Article 166, paragraphs 1, 2 and 5 of the the People's Republic of China Company Law (hereinafter referred to as the Company Law) stipulates that "when a company distributes its after-tax profits for the current year, it shall withdraw 10 percent of the profits and include them in the company's statutory provident fund. If the accumulated amount of the company's statutory provident fund is more than 50% of the company's registered capital, it may not be withdrawn. If the statutory provident fund of the company is not sufficient to make up for the losses of the previous year, the profits of the current year shall be used to make up for the losses before the statutory provident fund is withdrawn in accordance with the provisions of the preceding paragraph. If the shareholders' meeting, the general meeting of shareholders or the board of directors violates the provisions of the preceding paragraph and distributes profits to shareholders before the company makes up for losses and withdraws the statutory provident fund, the shareholders must return the profits distributed in violation of the provisions to the company."

From this, it can be seen that the standard process for the company to distribute the after-tax profits of the current year to shareholders is as follows: first, if the company has losses in previous years and the existing statutory provident fund is not enough to make up for them, the company shall make up for the losses with the after-tax profits of the current year before distributing the after-tax profits of the current year, 10% of the after-tax profits of the current year shall be withdrawn and included in the company's statutory provident fund-if the total amount of the statutory provident fund withdrawn by the company has reached 50% (inclusive) or more of the registered assets, the second step may not be carried out; The third step, if the second step is completed or the second step is not required, the company will distribute profits to shareholders.

The above-mentioned provisions of the Company Law stipulate that if the company distributes profits to shareholders in violation of the above-mentioned standard process, the shareholders must return the profits distributed in violation of the provisions to the company, but the Company Law and its judicial interpretation do not make further provisions on what legal liability the shareholders will bear as a result of their refusal to return the profits and how to bear them. Based on this, in order to avoid that shareholders may still be responsible for the company's debts after fulfilling their full capital contribution obligations, and accordingly, in order to explore a feasible way to improve the debt settlement rate of the company's creditors, this paper intends to take the relevant provisions of Article 166 of the Company Law as the basis for the right of claim, and at the same time, with reference to the current legal provisions and judicial interpretations, to study and analyze the resulting shareholder liability and form a tendentious conclusion.

According to the provisions of Article 166, paragraph 5, of the Company Law, if a company distributes profits to its shareholders before making up its losses and withdrawing its statutory provident fund, the shareholders must return the profits distributed in violation of the provisions to the company. Then:

If a 1. distributes profits to its shareholders before making up its losses and withdrawing its statutory provident fund, and the shareholder fails to cooperate in returning the profits distributed in violation of the regulations to the company after the company's notice, can the company sue the shareholder for returning the profits?

Under this question, the author believes that:

(I) company has the right to sue the shareholder for the return of profits.

Article 3 of the the People's Republic of China Civil Procedure Law stipulates that "the provisions of this Law shall apply to the acceptance of civil proceedings brought by citizens, legal persons, other organizations and between them for property and personal relations." Article 27 stipulates that "lawsuits arising from disputes over the establishment of a company, the confirmation of shareholders' qualifications, the distribution of profits, dissolution, etc. shall be under the jurisdiction of the people's court in the place where the company is domiciled." Article 122 stipulates that "a prosecution must meet the following conditions: (1) the plaintiff is a citizen, legal person or other organization that has a direct interest in the case; the (II) has a clear defendant; the (III) has specific claims, facts and reasons; the (IV) falls within the scope of the people's court accepting civil actions and the jurisdiction of the people's court accepting the action."

Accordingly, the company may, as the plaintiff, take the shareholder who refuses to return the profits distributed in violation of the regulations to the company as the defendant, and sue the people's court of the company's domicile, asking the shareholder to return the profits distributed in violation of the regulations to the company.

(II)The case for prosecution should be a dispute over the distribution of the company's surplus.

The Notice of the Supreme People's Court on Issuing the Revised Provisions on the Cause of Action in Civil Cases stipulates that there are a total of 26 3. four-level causes of action for "company-related disputes". The causes of action that may meet the requirements of this case include disputes over the validity of company resolutions, disputes over liability for damaging the interests of the company, and disputes over the distribution of surplus of the company.

1. Disputes over the validity of the company's resolution.

Only from the reasons caused by the lawsuit, since the company's distribution of profits to shareholders before making up for losses and withdrawing statutory provident fund must be based on the effective resolution of the shareholders' meeting or the shareholders' meeting or the board of directors that specify the specific distribution plan made by the shareholders' meeting and the shareholders' meeting. Therefore, the requirement that shareholders return the profits distributed in violation of the regulations to the company shall be based on the premise that the aforementioned shareholders' meeting or the resolution of the shareholders' meeting or the board of the board of the board of directors is invalid, the litigation discussed herein appears to be closely related to corporate resolution disputes.

