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  • JAVY Insight | Executive Series 4: How to add shareholders as the Executees (Part 1)

    Release Time:2022-07-14

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    Editor's note


    When the commercial litigation with the company as the defendant enters the execution stage, and the company as the person to be enforced has no property to enforce, the lawyer's preferred breakthrough is to lift the Corporate Veil - adding the company's shareholders as the person to be enforced. If the shareholder of the company is regarded as the person to be executed, it is naturally best that the shareholder has property under his name for execution; If there is no property to enforce, it will be included in the dishonest person or take measures to restrict high consumption, which will bring inconvenience to his life and is also one of the means to force him to perform his obligations. Next, the author briefly introduces the method and process of adding shareholders as the person to be enforced, as well as the relevant cases of the Supreme People's court.


    01 add the legal situation that the shareholder is the executee


    At the end of December 2013, the Standing Committee of the National People's Congress revised the company law. In principle, the new law cancels the statutory restrictions on the minimum amount of registered capital, the time of capital contribution and the form of capital contribution, and changes it to be decided by shareholders themselves. The investment system established by the new law is very flexible, giving investors a lot of choice. The main purpose is to reduce the threshold of company access and stimulate the entrepreneurial and innovative vitality of market players. However, the rules of the new law are also easy to be abused, resulting in damage to the interests of the company or creditors. Therefore, it is of great practical significance to add shareholders to the implementation procedure. According to Articles 17 to 22 of the provisions of the Supreme People's Court on Several Issues concerning the alteration and addition of parties in civil execution (hereinafter referred to as the provisions on alteration and addition), the statutory additions include the following six types:


    (1) Shareholders and contributors have not paid or have not paid their contributions in full - Article 17 of the provisions on changes and additions

    (2) Withdrawal of capital contributions by shareholders and contributors - Article 18 of the provisions on changes and additions

    (3) The original shareholder transferred his equity without fulfilling his obligation of capital contribution - Article 19 of the provisions on changes and additions

    (4) Shareholders of one person limited liability company - Article 20 of the provisions on changes and additions

    (5) Cancellation of the company without liquidation - Article 21 of the provisions on changes and additions

    (6) When the company is dissolved, the shareholders and investors accept the company's property free of charge - Article 22 of the provisions on changes and additions


    02 shareholders and contributors have not paid or not paid their contributions in full


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    Relevant regulations

    Article 17 of the provisions on changes and additions: as a profit-making legal person who is the subject of enforcement, the property is not enough to pay off the debts determined by the effective legal documents, and the people's court shall support the application of the applicant for enforcement to change or add the shareholders, contributors or initiators who are jointly and severally liable for the capital contributions in accordance with the company law as the subject of enforcement, if they are legally liable within the scope of the unpaid capital contributions.


    Applicable premise

    (1) The company's assets are insufficient to pay off the debts determined by the effective legal instruments.

    After the commencement of the enforcement procedure, the court has completed the inquiry of the bank account, real estate, vehicles, stocks, funds and other information under the name of the person subjected to enforcement through the online inspection and control system, and there is still no property available for enforcement after the person subjected to enforcement has been included in the list of dishonesty and high consumption has been restricted. Generally, it can be recognized as "exhausted enforcement measures" after the Court issues the ruling on the termination of this enforcement procedure.


    If the property of the person subjected to execution has been investigated and prosecuted but the execution is difficult, the court will also issue a final ruling. There are cases in the Supreme Court that there is property but it cannot be enforced, which can also constitute "the property is insufficient to pay off the obligations determined by the effective legal documents". See (2021) Supreme Court min Shen case No. 2404 for details.


    (2) Shareholders, contributors or promoters who are jointly and severally liable for such contributions in accordance with the provisions of the company law have not paid or have not paid their contributions in full.


    (3) The application executor applies for change and addition.

    About "unpaid or underpaid capital contribution". It refers to the fact that the paid in date has expired, but the shareholders have not paid the capital contribution within the time specified in the articles of association, because the shareholders freely agree on the time of paid in capital contribution, which is the term interest given to shareholders by law. Shareholders only violate the provisions of the articles of association and the legal provisions and need to bear corresponding responsibilities if they have not paid up until the actual payment date announced by the public trust institution.


