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  • JAVY Insight | The legal liability definition of the company's liquidation obligation subject failing to perform the liquidation obligation

    Release Time:2022-08-04

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    In judicial practice, many companies do not perform their liquidation obligations after dissolution, and some companies even evade debts in the name of dissolution, which seriously damages the interests of creditors and endangers the market order. To solve this problem from the legal level, we first need to clarify the main responsibility of the company's liquidation obligor. The civil code and the company law of China have made preliminary provisions on the liquidation obligors of companies and their legal liabilities. Articles 18, 19 and 19 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 (II) (hereinafter referred to as "Interpretation II of the company law") The provisions of Article 20 and the minutes of the civil and commercial trial work meeting of the national courts (hereinafter referred to as the "minutes of the nine people") further stipulate this issue.


    When the company is dissolved, who has the legal liquidation obligation? How to recognize that the liquidation obligor has not fulfilled the liquidation obligation? What legal liability does the subject who fails to perform the liquidation obligation need to bear? These three issues are the key to understand the subject system of corporate liquidation obligations. This paper intends to clarify the legal boundary that the subject of liquidation obligations should be liable to creditors through the interpretation of the relevant provisions of the civil code, the company law and relevant judicial interpretations.


    one Scope of subjects of liquidation obligations of the company


    To understand the subject system of liquidation obligations, we must first clarify who is the subject of liquidation obligations. The subject of liquidation obligation refers to the person who has the obligation of liquidation according to law after the dissolution of the company. Its legal obligation is to start the liquidation procedure as scheduled in accordance with the law to achieve the purpose of terminating the company after the company is dissolved due to the expiration of the business term, the need for dissolution due to merger or division, the resolution of the shareholders' meeting or the revocation of its business license.


    The second paragraph of Article 70 of the Civil Code stipulates (the same as Article 70 of the original general provisions of the civil code): the members of the executive or decision-making bodies such as directors and directors of legal persons are liquidation obligors. Where laws and administrative regulations provide otherwise, such provisions shall prevail. According to the interpretation of this article by the legislature, the executive body and directors stipulated in Article 70 of the civil code refer to the executive body and its members of the for-profit legal person, the decision-making body and its members of the non-profit legal person are the decision-making body and its members [1], and the for-profit legal person mainly refers to limited liability companies and joint stock limited companies. In other words, the basic attitude of the civil code is to attribute the responsibility subject of liquidation obligations to the members of the executive organ of profit-making legal persons, namely, the directors of limited liability companies and joint stock limited companies.


    However, Article 183 of the company law also stipulates that "... The liquidation group of a limited liability company is composed of shareholders, and the liquidation group of a joint stock limited company is composed of directors or personnel determined by the general meeting of shareholders..." Literally, it seems to put the shareholders of the company into the ranks of the subject of liquidation obligations of the company. In addition, Article 18 of Interpretation II of the company law also stipulates that "if the shareholders of a limited liability company, the directors and controlling shareholders of a joint stock limited company fail to establish a liquidation group to start liquidation within the statutory time limit, resulting in the depreciation, loss, damage or loss of the company's property, and the creditors claim that they are liable for compensation for the company's debts within the scope of the losses caused, the people's court shall support them in accordance with the law." Does the above conflict with the civil code, the superior law?


    The author believes that the subject of liquidation obligations of the company is only the executive body of the company, that is, the members of the board of directors, and shareholders are not the subject of liquidation obligations of the company. The reasons are as follows.


    First of all, the liquidation obligation mainly refers to the behavior obligation, not the result obligation. The judgment standard of whether to perform the liquidation obligation is whether the liquidation obligor takes feasible measures within its scope of authority to promote the start of the liquidation procedure and assist the liquidation group to carry out the liquidation work, rather than whether to finally start the liquidation procedure and complete the liquidation work. [2] In other words, the members of the liquidation group are not equal to the subject of liquidation obligations, and the liquidation responsibilities of the liquidation obligors are completely different from those of the members of the liquidation group. The liquidation obligor is the person who is responsible for organizing and establishing the liquidation group and starting the liquidation procedures, and the members of the liquidation group are the members of the executive organ (liquidation group) of the company's liquidation affairs and the executors of the liquidation affairs. [3] Article 183 of the company law only stipulates the composition of the company's liquidation group, rather than directly stipulates the subject of liquidation obligations. It cannot directly infer that shareholders are the liquidation obligors of the company based on the provisions of Article 183 of the company law on the composition of the liquidation group. Therefore, Article 183 of the company law does not conflict with Article 70 of the civil code.


