Corporate Litigation Study. The applicable rules of "cannot be resolved by other means" in the application of company dissolution litigation.
Published:
2020-12-14
Since the theory of China's Company Law has always adhered to the principle of internal autonomy in the affairs of the company and the principle of capital stability, the law only intervenes in the external behavior of the company. However, in reality, the internal contradictions of the company often directly affect the company's operating ability and the interests of related parties through externalization. Therefore, it is necessary for the law to intervene and adjust the internal behavior of the company. This is the appropriate intervention of public power in the economy when private power relief cannot resolve corporate disputes. The company's judicial dissolution system provides a new solution mechanism for practical problems such as "corporate deadlock", which is not only conducive to the improvement of China's corporate system, but also ensures that shareholders can withdraw through judicial dissolution when the company cannot achieve its expected business purposes and business interests, so as to preserve their legitimate interests and reduce the waste of social resources. However, the dissolution of the company must lead to the loss of the main body of the company, and has the irreversibility, is the most severe and destructive result for the company. At the same time, the dissolution of the company involves not only the interests of the company's shareholders, but also the interests of the company's creditors, employees and other related parties. Therefore, the Company Law and its judicial interpretations provide strict restrictions on the dissolution of companies. The determination of whether a company has the conditions for dissolution is actually based on the "operating condition of the company. According to the provisions of Article 183 of China's Company Law, serious difficulties in the operation and management of the company, the continued existence of which will cause significant losses to the interests of shareholders, which cannot be resolved through other means, shareholders holding more than 10% of the voting rights of all shareholders of the company may request the people's court to dissolve the company. However, how to determine that "cannot be solved by other means" is a problem that must be clarified in practice.
Related Cases
(2010) Su Shang Zhong Zi No. 0043
The Court's view:
While emphasizing the pre-procedure of judicial dissolution of the company, Article 5 of the (II) for Judicial Interpretation of the Company Law clearly stipulates that "if the parties cannot make the company survive by consensus, the people's court shall make a timely judgment", otherwise, the excessively lengthy pre-procedure may make the judicial dissolution mechanism of the company useless. In this case, before filing the company dissolution lawsuit, Lin Fangqing had tried to resolve the contradiction with Dai Xiaoming through other channels, such as hiring an intermediary to reconcile and requesting to consult the financial books. The communication between the two sides also involved the revision of Kelley's internal system, the re-election of executive directors and supervisors, and the acquisition of equity. After entering the litigation procedure, the clothing City Management Committee, as the management department, organized the mediation of all parties, and put forward suggestions such as auditing Kelley, amending the articles of association, and hiring professional managers for management. The parties still failed to reach an agreement. 1. the court of second instance, from the point of view of using judicial means to force the dissolution of the company, it gave the parties sufficient time to mediate and organized the parties to explore ways to resolve the deadlock, but to no avail. Accordingly, the Court is of the view that the shareholders of Gloria have exhausted other remedies and are still unable to break the deadlock and meet the conditions for the dissolution of the company through judicial proceedings. In this case, if Lin Fangqing is required to continue to resolve the contradiction through other channels, it will not comply with the provisions of Article 5 of the (II) for Judicial Interpretation of the Company Law, and it will also violate the legislative intent of the pre-procedure for judicial dissolution of the company.
(2015) Xu Shang Zhong Zi No. 00197
The Court's view:
Although according to the provisions of Article 182 of the the People's Republic of China Company Law, serious difficulties occur in the operation and management of the company, and the continued existence of the company will cause major losses to the interests of shareholders, if it cannot be resolved through other means, it holds all the shareholders of the company with voting rights. Shareholders of more than 10% may request the people's court to dissolve the company, however, article 1 of the (II) of the Supreme People's Court on Several Issues Concerning the Application of the the People's Republic of China Company Law further clearly stipulates the dissolution conditions of the company, that is, the dissolved company shall have serious difficulties in the operation and management of the company, and the continued existence will cause significant losses to the interests of shareholders, which is mainly reflected in the serious difficulties in the operation and management of the company caused by the deadlock in the management of the company. If it is allowed to survive, it will result in the loss of shareholders' interests. However, the trial found out that the shutdown of Huaihai Foundry Company was caused by the unified planning adjustment of Xuzhou Municipal People's Government due to environmental protection reasons and the need to move to another place as a whole. The appellant's lawsuit failed to provide evidence to prove that there was a conflict of interest among internal shareholders during the operation of Huaihai Foundry Company, which caused the company's daily management and operation to be unable to make normal decisions. Therefore, according to Article 182 of the the People's Republic of China Company Law, which stipulates that shareholders who "cannot solve the problem through other channels" file a company dissolution lawsuit, under the normal existence of Huaihai Foundry Company, the appellant should bear the corresponding burden of proof for other solutions such as the company's internal remedies have been exhausted, but the appellant failed to provide sufficient evidence in the lawsuit. Therefore, the appellant Nie Qiusheng and others did not have the conditions to sue for dissolution of the company. The original court ruled that it was not improper to reject the lawsuit, and the court upheld it in accordance with the law.
Referee Rules
In addition to a special list of three situations of corporate deadlock, section 183 of the Companies Act also provides for a flexible clause-"other serious difficulties in business management, the continued existence of the company will cause significant losses to the interests of shareholders. "From a legislative technical point of view, this is a precautionary provision. The reason why other remedies, such as mediation, are set up as the pre-procedure for judicial dissolution of the company is that judicial dissolution will lead to the loss of the company's main qualification, and it is non-recoverable, and improper handling may lead to the waste of social resources. However, the cautiousness of the legislation does not equate to the protracted nature of the pre-procedure. For those companies that have fallen into serious economic management difficulties, when disputes cannot be resolved through various other methods, the deadlock can only be broken through the shareholder exit mechanism of judicial dissolution of the company. Therefore, while emphasizing the pre-procedure for judicial dissolution of the company, Article 5 of the (II) for Judicial Interpretation of the Company Law clearly stipulates that "when the parties cannot make the company survive by consensus, the people's court shall make a timely judgment", otherwise, the excessively lengthy pre-procedure may make the judicial dissolution mechanism of the company useless.
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