However, according to Article 2 of the (IV) of the Supreme People's Court on Several Issues Concerning the Application of the the People's Republic of China Company Law, "the plaintiff who requests the revocation of the resolution of the shareholders' meeting or the general meeting of shareholders or the board of directors in accordance with Article 85 of the Civil Code and the second paragraph of Article 22 of the Company Law shall have the qualification of a shareholder of the company at the time of the lawsuit." Paragraph 1 of Article 3 stipulates that "in a case where the plaintiff requests confirmation that the resolution of the shareholders' meeting or the general meeting of shareholders or the board of directors is not established, invalid or revoked, the company shall be listed as the defendant. Other interested parties involved in the resolution may be listed as third parties in accordance with the law." It can be seen that the company resolution validity confirmation dispute and the litigation discussed in this article the role of the original defendant is opposite, so the cause of the case may be difficult to determine the company resolution validity confirmation dispute.

2. Liability disputes that harm the interests of the company.

Article 20, paragraphs 1 and 2, of the Company Law stipulates that "shareholders of a company shall abide by laws, administrative regulations and the articles of association of the company, exercise their rights as shareholders in accordance with the law, and shall not abuse their rights to harm the interests of the company or other shareholders; they shall not abuse their independent status as legal persons and their limited liability to harm the interests of the company's creditors." It follows that if a shareholder of a company abuses his rights as a shareholder and causes losses to the company, the company may act as a plaintiff and sue the shareholder as a defendant for compensation for the company's losses.

However, a dispute over liability for damage to the company's interests refers to a claim action initiated by a company in the event that a particular shareholder abuses the rights of shareholders to cause losses to the company. The litigation discussed in this paper is due to the violation of the relevant provisions by the shareholders' meeting, the general meeting of shareholders or the board of directors to distribute profits to shareholders before the company makes up for losses and withdraws the statutory provident fund, I .e. the subject of abuse of rights is the shareholders' meeting, the general meeting of shareholders or the board of directors, rather than specific shareholders. Therefore, it is not quite appropriate to bring this case on the grounds of a dispute over liability for damage to the interests of the company.

3. Disputes over the distribution of the company's surplus.

It is generally believed that the dispute surrounding the distribution of dividends is a dispute over the distribution of the company's surplus, specifically a dispute arising from a shareholder's legal request to the company to distribute the company's dividends to him based on his or her shareholder status. However, in the case of the company's surplus distribution dispute, the company can act as the plaintiff and the shareholder as the defendant?

The author believes that although the first paragraph of Article 13 of the "(IV) of the Supreme People's Court on Several Issues Concerning the Application of the the People's Republic of China Company Law" stipulates that "the company shall be listed as the defendant in a case where shareholders request the company to distribute profits", this is a case where shareholders request the company to distribute profits "and" the company shall be listed as the defendant ", but it does not prohibit the company from suing shareholders for profit distribution disputes. Therefore, when a company sued a shareholder over a dispute over the distribution of profits, the company, as plaintiff, did not violate the existing law by listing the shareholder as a defendant. The "profit payment" in the "request to the shareholder to refund the profit payment distributed in violation of the provisions" discussed in this paper is of course part of the company's surplus, so the claim does not exceed the scope of the company's surplus distribution dispute. Therefore, the author tends to think that in the company surplus distribution dispute, the company can be the plaintiff and the shareholders as the defendant.

Therefore, the cause of such litigation discussed in this paper should be a dispute over the distribution of the company's surplus.

(III) statute of limitations or three years.

Article 188 of the the People's Republic of China Civil Code (hereinafter referred to as the "Civil Code") stipulates that "the limitation period for requesting protection of civil rights from the people's court is three years. Where the law provides otherwise, such provisions shall prevail. The period of limitation of action shall be calculated from the date on which the obligee knew or should have known of the damage to the right and the obligor. Where the law provides otherwise, such provisions shall prevail. However, if more than 20 years have elapsed since the date of damage to the right, the people's court shall not protect it. If there are special circumstances, the people's court may decide to extend it on the basis of the application of the right holder." Article 192 stipulates that "when the limitation period expires, the obligor may raise a defense of non-performance." Article 196 stipulates that "the following claims shall not apply to the provisions of the statute of limitations: (1) request to stop the infringement, remove the obstruction and eliminate the danger; the obligee who (II) the real right of immovable property and the registered real right of movable property shall request the return of the property; (III) request the payment of alimony, alimony or maintenance; (IV) other claims for which the statute of limitations is not applicable according to law."

