News

On May 21st, JAVY Law Firm hosted the second session of the "New Company Law Key Practices Series," with Executive Director Ge Youshan Esq. and associate Zhao Hongwei Esq. as main speakers, live-streamed online.

Mr. Zhao's Presentation: Zhao shared insights on equity acquisitions through litigation cases. From 2020 to 2022, Zhao's team handled a lawsuit arising from a failed equity acquisition, offering valuable lessons for both non-litigation and litigation practices. Combining insights from the new Company Law and Civil Code, Zhao discussed the case where the acquirer sued the original shareholders for 1.9 billion yuan. Initially, the court ruled that the original shareholders were liable for 65 million yuan, which was later reduced to 45 million yuan on appeal.

Case Overview: The target company, S Company, had a registered capital of 160 million yuan and assets including a dock, an office building, and oil processing facilities. In March 2016, Company L acquired all of S Company's equity from the original shareholders for 70 million yuan, including transferring shareholder debt. During the acquisition process, Company L paid 20 million yuan upfront and took over S Company's operations. However, disputes led to Company L suing to rescind the equity acquisition agreement in 2019, resulting in a protracted legal battle and eventual bankruptcy of S Company.

Litigation Focus: Key litigation points included whether the original shareholders fulfilled their disclosure obligations regarding actual capital contributions. Despite S Company's bankruptcy and Company L's control over its assets for three years, the court ruled to rescind the equity acquisition agreement due to non-disclosure of capital withdrawal by the original shareholders.

Legal Implications: The case highlights the importance of thorough due diligence in verifying the actual capital contributions during equity acquisitions. Zhao emphasized the new Company Law's provisions, which place greater responsibility on acquirers to investigate the sufficiency of registered capital and ensure compliance with legal requirements.

Conclusion: Mr. Zhao's analysis provided practical advice for lawyers handling similar cases and underscored the critical need for meticulous attention to contractual details and statutory obligations in equity acquisitions. The session offered valuable insights into navigating the complexities of the new Company Law in practice.