Corporate Litigation Study... The practical points of the company's division dispute.

Introduction

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The division dispute of the company refers to all kinds of disputes caused by the company in the implementation of the division. According to the law, the separation of the company will not only lead to major changes in the rights of the relevant subject entity, but also once the relevant provisions are violated, it is very easy to cause disputes, in practice, it is precisely because of the rights and interests of creditors, shareholders, the effectiveness of resolutions and other provisions or agreements lead to more disputes. Based on the experience of handling such cases, this paper discusses the point of convergence between legal provisions and trial practice, helps companies and shareholders to avoid the legal risks of the company's separation stage to the greatest extent, and provides a path to resolve such disputes.

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1. related regulations

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(I) law

1. Companies Act of the People's Republic of China

Article 175 When a company is divided, its property shall be divided accordingly. When a company is separated, it shall prepare a balance sheet and a list of property. The company shall notify its creditors within 10 days from the date of making the resolution on division, and make a public announcement in the newspaper within 30 days.

Article 176 The company after the division shall be jointly and severally liable for the debts of the company before the division. However, unless otherwise agreed in a written agreement between the company and its creditors on the settlement of debts prior to the division.

Article 177 [Company Capital Reduction] When a company needs to reduce its registered capital, it must prepare a balance sheet and an inventory of its property.

The company shall notify the creditors within 10 days from the date of making the resolution to reduce the registered capital, and make a public announcement in the newspaper within 30 days. The creditor shall have the right to require the company to pay off its debts or provide corresponding guarantee within 30 days from the date of receipt of the notice, or within 45 days from the date of announcement if the notice is not received.

Article 180 Where a company merges or splits and the registered items are changed, it shall register the change with the company registration authority in accordance with the law; where the company is dissolved, it shall register the cancellation of the company in accordance with the law; where a new company is established, it shall register the establishment of the company in accordance with the law.

If a company increases or decreases its registered capital, it shall register the change with the company registration authority in accordance with the law.

2. the People's Republic of China Contract Law

Article 44 A lawfully formed contract shall take effect upon its formation.

Where laws and administrative regulations stipulate that formalities such as approval and registration shall be gone through shall take effect, such provisions shall be followed.

(II) administrative regulations

Regulations on the Registration of the People's Republic of China Companies

Article 38 A company existing as a result of a merger or division shall apply for registration of change if its registered items change; a company dissolved as a result of a merger or division shall apply for cancellation of registration; a company newly established as a result of a merger or division shall apply for registration of establishment.

Where a company merges or splits, it shall apply for registration 45 days after the date of the announcement, and submit the merger agreement and the merger or split resolution or decision, as well as the relevant certificates of the company's merger or split announcement published in the newspaper and the explanation of the debt settlement or debt guarantee. Where laws, administrative regulations or decisions of the State Council stipulate that the merger or division of a company must be submitted for approval, the relevant approval documents shall also be submitted.

(III) judicial interpretation

1. (V) of the Provisions of the Supreme People's Court on Several Issues concerning the Application of the the People's Republic of China Company Law

Article 5 The people's court shall pay attention to mediation when trying a case involving major differences among shareholders of a limited liability company. If the parties agree to resolve their differences in the following ways, and do not violate the mandatory provisions of laws and administrative regulations, the people's court shall support: (5) company separation.

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Overview of 2. Litigation

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(I) a party to the separation agreement fails to perform its contractual obligations, the newly established company petitions to continue to perform the contract.

Plaintiff: newly established company

Defendant: A party (including the original company or the nominal holder of the original company's assets) who is obligated to perform under the separation agreement.

Litigation request: determine the litigation request according to the agreement of the division contract.

Jurisdiction: Judging from the subject matter, if it is a real estate dispute, the provisions of the Civil Procedure Law on the exclusive jurisdiction of real estate shall apply. If it is not immovable property, it shall be under the jurisdiction of the people's court of the place where the company is domiciled in accordance with the special territorial jurisdiction determined in Article 26 of the Civil Procedure Law. If there is an agreement on jurisdiction in a separate contract, the agreed jurisdiction shall apply according to the rule that the agreed jurisdiction takes precedence over the jurisdiction of the special territory.

If the (II) shareholder fails to perform the obligation of assistance, the other shareholders of the separated company shall sue the shareholders to perform the obligation of assistance and cancel the shares held by the shareholders in accordance with the separation agreement.

Plaintiff: other shareholders of the split company

Defendant: Shareholders who do not perform their obligation to assist

Third Person: Separate Company

Litigation request: 1. The defendant assists the plaintiff to the administrative department for industry and commerce of the place where the third party division company is registered to handle the company division registration procedures according to the resolution of the shareholders' meeting; 2. Cancellation of the shareholder qualification of the third party company held by the defendant 3. The litigation expenses shall be borne by the defendant.