The right of claim refers to the right of one subject of a legal relationship to request the other subject to be or not to be a certain act. The right holder cannot have direct control over the subject matter of the right, but can only request the cooperation of the obligor. A claim is a typical claim, and the creditor cannot realize the claim itself, but can only request the debtor to perform certain payment obligations in order to realize the claim [1]. Claims on claims include claims for damages, which are based on contracts (quasi-contracts), unjust enrichment, and non-cause management. The right of claim on the property right includes the confirmation of ownership, the exclusion of the right to hinder the claim, the right to return the original property, and the right to restore the original state. The basis of these claims discussed in this article is similar to the claims on the creditor's rights. According to the current law, it does not belong to "other claims that are not subject to the limitation of action according to law". Therefore, only for the company and its shareholders, the limitation of action of these disputes discussed in this article should be three years, calculated from the date when the obligee knows or should know that the rights are damaged and the obligor, in view of the fact that the shareholders' meeting, shareholders' meeting or board of directors violates the relevant provisions to distribute profits to shareholders before the company makes up for losses and withdraws statutory provident fund, the date on which the obligee (company) completes the profit distribution to shareholders in violation of the provisions shall be regarded as the date on which the obligee (company) knows or should know that the rights are damaged and the obligor.

In view of this, it can be further considered that if the company sues the shareholders for the refund of the profits distributed in violation of the provisions after the expiration of the limitation period, and the shareholders invoke the provisions of Article 192 of the Civil Code to defend, the company's claim will be rejected. In this case, the company has no other means of relief?

2. when the creditors of the company file a lawsuit, if the company distributes profits to the shareholders before making up the losses and withdrawing the statutory provident fund and fails to require the shareholders to return the profits distributed in violation of the regulations to the company, or after the company's notice, the shareholders refuse to return the profits distributed in violation of the regulations to the company, can the creditors sue the company at the same time, and ask the relevant shareholders to assume joint liability for liquidation to the extent of the profits they received as a result of the company's breach of the distribution?

The creditors of the (I) company shall have the right to sue the shareholder together for liquidation within the scope of the profits obtained by the company in violation of the provisions.

1. Article 535, paragraph 1, of the Civil Code stipulates that "if the debtor neglects to exercise its creditor's rights or subordinate rights related to the creditor's rights, which affects the realization of the creditor's due creditor's rights, the creditor may request the people's court to subrogate the debtor's rights to the counterparty in its own name, except that the rights belong exclusively to the debtor itself." Article 536 stipulates that "before the creditor's claim expires, if the debtor's claim or the subordinate rights related to the claim are affected by the circumstances such as the expiration of the limitation period of action or the failure to declare the bankruptcy claim in time, the creditor may subrogate to the debtor's counterpart to request it to perform to the debtor, declare to the bankruptcy administrator or do other necessary acts."

The failure of the shareholder to return the relevant profits to the company amounts to a corresponding debt to the company, and therefore, under the above-mentioned provisions of the Civil Code, the creditors of the company should have the right to sue the shareholder for liquidation within the scope of the profits obtained by the company in violation of the provisions.

2. What is worthy of further discussion is whether it is possible for the creditors of the company to refer to the provisions of Article 13, paragraph 2, of the (III) of the Supreme People's Court on Several Issues Concerning the Application of the the People's Republic of China Company Law. The people's court shall support the request that the shareholders who have not fulfilled or fully fulfilled their capital contribution obligations bear supplementary compensation liability for the unpayable part of the company's debts within the scope of the principal and interest not contributed; if a shareholder who has not fulfilled or has not fully fulfilled his capital contribution obligations has already assumed the above-mentioned responsibilities, and other creditors make the same request, the people's court shall not support it ", requiring the shareholder to bear supplementary liability within the scope of the profits obtained as a result of the company's violation of the provisions of the distribution?

It is true that Article 3, paragraph 2, of the Company Law stipulates that "the shareholders of a limited liability company shall be liable to the company to the extent of the amount of capital contribution they have paid.", However, the shareholder's capital contribution (obligation) is also the basis for its enjoyment of the distribution of the company's surplus profits, which can be seen in Article 10 of the Company Law, which stipulates that "the shareholders of the company shall enjoy the rights of asset income, participation in major decisions and selection of managers in accordance with the law." And Article 34 stipulates that "shareholders shall share dividends in proportion to their paid-up capital contributions; when the company adds new capital, shareholders shall have the right to pay their capital contributions in proportion to their paid-up capital contributions. However, unless all shareholders agree not to share dividends in proportion to their capital contributions or not to pay their capital contributions in priority in proportion to their capital contributions."

