Article 13, paragraph 2, of the (III) of the Supreme People's Court on Certain Issues Concerning the Application of the the People's Republic of China Company Law (hereinafter referred to as "Judicial Interpretation III of the Company Law") establishes the institutional basis for the shareholders of the company who have not fulfilled their capital contribution obligations to bear supplementary liability for the part of the company's debts that cannot be paid off. Article 17 of the Provisions of the Supreme People's Court on Several Issues Concerning the Change and Addition of Parties in Civil Enforcement (hereinafter referred to as the "Change and Addition Provisions") stipulates that shareholders who have not made full capital contributions may be added as the executed person to be liable for the company's debts within the scope of the unfunded principal and interest. According to the aforementioned provisions, creditors can claim liability for shareholders who have not made full contributions through litigation and enforcement. After Article 6 of the Minutes of the National Court's Civil and Commercial Trial Work Conference (hereinafter referred to as the "Nine People's Minutes") clarifies the conditions for the accelerated expiration of shareholders' capital contributions at the litigation level, the debate over whether shareholders with an unexpired capital contribution period can be added to the execution procedure as the person to be executed has suddenly increased, and courts in various regions have different opinions on this in judicial practice.

1.Review of the status quo of shareholders with additional unexpired capital contributions in the implementation procedure.

 

 

 

On the question of whether the shareholders who have not yet made the capital contribution period can be added as the executed person in the execution procedure, the author summarizes the differences between the "affirmative" and "negative" judgment ideas through case search, mainly in the following three aspects:

1. Differences in the understanding and application of legal provisions

The court that supported the "affirmative statement" held that the "Nine People's Minutes" had clarified the conditions for the accelerated expiration of shareholders' capital contributions, and if the conditions for accelerated expiration were met, the shareholders should immediately fulfill their capital contribution obligations, and the creditors could apply for the addition of unfunded shareholders as the subject of execution in accordance with Article 17 of the "Changes and Additional Provisions" in the execution procedure. For example, in the execution case of Shenzhen Qianhai Yilipu Asset Management Co., Ltd., Deao General Aviation Co., Ltd., and Beijing Anli Law Firm [Case No.:(2020) Yue 03 Zhiyi No. 471], the Shenzhen Intermediate People's Court held that "In this case, the executed Yilipu Company was unable to pay off the debts due, and the court did not find any other enforceable property through exhaustive enforcement measures, which has met the bankruptcy reasons, if it does not file for bankruptcy, the respondent, as a shareholder, shall pay the capital contribution of 90 million yuan, which has not yet reached the period of capital contribution, in this case shall be accelerated, that is, the company shall actually pay the capital of 90 million yuan. For all the registered capital of Yilipu Company, the shareholders' contributions have all been accelerated to expire, and the respondent Deao Company has not paid the full amount of contributions under the reality of only 10 million yuan of contributions, and shall be liable for supplementary repayment of the company's unpayable debts within the scope of 90 million yuan of uncontributed contributions ...... The applicant's request for additional enforcers has factual and legal basis, and this court supports it."

The court that supported the "negative theory" held that the "Jiumin Minutes" was not a legal or judicial interpretation, and it was only a guide to the trial work and did not apply to the enforcement procedure. The expansion of the subjective scope of execution will affect the substantive rights of the parties, and there should be clear legal provisions. In the absence of clear provisions in the law or judicial interpretation, shareholders who have not completed the period of capital contribution cannot be added as the person to be executed in the execution procedure. For example, in the execution case of Oupai Home Furnishing Group Co., Ltd., Lei Bin, etc. [Case No.:(2023) Su 05 Zhiyi No. 4], the Suzhou Intermediate People's Court held that "First of all, the people's court's addition of the person to be executed in the execution procedure is the expansion of the subject of obligations determined by the effective judgment under specific circumstances, which directly affects the substantive and procedural rights of all parties. Therefore, the principle of additional reasons must be strictly followed, that is, it should be limited to the scope of additions specified in the law and judicial interpretation, neither beyond the statutory circumstances, nor can it be added in the enforcement proceedings by direct reference to the rules of the relevant substantive decisions. Secondly, Article 6 of the Nine People's Minutes provides for the accelerated expiration of shareholders' contributions, but this provision is formulated in response to the difficult issues at the forefront of civil and commercial trials, and is not an enforcement work provision, which cannot be directly applied in the enforcement procedure to add the person to be executed. Finally, the term" shareholders who have not paid or have not paid their capital contributions in full "in Article 17 of the Changes and Additional Provisions shall be understood as shareholders who have not fully fulfilled their capital contribution obligations in accordance with the amount, manner and time stipulated in the articles of association of the company, and it is inappropriate to expand the term of" unexpired capital contribution "to mean" unpaid or underpaid capital contribution '."