    About "underpaid capital contribution". In judicial practice, the subscribed capital contribution is recorded in the articles of association through the registered capital and registered in the publicity and public trust department; The paid in capital contribution is a fixed item recorded in the company's financial statements, and the difference between the two is the unpaid part. If it is monetary contribution, it is easier to identify; If it is a non monetary contribution, the identification may be complicated due to the lack of quantitative indicators.


    About accelerated expiration. According to Article 35 of the enterprise bankruptcy law of the people's Republic of China: after the people's court accepts the bankruptcy application, if the debtor's capital contribution has not fully fulfilled its obligation of capital contribution, the administrator shall require the contributor to pay the subscribed capital contribution, which is not limited by the time limit of capital contribution. Paragraph 1 of Article 22 of Interpretation II of the company law: "at the time of dissolution of the company, the capital contributions that have not been paid by shareholders shall be regarded as liquidation property. The capital contributions that have not been paid by shareholders include the capital contributions that are due and payable, and the capital contributions that have not yet been paid by installments in accordance with Articles 26 and 80 of the company law." Section 2 of the minutes of the nine people's meeting: "under the registered capital subscription system, shareholders enjoy the interests of the term according to law. If creditors request shareholders who have not reached the deadline of capital contribution to bear supplementary liability for the company's unliquidated debts within the scope of capital contribution on the grounds that the company cannot repay its due debts, the people's court will not support it. However, the following cases are excluded: (1) In the case where the company is the person to be enforced, the people's court has exhausted the enforcement measures and has no property to enforce, and has the reason for bankruptcy, but does not apply for bankruptcy; (2) After the company's debts are incurred, the shareholders' meeting (general meeting) of the company decides or otherwise extends the period of shareholders' capital contribution. "


    The above statutory accelerated expiration situation is all the provisions on accelerated expiration in China at present. Judicial practice is cautious about other situations requiring accelerated expiration. From the above two articles, under the registered capital subscription system, although the articles of association stipulates a clear period of capital contribution, because the opposite party of the obligation of capital contribution is the company, the period of capital contribution stipulated in the articles of association cannot exceed the duration of the company, so the bankruptcy or compulsory liquidation of the company is regarded as the expiration of the period of capital contribution stipulated in the articles of association. However, there are two exceptions stipulated in the minutes of the nine people's meeting. One is that the company, as the case subject to execution, has exhausted the implementation measures and still has no property to implement. If it has bankruptcy reasons but does not apply for bankruptcy, it will accelerate the expiration according to Article 35 of the enterprise bankruptcy law. Another situation is that after the company's debts are incurred, the shareholders' meeting of the company decides to extend the period of shareholders' capital contribution to avoid the company's creditors requiring shareholders to perform the obligation of making up their capital contributions when the company is unable to perform its debts. According to the legal theory, the company gave up the creditor's rights that would be due to shareholders, which damaged the interests of the company's creditors, and the company's creditors exercised the cancellation right.


    Supreme law case

    (1) (2020) supreme law min Shen No. 6999 - no property available for enforcement recognition standard

    According to the supreme law, "the execution court found no property available for execution after property investigation, and ruled to terminate this execution procedure. Therefore, it was not improper to determine that the person subjected to execution had no property available for execution."


    (2) (2020) supreme law min Shen No. 4443 - recognition criteria for unpaid or underpaid capital contributions

    According to the supreme law, "shareholders who have not paid or not paid their capital contributions in full" refers to shareholders who have not paid their subscribed capital contributions in full on schedule. When Yang Chuanxin transferred the equity involved in the case on April 27, 2017, his capital contribution was subscribed on January 1, 2044, and he enjoyed the interests of the time limit for the payment of capital contributions according to law, which did not belong to the situation of failing to pay capital contributions in full on schedule. It was not inappropriate for the court of first instance to reject Li Jiong's claim. "


    (3) (2020) supreme law min Shen No. 1601 - recognition standard of land use right contribution

    The supreme law holds that: "According to the facts ascertained by the court of first instance, the contribution of land use right stipulated in the articles of association of Xuanwei company involves a land area of 48043 square meters, of which only 18435 square meters of land use right has been paid in place, and the remaining 29698 square meters of land have not been transferred to Xuanwei company. Therefore, the judgments of first and second instance found that it is not improper for AI Tonglin not to fully perform the corresponding contribution obligations. AI Tonglin said that he has contributed 29698 square meters of land to The claim of position lacks factual and legal basis and cannot be established. "