Therefore, because of their capital contribution obligations, the shareholders of the company are imposed by Article 13, paragraph 2, of the (III) of the provisions of the Supreme people's Court on several issues concerning the Application of the Company Law of the the People's Republic of China. At the same time, the shareholders of the company have the right to obtain "the shareholders' meeting, shareholders' meeting or board of directors violates the provisions of the preceding paragraph within the scope of the principal and interest of the unfunded capital contribution, distributing profits to shareholders before the company makes up for losses and withdraws statutory provident fund", based on the principle of fairness and the consideration of protecting the interests of creditors' statute of limitations, the author tends to think that "refusing to return the profits distributed in violation of regulations to the shareholders of the company" should bear the obligation of supplementary compensation liability for the company's debts within the scope of the profits obtained by the company's violation of regulations.

(二)公司债权人提起该等诉讼有无诉讼时效限制？

Judging from the current legal provisions, if the creditors of the company sue the shareholder together for the basis of the claim for the liability for repayment within the scope of the profits obtained by the company's violation of the prescribed distribution, which is derived from the provisions of Article 535 and Article 536 of the Civil Code, it is obvious that there is a limitation of action for the creditors of the company to bring such actions, which is three years, and the starting date of the limitation period is not the date on which the company's creditors know or should have known that the company has violated the regulations to distribute profits to the company's shareholders, but should be the date on which the company has completed the distribution of profits to the shareholders in violation of the regulations.

If the creditors of the company sue the shareholder together for the basis of the claim for the liability for settlement within the scope of the profits obtained by the company in violation of the provisions of the distribution, the provisions of paragraph 2 of Article 13 of the (III) of the Supreme People's Court on Several Issues concerning the Application of the the People's Republic of China Company Law may be applied by reference, and the limitation of action may not be imposed.

Whether the shareholders of the company have actually fulfilled their capital contribution obligations (including whether they have made sufficient capital contributions, whether they have withdrawn their capital contributions, etc.) is information that is difficult for the creditors of the company to obtain without legal investigation or specific identification in the proceedings. In contrast, the existence of a company to distribute profits to shareholders before making up losses and withdrawing statutory provident funds is a fact that is more difficult for the company's creditors to know under normal circumstances. With reference to the principle of "light to light", since there is no statute of limitations when it comes to the pursuit of shareholders' capital contribution obligations, there should be no statute of limitations when it comes to the responsibility of shareholders to return the profits distributed in violation of the rules to the company.

3. in self-liquidation, compulsory liquidation or bankruptcy liquidation, if the liquidation group or administrator finds that "profits are distributed to shareholders before the company makes up for losses and withdraws the statutory provident fund", can the shareholders be required to return the profits distributed in violation of the regulations to the company?

Article 184, paragraph 5, of the Company Law stipulates that "the liquidation group shall exercise the following functions and powers during liquidation: (5) to liquidate claims and debts......".

Paragraphs 1, 3, 6 and 7 of Article 25 of the the People's Republic of China Bankruptcy Law stipulate that "the administrator shall perform the following duties: (1) taking over the debtor's property, seals, account books, documents and other materials; (III) deciding on the debtor's internal management affairs; (VI) managing and disposing of the debtor's property; (VII) representing the debtor in litigation, arbitration or other legal proceedings......". Article 35 stipulates that "after the people's court accepts the bankruptcy application, if the debtor's contributor has not fully fulfilled its capital contribution obligations, the administrator shall require the contributor to pay the capital contribution paid, without being limited by the time limit of the capital contribution."

Accordingly, and with reference to "If the company distributes profits to shareholders before making up for losses and withdrawing statutory provident funds, can the company sue the shareholder for the return of profits if the shareholder fails to cooperate with the return of profits distributed in violation of the regulations after the company's notice?" part of the analysis, the author believes that if the liquidation group or manager finds that "the company makes up for losses and withdraws the statutory provident fund before the distribution of profits to shareholders", the right to require shareholders to return the profits distributed in violation of the provisions to the company.

When the creditors of the company file a lawsuit, if the company distributes profits to the shareholders before making up the losses and withdrawing the statutory provident fund, and the directors, supervisors and senior managers of the company are lazy in demanding (including not demanding before the expiration of the limitation period of action, and only after the expiration of the limitation period of action) that the shareholders return the profits distributed in violation of the regulations to the company, can the creditors sue the company at the same time, at the same time, please ask the relevant directors, supervisors and senior managers of the company to bear the responsibility within the scope of the distribution of profits to the shareholders of the company in violation of the regulations?