2. Differences in the measurement of legal benefits

The court, which supported the "affirmation", held that the term of capital contribution in the articles of association was an internal agreement between shareholders and the company and could not be opposed to external creditors, and that when the company could not pay off its debts, the interests of shareholders should give way to the interests of creditors. For example, in the execution case of X Juan, X Jian and Guangzhou XX Yuan Network Technology Co., Ltd. [Case No.:(2022) Yue 01 Zhi Yi No. 1019], the Guangzhou Intermediate People's Court held that "the time for shareholders Yang X Na, X Chun and Wu X to subscribe to the capital contribution shall be December 31, 2040, although the subscription period has not yet expired, however, the term of this contribution is an agreement between the company and the shareholders and between the shareholders and the shareholders, and based on the principle of relativity of the contract, the additional shareholders cannot use this against creditors outside the company, so the time of the capital contribution of the Court may be determined to be accelerated."

The court that supported the "negative theory" held that shareholders who had not made their capital contributions enjoyed the interests of the term and should be protected by law. Creditors can inquire about shareholder contributions through public information at the time of the transaction. The creditor's willingness to trade with the company, knowing the duration of the shareholder's contribution, indicates that the creditor agrees to be bound by the duration of the shareholder's contribution. Before the expiration of the term of capital contribution, the court shall not add shareholders as the executor. For example, in the execution case of Beijing Yujia Xingye Technology Co., Ltd. and Yihan (Beijing) Intelligent Technology Co., Ltd. [Case No.:(2023) Beijing 01 Zhiyi No. 180], the Beijing No.1 Intermediate People's Court held that "in this case, according to the company's articles of association in the industrial and commercial archives of Yihan (Beijing) Intelligent Technology Co., Ltd., Chen Mingming subscribed the capital contribution on December 31, 2036, and the capital contribution has not expired, shareholder Chen Mingming enjoys the benefits of the unexpired capital contribution period in accordance with the law, which does not comply with the circumstances set out in the above judicial interpretation." For another example, in the execution case of Li Xiaohua and Shanghai Jiumai Culture Communication Co., Ltd. [case No.:(2020) Shanghai 02 Zhiyi No. 23], the Shanghai Second Intermediate people's Court held that "according to the above-mentioned facts, Jiumai Company was established. It is clear that the subscription system for registered capital is adopted within 5 years after the establishment of the company, that is, before July 21, 2019. Gu Hangming's transfer of equity in July 2016 is the exercise of rights in accordance with the law within the period of capital contribution, Mei Kaiqiang and Zhou Wei in knowing that Gu Hangming has not yet paid the capital contribution to accept the transfer of equity, should be regarded as accepting its corresponding legal consequences. Since then, Mei Kaiqiang and Zhou Wei have extended the period of shareholders' capital contribution by amending the articles of association. Based on the fact that the above-mentioned equity transfer, shareholder change and extension of capital contribution period have been publicized to the public and occurred before the transaction between Li Xiaohua and Jiumai Company, Li Xiaohua can fully consider whether to conduct a transaction with Jiumai Company on the basis of reviewing the credit information such as the capital contribution time of the company's shareholders when negotiating investment matters with Jiumai Company. Once Li Xiaohua signs an investment contract with Jiumai Company, that is, it should be subject to the timing of the shareholder's contribution."