Jurisdiction: In principle, the people's court of the company's domicile shall have jurisdiction over the special territorial jurisdiction determined in accordance with Article 26 of the Civil Procedure Law. If there is an agreement on jurisdiction in a separate contract, the agreed jurisdiction shall apply according to the rule that the agreed jurisdiction takes precedence over the jurisdiction of the special territory.

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3. Disputes and Judgment Rules

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One of the focal points of the (I) dispute: the simultaneous transfer of part of the company's property and debt is the separation of the company.

Case: dispute over loan guarantee and entrusted agency between the Export-Import Bank of China, Guangzhou South China Rubber Tire Co., Ltd., Guangdong Branch of Industrial and Commercial Bank of China and Guangzhou Wanbao Refrigerator Co., Ltd., Guangzhou Wanbao Refrigerator Electric Appliance Co., Ltd. [Supreme people's Court (2001) Min Er Zhong Zi No. 166 Civil judgment]

The Supreme People's Court held that in the restructuring of Wanbao Electric Appliance Company, part of the company's property was divested from the company along with part of the debt and merged into Wanbao Refrigerator Company. When part of the property and debt of the company is directly separated from the company and established as a new company, it will constitute a simple division of the company. If there is no consent of creditors, the divided company shall bear joint and several liabilities for the debts of the company before the division; if the part of property and debt is separated and merged with other existing enterprises, it will constitute a merger and division. If there is no consent of creditors, the enterprise that accepts the divided property shall be jointly and severally liable for the debts of the company before the division within the scope of the value of the accepted property. Judging from the actual situation of this case, the restructuring of Wanbao Electric Appliance Company and Wanbao Refrigerator Company constitutes a merger and division. The debt division arrangement made by Wanbao Electric Appliance Company and Wanbao Refrigerator Company and other parties in the Transfer Agreement is not effective for the Export-Import Bank because it has not obtained the consent of the creditor Export-Import Bank, wanbao Refrigerator Company shall be jointly and severally liable for the debts of Wanbao Electric Appliance Company within the value of the property of Wanbao Electric Appliance Company. Therefore, the appellant Export-Import Bank's appeal that Wanbao Refrigerator Company should bear the debts owed by Wanbao Electric Appliance Company was established, and the Court supported it.

The second focus of the (II) dispute: the legal consequence of violating the provisions of the notice announcement procedure of the company's separation is that the company cannot use its separation against creditors, rather than denying the validity of the separation agreement.

Case: Jilin Hengxin Industrial Co., Ltd., Shen Xiaolong, Shen Xiaojia and Shen Xiaolin's Dispute over Damage to the Company's Rights and Interests [Supreme People's Court (2014) Min Shen Zi No. 905 Civil Ruling]