    Second, Article 18 of Interpretation II of the company law does not stipulate that the company's (controlling) shareholders are the liquidation obligors of the company. In practice, there are two ways for the controlling shareholder or actual controller of the company to participate in or control the operation and management of the company: one is to directly become a director of the company. At this time, according to the provisions of the civil code, he has no objection as a liquidation obligor; The other is to recommend or indirectly control the directors of the company. At this time, they are not directors of the company and have no obligation to form a liquidation group and start liquidation procedures. However, if the controlling shareholders or actual controllers of the company use their control over the directors of the company to hinder the commencement of liquidation procedures, it belongs to the abuse of shareholders' rights or related relationships stipulated in Articles 20 and 21 of the company law. Creditors can safeguard their own interests through the legal personality denial system, rather than investigate their responsibilities based on their violation of liquidation obligations. In this regard, the Supreme People's court also made it clear in the reference and application opinion of the No. 9 guiding case that "the actual controller is not the liquidation obligor, and has no obligation to organize the liquidation of the company, and only bears the liability for tort compensation when his behavior causes the company to not organize liquidation or cannot be liquidated". [4]


    Article 282 of the latest "Company Law (Revised Draft) for comments (2021)" also clearly states: "... Directors are the liquidation obligors of the company...", while this expression does not appear in the 2018 version of the "company law", which to a certain extent reflects that China's law has made it clear that directors are the only liquidation obligors of the company.


    To sum up, the author believes that the directors of limited liability companies and joint stock limited companies are liquidation obligors, who have the liquidation obligation to organize and establish a liquidation group and start liquidation procedures, while the company's shareholders are only candidates for the liquidation group, and have no obligation to organize and establish a liquidation group and start liquidation procedures. The abuse of shareholders' rights or related relationships by the company's shareholders or actual controllers to hinder the commencement of liquidation procedures belongs to the scope of other systems (such as the system of denial of corporate personality).


    two Scope of obligations of the subject of liquidation obligations of the company


    After clarifying "who is the liquidation obligor", the answer is "what is the scope of responsibility of the liquidation obligor". The core purpose of the liquidation of the company is to clear up the creditor's rights and debts before the termination of the company. If the obligatory subject is lazy to liquidate the company after the dissolution of the company, it will inevitably damage the interests of creditors, and the obligatory subject of liquidation should be liable for compensation to creditors.


    First of all, the content of the liquidation obligation stipulated in Article 70 of the civil code is "to form a liquidation group in time for liquidation", and the content of the liquidation obligation stipulated in Article 18 of the judicial interpretation of the company law (II) is also "a liquidation group shall be established within the statutory time limit to start liquidation". The relevant provisions on the content of liquidation obligations in these two places are relatively general.


    Second, according to the provisions of Article 18 of the judicial interpretation of the company law (II), failure to perform liquidation obligations includes "failure to establish a liquidation group to start liquidation within the statutory period, that is, failure to perform liquidation obligations at all", and "failure to liquidate in time despite the establishment of a liquidation group". Accordingly, we can at least summarize the liquidation obligation as "establishing a liquidation group".


    Third, from the perspective of legal consequences, according to the provisions of Article 18 of the judicial interpretation of the company law (II), failure to perform liquidation obligations in time may lead to "depreciation, loss, damage or loss of the company's property", and failure to perform liquidation obligations may lead to "loss of the company's main property, books and important documents". On the contrary, the specific content of the liquidation obligation should include the proper custody of the company's property, account books and main documents. The judge who participated in the formulation of the judicial interpretation also believed that the liquidation obligation here includes the obligation to properly keep the company's property, account books and main documents. [5]


    Fourth, under the circumstance that Article 183 of the company law stipulates that "if the liquidation group is not established within the time limit, the creditor can apply to the court to organize the liquidation group for liquidation", the creditor has the possibility to exercise this right only when he knows that the debtor's company has the cause of dissolution and has not established the liquidation group within the time limit. Therefore, only by interpreting "timely informing the creditors of the dissolution of the company" as one of the liquidation obligations of the liquidation obligor, can the creditors be prompted to exercise the rights of Article 183 of the company law in order to safeguard their legitimate rights and interests, and then can the liquidation obligor be prevented from being investigated by the creditors for bearing excessive joint and several liability for repayment because it is unable to start the liquidation procedure within the time limit.