3. Differences between substantive justice and procedural safeguards

The court that supported the "affirmative statement" held that the shareholders who added the unexpired capital contribution period in the execution procedure could effectively protect the legitimate rights and interests of creditors, achieve substantive justice, establish judicial authority and safeguard judicial credibility. For example, in the execution case of Shenzhen Orwell Control Technology Co., Ltd. and Beijing Parker Blue Environmental Protection Technology Co., Ltd. [Case No.:(2022) Beijing 01 Zhiyi No. 54], the Beijing No. 1 Intermediate People's Court held that "in this case, Beijing Parker Blue Environmental Protection Technology Co., Ltd. cannot pay off its due debts to Shenzhen Orwell Company. Wang Shaoding subscribed 4.945 million yuan as a shareholder of the company, and the original subscription period was December 31, 2018, after Beijing Parker Blue Environmental Protection Technology Co., Ltd. on April 11, 2022 amended the articles of association, extending the period of contribution of shareholder Wang Shaoding to April 2, 2042. Although the term of capital contribution has not yet expired, the extension of the term of capital contribution by Beijing Pike Blue Environmental Protection Technology Co., Ltd. occurred after Beijing Pike Blue Environmental Protection Technology Co., Ltd. determined the debt of Shenzhen Orwell Company and organized all parties to conduct court inquiries during the start of the additional procedure in this case. The extension of the term of capital contribution was intentional to evade the debt, if the executed person takes the form of extending the period of capital contribution to avoid the liability that the shareholders will be required to make up the capital contribution when the company fails to perform the debt, the act harms the interests of creditors and should be denied in law, so the case should apply to the accelerated maturity of the shareholder's capital contribution. Shenzhen Orwell's additional application is in compliance with the law, and this court supports it."

The court, which supported the "negative view", held that the liability of shareholders for the company's debts involved the substantive rights of shareholders, which should be examined in the proceedings and should not be directly determined in the enforcement proceedings. For example, in the case of Xiao Jifeng, Beijing Energy Gathering Brilliant Education Technology Co., Ltd. and Tao Ling [Case No.:(2022) Jing 01 Zhi Yi No. 120], the First Intermediate People's Court of Beijing held that "Xiao Jifeng advocated that the deadline of Tao Ling's contribution should be accelerated on the grounds that the energy gathering company had reasons for bankruptcy but did not apply for bankruptcy, however, the change and addition of the executed person is an act of extending the res judicata power of the effective legal document to the shareholders who did not participate in the litigation. It is related to the protection of the procedural rights of the shareholders, and involves the determination of the accelerated expiration of the capital contribution period of the shareholders and whether the company has the reasons for bankruptcy but does not apply for bankruptcy. It is related to the substantive trial of certain legal relations and should not be dealt with directly in the non-litigation procedure of execution objection."

2.The legal analysis of the additional shareholders of the period of unexpired capital contribution in the implementation procedure.

 

 

 

(I), the author believes that under the premise of meeting the conditions for accelerating the expiration of the capital contribution period stipulated in the Nine Minmin Minutes, the court may add the shareholders whose capital contribution period accelerates the expiration of the capital contribution period as the executed person in the execution procedure. The reasons are as follows:

First, from the point of view of the interpretation of the text, according to Article 17 of the Provisions on Changes and Additions, shareholders meet the additional conditions as long as they "fail to pay or fail to pay the capital contribution in full", and there is no requirement on whether the period of capital contribution expires, so the interpretation of the legal provisions should not be expanded. If the conditions for accelerating the expiration of shareholders' capital contribution stipulated in Article 6 of the Nine People's Minutes are met, the shareholders who have not fulfilled the capital contribution period shall immediately fulfill their capital contribution obligations. At this time, for the shareholders who have not paid the capital contribution in full, the creditors can apply for adding them to the person subject to execution in accordance with Article 17 of the Provisions on Changes and Additions. This is a reasonable and coherent logic.

Second, the expansion of the subjective scope of execution is conducive to improving the efficiency of execution and reducing the waste of judicial resources. Under the circumstances that the "Nine People's Minutes" has clarified the rules for accelerating the maturity of shareholders' contributions, it is undoubtedly a waste of judicial resources and an increase in litigation if creditors are required to sue separately and obtain an effective judgment document before applying for the implementation of additional shareholders. Solving the problem of "difficult enforcement" is of great significance to establish judicial credibility. In essence, the goal of enforcement is to implement the content of the effective judgment document, otherwise the judgment document is a dead letter. The failure to effectively implement the judicial documents will greatly shake the people's trust in the administration of justice, making them turn to self-relief or even resort to illegal means, thus breeding many unstable factors and not conducive to the construction of a harmonious and stable social environment.