The author believes that "the shareholders' meeting, the general meeting of shareholders or the board of directors violates the provisions of the preceding paragraph and distributes profits to shareholders before the company makes up for losses and withdraws the statutory provident fund", and the actual implementation of the aforementioned profit distribution plan is generally the senior management of the company. According to Article 149 of the "Company Law", "Directors, supervisors, and senior managers who violate laws, administrative regulations, or the company's articles of association when performing their duties in the company and cause losses to the company shall be liable for compensation." The company has the right to sue directors, supervisors, and senior managers who violate the law accordingly.

Therefore, according to the provisions of Article 535 and Article 536 of the Civil Code, when the creditors of the company file a lawsuit, they have the right to appeal to the relevant directors, supervisors and senior managers of the company to bear the responsibility within the scope of their liability for compensation for losses to the company (equivalent to the amount of profits distributed to the shareholders of the company in violation of the regulations).

As for the reasons that directors, supervisors and senior managers may use to defend, such as obeying the arrangement to implement the resolutions of the shareholders' meeting, shareholders' meeting or the board of directors, according to the provisions of Article 147 of the company law, "directors, supervisors and senior managers shall abide by laws, administrative regulations and articles of association, and shall have the obligation of loyalty and diligence to the company", The above-mentioned proposition can only be the reason for directors, supervisors and senior managers to reduce their responsibilities, but it is not a reason for its exemption.

Similarly, it is worth further thinking about whether it is possible for the creditors of the company to refer to the provisions of paragraph 4 of Article 13 of the (III) of the Supreme people's Court on several issues concerning the Application of the Company Law of the the People's Republic of China. "the plaintiff who fails to perform or fully perform the obligation of capital contribution when the company increases its capital, and brings a lawsuit in accordance with paragraph 1 or paragraph 2 of this article, if the request fails to fulfill the obligations stipulated in the first paragraph of Article 147 of the company law and makes the directors and senior managers who have not paid in full bear the corresponding responsibilities, the people's court shall support it; after the directors and senior managers bear the responsibility, they may recover compensation from the defendant shareholders", and require the relevant directors, supervisors and senior managers of the company to bear the liability for repayment within the scope of distributing profits to the shareholders of the company in violation of the regulations?

Article 203 of the Company Law stipulates that "if a company fails to withdraw the statutory provident fund in accordance with the provisions of this Law, the financial department of the people's government at or above the county level shall order it to make up the amount that should be withdrawn, and may impose a fine of not more than 200000 yuan on the company." Compared with the shareholders of a company with high or very high registered capital, the dividend benefits that shareholders can obtain under the illegal operation of the company are much higher than the price that the company needs to pay for the illegal operation. However, such dividends are like "cooked ducks flying" when the profits made by shareholders as a result of the company's distribution in violation of regulations will be subject to penetration ".

Therefore, in order to ensure that the dividends shared by the shareholders of the company are legitimate and do not leave any future troubles, the shareholders' meeting, shareholders' meeting or the board of directors shall strictly follow the provisions of Article 166 of the Company Law) when distributing profits to shareholders. However, the majority of company creditors, when faced with the company's assets and shareholders' contributions are not enough to pay off debts, may wish to find this way, and may usher in "another village in the dark".

(This article only represents the author's personal views)

 

Lawyer Huang Ting

 

[Practice Profile] Senior Partner of Shengdian Law Firm, currently Deputy Secretary of Shengdian Party Committee, Co-head of Shengdian Bankruptcy Administrator (Level 2), Deputy Editor-in-Chief of Shengdian Lawyer Review (Law Publishing House), Director of Shengdian Publicity and Brand Promotion Committee, Arbitrator of Maoming Arbitration Commission, Member of Corporate Legal Professional Committee of Guangdong and Shenzhen Lawyers Associations, Member of Business Development Committee of Shenzhen Bankruptcy Administrators Association, etc, currently, he is China Coal Energy Group Co., Ltd. (a first-level central enterprise), Shenzhen Baoan District Investment Management Group Co., Ltd. (a first-level state-owned enterprise in Baoan District), Shenzhen Longgang Financial Investment Holding Co., Ltd. (a first-level state-owned enterprise in Longgang District), Shenzhen Water Planning and Design Institute Co., Ltd. (301038.SZ, a state-owned listed company), China Resources Property Technology Service Co., Ltd, shenzhen Enterprise Evaluation Association (SZEEA), Shenzhen Dingcheng Technical and Economic Evaluation Center experts, with securities practitioners, private equity fund senior management qualifications, independent directors of listed companies.