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    (the picture is quoted from the network)

    To sum up, the specific content of the liquidation obligation should be defined as the following three items: first, organize and establish a liquidation group within the legal period to start the liquidation procedure; Second, actively assist the liquidation group in its work, and hand over or provide the company's account books, properties and other important documents or clues that determine the progress of liquidation procedures to the liquidation group; Third, if the liquidation procedure cannot be started due to objective reasons or the failure of the company's internal governance procedures, the creditors shall be notified in time or the dissolution of the company shall be announced.


    three Identification of the main body of the company's liquidation obligation being lazy in performing its obligations


    "Laziness in performing obligations" is a negative omission of legal obligations, and the subjective fault is intentional or negligent. The "delay in performing obligations" stipulated in paragraph 2 of Article 18 of the judicial interpretation (II) of the Company Law refers to the fact that the shareholders of the company do not start liquidation procedures, do not establish a liquidation group for liquidation, do not take the initiative to clean up the main assets of the company, and do not take the initiative to manage the company's accounts and important documents after the occurrence of legal liquidation causes. As a result, the rights and interests of creditors of the company are damaged. The legal basis of the above judicial interpretation is the theory of denial of corporate personality and the theory of infringement of creditor's rights. Therefore, the liquidation obligor should meet the following constitutive requirements to bear the above liquidation compensation liability:


    ❐ first, there is a violation of liquidation obligations. According to Article 183 of the company law and the previous discussion on the content of liquidation obligations, the acts of liquidation obligors in violation of liquidation obligations can be manifested in the following three situations:

    The first is the failure to start the liquidation procedure in time, that is, the failure to organize and establish a liquidation group within 15 days after the occurrence of the cause of dissolution of the company; The second is that the liquidation obligor has organized and established a liquidation group, but does not cooperate with the liquidation group to carry out liquidation, resulting in the inability of liquidation procedures; The third is the direct cancellation of the company without fulfilling the liquidation obligations, resulting in the elimination of the company's personality and the inability to liquidate. For non liquidation obligors, although they have no liquidation obligation, if there is an act such as controlling the directors of the company or directly damaging the company's account books and other important documents required to start liquidation procedures, it is a violation of the negative obligation not to hinder liquidation, and it may also constitute infringement.


    ❐ second, the actor is at fault. The liquidation obligation requires the obligor to take positive actions. If it does not actively perform the liquidation obligation, it meets the fault element of tort liability. At this time, the breach of the liquidation obligation by the liquidation obligor to the pre-existing liquidation obligation is enough to be evaluated as subjective malice. However, for the non liquidation obligor, because it does not bear the liquidation obligation, at this time, if it is required to bear the tort liability, it should also meet the subjective malicious judgment standard. This subjective malicious judgment standard also needs to be objectively judged by whether the non liquidation obligor does not cooperate with the work of the liquidation obligor and hinders the normal start of the liquidation procedure. [6]


    ❐ third, the occurrence of damage, that is, the interests of creditors are damaged. That is, creditors' debts cannot be paid off by the company. Specifically, the liquidation obligor did not start the liquidation procedure in time, which led to the depreciation or loss of the company's property, which led to the company's inability to pay off the debts of creditors in full. The scope of creditors' losses was the part of the company's debts that could not be paid off due to the depreciation or loss of the company's property; Due to the liquidation obligor's delay in performing the liquidation obligations, the company's account books and other important documents are lost or the company's registration is directly cancelled due to the non performance of the liquidation obligations, resulting in the company's inability to liquidate, which leads to the company's inability to pay off the debts of creditors. The scope of creditors' losses can be directly determined as the total amount required to pay off the debts of creditors.


    ❐ fourth, there is a causal relationship between behavior and damage, that is, the derogation, loss or inability to liquidate the company's property is caused by the liquidation obligor's failure to perform the liquidation obligation in time or his delay in performing the liquidation obligation. For the injurious acts of non liquidation obligors, it is required that the derogation of the company's property or the inability to liquidate is caused by the injurious acts of non liquidation obligors.