Third, the accelerated maturity of shareholder contributions is in line with the inherent requirement that rights and obligations are equal. Shareholder capital contribution is an important source of the company's business development, shareholders have the obligation to enrich the capital. Shareholders enjoy the benefits of the period of time granted by the company law, but also to fulfill the corresponding obligations. The most basic requirement of this obligation is that shareholders should ensure that the company does not become a tool to pass on production risks and does not endanger the legitimate rights and interests of the company's creditors who conduct normal transactions with the company. However, in reality, there are many shareholders of the company in order to avoid the obligation of capital contribution, in the articles of association of the company agreed on an ultra-long period of payment, which is undoubtedly an abuse of the rights granted to shareholders by the payment system. Therefore, when the company's property is not sufficient to pay off the debts determined by the effective instrument, the addition of shareholders with an unexpired capital contribution period in the execution procedure as the executor meets the requirement of equal rights and obligations.

Fourth, the subscribed capital assumes the function of capital guarantee. The public disclosure of the company's paid-in capital can highlight the company's qualification, credit and liability status, and help the counterparty to the transaction to form a reasonable expectation of the company's ability to repay its debts, thus facilitating the transaction between the company and the counterparty. When the company's assets are unable to pay off the debts, the paid-in capital should play a role of security to protect the creditors' trust interests and protect the legitimate rights and interests of creditors in a timely manner.

(II)The "negative view" that shareholders who cannot add an unexpired capital contribution period to the execution procedure is mainly based on the following reasons, the author analyzes the following one by one:

First, from the perspective of system interpretation, the provisions of Article 17 of the Alteration and Addition Provisions should be understood from the perspective of the overall system of the Company Law. In 2014, the registered capital system of the Company Law was changed from the paid-in system to the paid-in system. The capital contribution obligation under the subscription system includes the period of capital contribution and the amount of capital contribution, and the period of capital contribution does not constitute the "failure to fulfill the capital contribution obligation" of Article 13, paragraph 2, of the Judicial Interpretation III of the Company Law, so Article 17 of the "Change and Additional Provisions" stipulates that the scope of additional shareholders shall be limited to the shareholders whose capital contribution period expires.

In this regard, the author believes that before the release of the Nine People's Minutes, the Judicial Interpretation of the Company Law III, as the institutional basis for shareholders to bear supplementary liability for the company's debts, did not clarify whether the "failure to fulfill the obligation of capital contribution" included the period of unexpired capital contribution, and it is indeed inappropriate to expand the scope of additional shareholders in Article 17 of the "Change and Additional Provisions. However, after the publication of the Ninth Minute, it has been made clear that the outstanding shareholder's contribution can be accelerated in the "non-bankruptcy situation. After the accelerated expiration of the shareholder's capital contribution, the shareholder shall immediately fulfill the obligation of capital contribution, and at this time, the shareholders whose additional capital contribution accelerates the expiration of Article 17 of the "Changes and Additional Provisions" may apply.

Second, from the point of view of rights protection, the term interests of shareholders should be protected. In the context of the subscription system, the law should protect the term interests of shareholders. Although the registered capital contribution system implemented in 2014 lacks a specific supporting system, such as not making the necessary restrictions on the qualifications of shareholders and the period of contribution, the result has a negative impact on the realization of claims, which is also one of the important institutional reasons why claims have not been paid off. However, the bad consequences of the imperfect design of the legal system are all attributed to the shareholders, which is not in line with the concept of justice. Since the law gives shareholders a term of interest, it should be protected in strict accordance with the law.

