt accession shall perform the internal resolution procedures of the company in accordance with the provisions of Article 16 of the Company Law and the articles of association of the company. There is some dispute as to whether the difference compensation agreement identified as an independent contract requires a corresponding company resolution. For prudent consideration, the author suggests that creditors should also simultaneously review whether the subject of the difference compensation obligation has fulfilled the internal resolution procedure of the company. In particular, as far as listed companies are concerned, in accordance with the Securities Law, the notice on regulating the external guarantee behavior of listed companies (CSRC [2005] No. 120), the measures for the Administration of Information Disclosure of listed companies (revised in 2021) and the Supreme people's Court on the application<中华人民共和国民法典>有关担保制度的解释》规定，上市公司提供差额补足，除须经有权机构的决议程序外，还需要经过公告信息披露程序，否则差额补足协议也存在被认定为无效的法律风险。  </中华人民共和国民法典></中华人民共和国民法典>

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