    (4) (2021) supreme law min Shen No. 2404 - having property but temporarily unable to enforce, it can be determined that the property is insufficient to pay off the debts determined by the effective legal instruments

    The Supreme Court held that: "in this case, according to the facts ascertained in the first and second instance, (2019) Jin 04 Zhi No. 163-1 execution ruling states:" the court in this case has exhausted the means of execution, and the property found is inconvenient to dispose of. The applicant for execution does not agree to terminate this execution procedure, but the case cannot be executed for the time being, and this execution procedure should be terminated. " In combination with the fact that Changzhi Meilong company also stated that there was no other property available for execution, the second instance found that the case was in line with the provisions of the Supreme People's Court on Several Issues concerning the alteration and addition of parties in civil execution, "the situation that the property is insufficient to pay off the debts determined by the effective legal documents" was not lack of basis. "


    03 shareholders and investors withdraw their contributions

    Relevant regulations

    Article 18 of the provisions on changes and additions: as a profit-making legal person who is the subject of enforcement, the property is not enough to pay off the debts determined by the effective legal documents, and the shareholders and contributors who apply for enforcement to apply for changes and additions to the capital contribution are the subject of enforcement, and are responsible within the scope of capital contribution withdrawal, the people's court shall support them.

    Article 12 of the provisions of the Supreme People's Court on Several Issues concerning the application of the company law of the people's Republic of China (III): "after the establishment of the company, if the company, shareholders or creditors of the company request to determine that the shareholder has withdrawn his capital contribution on the ground that the acts of the relevant shareholders meet one of the following circumstances and damage the rights and interests of the company, the people's court shall support: (1) making false financial and accounting statements to falsely increase profits for distribution; (2) Transfer out its capital contribution through fictitious creditor's right and debt relationship; (3) Use related party transactions to transfer out capital contributions; (4) Other acts of withdrawing the capital contribution without legal procedures.


    Article 17 of the provisions of the Supreme People's Court on several issues of property investigation in civil execution: if the legal person or other organization as the person subjected to execution fails to perform the obligations specified in the effective legal documents, and the applicant for execution believes that it has the situation of refusing to report or falsely reporting the property, concealing or transferring the property and other situations of evading debt, or its shareholders and investors have the situation of making false capital contributions or withdrawing capital, It may apply in writing to the people's court to entrust an audit institution to audit the person subjected to execution. The people's court shall decide whether to grant permission within ten days from the date of receiving the written application.


    Applicable premise


    (1) The company's assets are insufficient to pay off the debts determined by the effective legal instruments.

    (2) Shareholders or contributors withdraw their capital contributions.

    (3) The application executor applies for change and addition.

    The regulation lists three types of capital withdrawal, but in practice, the forms of capital withdrawal are diverse, and the enumeration is difficult to exhaust, so it is difficult to identify the behavior of capital withdrawal in judicial practice. Generally, the evidence of shareholders' withdrawal of capital contributions can be obtained through audit execution, and clues can also be found from the business files of the company in the bank account, but the above means need the assistance of the court or other institutions, otherwise it is difficult to obtain evidence.


    Supreme law case


    (1) (2020) supreme law min Shen No. 7040 - preliminary burden of proof for the implementation of audit

    According to the supreme law, "the applicant for enforcement (the retrial applicant) believes that the shareholder of the person subjected to enforcement may have the behavior of withdrawing his capital contribution, and applies to the court to obtain the company's account books for audit. The court of first and second instance believes that the plaintiff should bear the burden of proof for his claim, and if he cannot provide evidence, he should bear the adverse consequences, so he is judged to lose the lawsuit. The Supreme People's court also believes that the applicant for enforcement (the retrial applicant) The failure to provide the shareholders with the preliminary burden of proof that they deliberately carried out acts directly against the company's capital damage is not enough to determine that their application for evidence is the main evidence necessary to determine the basic facts of the case. "


    (2) (2020) supreme law min Shen No. 4964 - standard type of capital withdrawal

    According to the supreme law, "Liu Huimin was registered as a shareholder of the company, and his capital contribution was returned to his personal account after entering the company's account. The fact that he withdrew his capital contribution is clear, so adding Liu Huimin as the executee in this case and assuming supplementary liability for the company's debts within the scope of withdrawing his capital contribution is not contradictory to (2019) supreme law min Shen No. 1171."


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