In this regard, the author believes that from the perspective of legal interest measurement, the interests of creditors should be given priority protection. The term interest is an internal agreement between the company and the shareholders and should be protected in the normal operation of the company. However, when the company is unable to pay off its debts to the detriment of creditors, the interests of shareholders should give way to the interests of creditors. The registered capital is the embodiment of the company's credit ability, the external creditors who have a reasonable trust interest in the company's registered capital should be given priority protection, and the accelerated maturity of the shareholders' capital contribution period can make the creditor's rights obtain the effective protection of the registered capital. Moreover, a series of practical problems brought about by the payment system need to be solved urgently, the shareholders of the company in order to avoid the obligation of capital contribution in the articles of association of the company agreed on ultra-long-term capital contribution period, resulting in the company's insufficient capital, debt can not be paid off, at this time blindly emphasize the rights of shareholders without considering the reality of the situation is not conducive to resolving disputes. Yuan Shuhong, vice chairman of the Constitution and Law Committee of the National People's Congress, said in a statement on the revision of the draft company law: "In practice, if the shareholder subscription period is too long, it will not only affect the security of the transaction, but also damage the rights and interests of creditors." The amount of capital contribution contained in the capital contribution system includes the part of the shareholder's uncontributed capital, and the accelerated maturity of the capital contribution will not exceed the scope of liability of the shareholder's capital contribution.

Third, from the point of view of procedural justice, the court should not review the substantive rights of the judgment shareholders in the enforcement proceedings. The obligation of shareholder capital contribution involves the entity rights of shareholders, which should be reviewed in the litigation procedure, and the entity rights of shareholders should be determined in the implementation procedure to be a dislocation in the system. From the basic requirements of civil litigation and the basic nature of litigation, all matters involving substantive rights must be determined through litigation procedures and remedied through litigation. The procedural rights enjoyed by shareholders, such as the right to defense, should be fully safeguarded.

In this regard, the author believes that if the shareholders have no objection to the execution of the additional, the court directly in the execution procedure to add shareholders as the person to be executed, can effectively improve the efficiency of execution. If the shareholders do not approve the enforcement of the additional ruling, they may file an enforcement objection and then enter the proceedings without prejudice to the shareholders' procedural rights and interests. It can be seen that in the implementation of the additional shareholders can effectively balance the value of justice and efficiency, to maximize the protection of the interests of the applicant for execution, while taking into account the rights of the person being executed.

Fourth, from the perspective of the principle of fairness, the separate settlement of some creditors by shareholders will cause material injustice and harm the interests of other creditors. The creditor's application for additional shareholders as the executed person must be because the company is insolvent or obviously lacks solvency. At this time, the company has met the bankruptcy conditions stipulated in Article 2 of the Enterprise Bankruptcy Law, so it should enter the bankruptcy procedure, and then according to the Enterprise Bankruptcy Law Article 35 accelerates the expiration of shareholders' contributions, and the contributions are jointly distributed by all creditors, so as to protect the interests of all creditors in a real sense. Separate liquidation is not in line with the spirit of the Enterprise Bankruptcy Law and will harm the interests of other creditors.

In this regard, the author believes that, on the one hand, the context of the discussion of the problem is in the implementation of proceedings rather than bankruptcy proceedings, the implementation of the case is the individual settlement of creditors. In the enforcement proceedings, creditors who apply for enforcement later may have been exposed to the risk of being unable to pay off, and creditors who apply for enforcement earlier have neither the ability nor the obligation to count and determine how many claims of the debtor company have yet to be paid off and whether the shareholders' uncontributed capital can cover all claims and meet the conditions for bankruptcy. On the other hand, the disadvantages of "non-bankruptcy acceleration" can also be controlled within a reasonable range through the use of bankruptcy avoidance rights, without worrying about the problem of "fair settlement" derived from unreasonable "biased payment.

In summary, the author thinks that under the condition that the capital contribution is accelerated to expire, the court can add the shareholders whose capital contribution period is accelerated to expire as the executor in the execution procedure.

 

Lawyer Bu Bin

 

 

[Introduction to Lawyers] Lawyer of Shengdian Law Firm, Master of Civil and Commercial Law of the Chinese University of Hong Kong, Deputy Director of Shengdian Foreign Affairs Legal Professional Committee, Director of Shenzhen University Law School Alumni Association, Director of Shenzhen Legal Culture Research Association, with securities qualifications, and dispute resolution He has rich practical experience and has handled a large number of civil and commercial disputes, focusing on corporate litigation, foreign-related litigation, commercial contracts, financial disputes, corporate compliance and other fields, he is good at handling difficult and complex cases, has provided legal services for dozens of domestic banks, securities firms, trusts, listed companies and large enterprises, and is good at helping customers effectively achieve their business goals through litigation. The working languages are Mandarin, Cantonese, English and Hakka.

 

[Contact Information] bubin@shengdian.com.cn