The Supreme People's Court held that the "Agreement" signed by Shen Xiaojia, Shen Xiaolong and Shen Xiaolin on July 3, 2000 stated that Hengxin Company is a Shen family enterprise. After deducting the share of equity certificates held by cadres and employees in important positions from the owner's equity of Hengxin Company, Shen Xiaolong holds 55% of the shares, Shen Xiaojia holds 25% of the shares and Shen Xiaolin holds 20% of the shares. Shen Xiaolong served as the chairman of the board, Shen Xiaojia served as the general manager of the company, and Shen Xiaolin served as the company's deputy general manager and manager of the road and bridge company. The above three people formed the company's executive board of directors to make decisions on major issues of the company. As Shen Xiaojia, Shen Xiaolong and Shen Xiaolong are brothers, the agreement is that Shen Xiaolong takes the equity ratio recorded in the industrial and commercial registration of Hengxin company as the common property of Shen family and distributes it among the three brothers. The agreement does not damage the rights and interests and shares of other shareholders of Hengxin company, nor does it violate the mandatory provisions of laws and administrative regulations, It should be recognized as legal and effective. According to the agreement, whether Shen Xiaojia and Shen Xiaolin actually contributed to Hengxin Company cannot be the standard to measure whether they enjoy the equity and exercise the rights of shareholders. The determination that Shen Xiaolong, Shen Xiaojia and Shen Xiaolin hold 99.2 percent of the company's equity is based on the fact that Hengxin Company has increased its capital, and is not inconsistent with the basic fact that Li Yajie contributed 60000 yuan before the company's capital increase, accounting for 5.7 percent of the company's registered capital of 1.06 million yuan. Therefore, the applicant Hengxin Company and Shen Xiaolong's application reason that Shen Xiaojia and others cannot become shareholders and enjoy shareholder rights without actual capital contribution cannot be established, and the Court will not accept it. The background of the signing of the "Property Division Agreement of Hengxin Industrial Co., Ltd." in this case is that under the circumstances of discord between brothers, after the mediation of four witnesses including Wang Jun, Shen Xiaolong and the other three, on the basis of mutual understanding, Hengxin Some of the company's assets and debts were divided in order to maintain the harmonious atmosphere of the Shen family. The content of the property division agreement involves the withdrawal of the company's shareholders from the company, the division of the company's fixed assets, the transfer of claims and the assumption of debts, and is similar in nature to the company's separation agreement. In this case, although the act of dividing the company's property carried out by Shen Xiaolong and others did not perform the legal procedures such as the resolution of the shareholders' meeting, notification of creditors and announcement in accordance with the provisions of the Company Law, it is not appropriate to deny the legal effect of the property division agreement on this ground. On the one hand, judging from the formation of the company's shareholders' intention, Hengxin Company itself is a family enterprise in which Shen Xiaolong, Shen Xiaojia and Shen Xiaolin jointly hold the controlling shares by agreement. The shares held by other shareholders except Shen Xiaolong's wife Li Yajie are all from the gift of Shen Xiaolong, and these other shareholders were all working in Hengxin Company at that time. It should be known that Shen Xiaolong and other three people have signed a property division agreement, and other shareholders did not take the initiative to raise objections after the signing of the division agreement. Therefore, the validity of the agreement before the shareholders cannot be denied on the sole ground that the agreement was not a procedural defect in the resolution of the shareholders' meeting at the time of signing. On the other hand, the procedures for notification of creditors and announcements provided for in the Company Law on the separation of companies are designed to protect the interests of creditors, and the legal consequence of violating the above provisions is that the company cannot use its separation against creditors, rather than denying the legal effect of the separation agreement among the shareholders of the company. Therefore, on the basis of considering the shareholding ratio of Shen Xiaolong and other three people and the actual situation of other shareholders choosing to work in the separated company respectively, the original judgment found that the property division agreement was valid and correct, and the court confirmed it. The applicant Hengxin Company and Shen Xiaolong's application reasons for the invalidity of the property division agreement in violation of legal procedures have no factual and legal basis, and this court will not support it.

(III) Dispute Point III: Company Separation Dispute and Separation Agreement

Case: Shandong Higher People's Court (2015) Lu Shang Zhong Zi No. 360

1. on the first focus, that is, how to determine the effectiveness of the asset distribution agreement involved. First, Huasheng Trading Company is jointly funded and managed by Yan's family. Although Huasheng Trading Company was registered under Yan Dianliang and Zhang Aimin when it was established in April 1999 and changed to Yan Dianliang and Yan Diandong in March 2008, the facts involved in the case show that Yan Dianliang, Zhang Aimin and others are only nominal investors, and the registered equity shares are only nominal equity arrangements. Huasheng Trading Company is actually jointly funded and managed by Yan's family. Yan Dianliang's appeal claim that he holds 74% of the shares in Huasheng Trading Company and Yan Diandong holds 26% is inconsistent with the facts. Second, the asset distribution agreement in question has the power of legal agreement. Yan Dianliang and Yan Diandong signed a number of agreements from 2009 to 2010. Some agreements were signed and confirmed by their mothers, and some agreements were witnessed by the separation team. The above-mentioned agreements are not only the distribution of the assets of Huasheng Trading Company, but also Yan's family. The separation of property is the true intention of all parties. The content does not violate the prohibitive provisions of laws and administrative regulations and is legally binding. Although Yan Dianliang claimed that the asset distribution agreement involved in the case was signed by coercion, he did not provide sufficient evidence to prove it, nor did he request to cancel it within the statutory time limit. On this basis, Yan Dianliang argued that the above agreement was invalid and could not be established.

2. on the second focus issue, that is, whether the cash and real estate advocated by Yan Dianliang should be returned. According to Yan Dianliang's statement during the second trial, he believed that the assets of Huasheng Trading Company should be distributed according to the proportion of 74% and 26%, and the cash and real estate requested to be returned were 24% of Yan Diandong's distribution. In this regard, the Court believes that, first of all, as mentioned above, the proportion of equity registered by Huasheng Trading Company is only a nominal equity arrangement, and the proportion of assets allocated to Huasheng Trading Company cannot be determined accordingly. Secondly, the above-mentioned cash and real estate advocated by Yan's family belong to the distribution of the operating income of Huasheng Trading Company, and the corresponding distribution behavior is either based on the asset distribution agreement, or has voluntarily gone through the property rights registration procedures, all belong to the true intention of the parties, the content is legal and effective. Therefore, Yan Dianliang's claim for return lacks factual and legal basis and cannot be established.