    During the trial of the case, if some minority shareholders have evidence to prove that they have taken positive measures to fulfill their liquidation obligations, such as requiring the controlling shareholders or other shareholders to carry out liquidation, they can effectively sue the shareholders for "being lazy in fulfilling their obligations".


    The minutes of the civil and commercial trial work meeting of the national courts (2019) (hereinafter referred to as the "minutes of the nine people") holds that the "delay in performing obligations" stipulated in paragraph 2 of Article 18 of the judicial interpretation of the company law (II) refers to the negative behavior of shareholders of a limited liability company who deliberately delay or refuse to perform their liquidation obligations when they are able to perform their liquidation obligations after the occurrence of legal liquidation reasons, or fail to perform liquidation due to negligence. If a shareholder proves that he has taken positive measures to perform his liquidation obligations, or a minority shareholder proves that he is neither a member of the board of directors or the board of supervisors of the company, nor has he appointed a person to serve as a member of the organ, and has never participated in the operation and management of the company, and claims that he should not bear joint and several liability for the company's debts on the ground that it does not constitute "failure to perform his obligations", the people's court shall support it according to law.


    Proof and defense in the compensation case of the subject of company liquidation obligation

    According to the existing case judgment rules in judicial practice, the court, according to the provisions of Interpretation II of the company law, the liability to creditors for failing to fulfill the liquidation obligation belongs to tort liability. The plaintiff's proof and defendant's defense in the compensation case of the subject of the company's liquidation obligation should focus on whether there is infringement, whether it causes damage consequences, whether there is a causal relationship between the behavior and consequences, and whether the subject of the liquidation obligation has subjective intent or negligence. At the same time, since the creditor's claim for shareholders' compensation for losses belongs to the right of infringement, the right of claim also applies to the provisions of limitation of action. If the right of claim has expired, the shareholders can defend and exempt from liability on this ground. At the same time, shareholders can also defend on the ground that the creditor's rights of the company against the company have exceeded the limitation period.


    ❐ (I) identification and defense of "delayed performance of obligations"

    After the occurrence of legal liquidation causes, the shareholders of the company deliberately delay or refuse to perform the liquidation obligations when they are able to perform the liquidation obligations, or the negative behavior of being unable to perform the liquidation due to negligence is recognized as "delaying the performance of obligations", and the creditors of the company who have been damaged should be compensated. If a shareholder proves that he has taken positive measures to fulfill his liquidation obligations, such as requiring the controlling shareholder or other shareholders to carry out liquidation, or if a minority shareholder proves that he is neither a member of the board of directors or the board of supervisors of the company, nor has he appointed a person to serve as a member of the organ, and has never participated in the operation and management of the company, it does not constitute "failure to fulfill his obligations", which can be used as a defense, It claims that it should not be jointly and severally liable for the company's debts.


    ❐ (II) identification and defense of the causal relationship between "failure to perform obligations" and the company's inability to liquidate

    According to the judicial interpretation (II) of the company law, creditors claim that they should be jointly and severally liable for the company's debts when the company's main property, account books, important documents, etc. cannot be liquidated due to their delay in performing their obligations. In other words, the shareholders prove that there is no causal relationship between their negative omission of "being lazy in performing their obligations" and the result of "the loss of the company's main property, account books, important documents and the inability to liquidate", and can claim that they should not bear joint and several liability for the company's debts.


    ❐ (III) identification and defense of the creditor's rights of the company over the limitation of action

    Limitation of action refers to the legal system in which the obligee fails to exercise his rights within a certain period of time, and the obligor can refuse to perform his payment obligations after the expiration of that period [7]. According to Article 188 of the civil code, the limitation period of action for requesting the people's court to protect civil rights is three years. Where there are other provisions of the law, such provisions shall prevail.


    The limitation period shall be calculated from the date when the obligee knows or should know that the right has been damaged and the obligor. Where there are other provisions of the law, such provisions shall prevail. However, if it is more than 20 years since the date of damage to the right, the people's court will not protect it. Under special circumstances, the people's court may decide to extend it on the basis of the application of the obligee.


    In the case where the creditors of the company request the shareholders to bear joint and several liability for repayment of the company's debts, if the creditors of the company know or should know that the limitation period of action is more than three years from the date when the company cannot be liquidated, the shareholders can defend on the ground that the creditor's rights of the company against the company have exceeded the limitation period of action.


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