Key point:

The legal liability of the company's shareholders for not liquidating the company shall be determined in accordance with the law at the time of the occurrence of the cause of liquidation. If the company cannot be liquidated, but there is no causal relationship between the creditor's rights and the creditor's rights, the creditor shall demand that the company's shareholders bear joint and several liability for the company's debts, and shall not provide support.

Basic Case Fact:

Hangzhou CC Company is a Sino foreign joint venture, with shareholders including Jiande BB Factory and Mr. Bao, a French citizen. In 2003, the Jiande Court accepted 8 cases in which the company was the subject of execution. After auditing, it was determined that the company had no property available for execution and ruled to terminate the execution. In October 2004, both Hangzhou CC Company and Jiande BB Factory had their business licenses revoked. In 2009, the legal representative of the company (also the director of Jiande BB Factory) died. In May 2016, Hunan AA Company acquired the non-performing asset debt of Hangzhou CC Company as the debtor and applied to the Hangzhou Intermediate People's Court for bankruptcy liquidation of Hangzhou CC Company. In November 2016, based on the fact that Hangzhou CC Company had been shut down for more than ten years, the legal representative of the company had died, the whereabouts of both shareholders were unknown, and the administrator had failed to receive any debtor's property, seals, books, documents, and other materials, the Hangzhou Intermediate People's Court determined that the company had no property to distribute, and ruled to declare the company bankrupt and terminate the bankruptcy proceedings. In April 2017, Hunan AA Company filed a lawsuit demanding that Jiande BB Factory and Mr. Bao bear joint and several liability for the debt principal and interest of the original Hangzhou CC Company totaling over 23 million yuan.

Case Result:

The Hangzhou Intermediate People's Court held that Hangzhou CC Company is a Sino foreign joint venture enterprise and its business license was revoked in October 2004. It should be liquidated in accordance with the then effective "Measures for the Liquidation of Foreign Investment Enterprises" (implemented on July 9, 1996 and abolished on January 15, 2008). Hunan AA Company advocates that Jiande BB Factory and Mr. Bao should bear corresponding legal responsibility for the inability to liquidate Hangzhou CC Company in accordance with the relevant provisions of the Interpretation II of the Company Law, and violates the principle of non retroactivity of the law. In addition, several rulings made by the Jiande Court in 2003 found that Hangzhou CC Company had no property to enforce at that time, and the company had not engaged in any business activities from the revocation of its business license in 2004 to the bankruptcy liquidation period in July 2016. Therefore, the failure of Hangzhou CC Company to settle in a timely manner is not the reason why Hunan AA Company's debt cannot be realized. Therefore, the judgment rejects all litigation claims of Hunan AA Company. The case was tried in the second instance and the original judgment is upheld.

Typical significance:

This case is a dispute over the liability of shareholders to harm the interests of creditors caused by the inability of a limited liability company to liquidate. The legal basis for the lawsuit filed by the creditor Hunan AA Company in this case is Article 18, Paragraph 2 of the Interpretation 2 of the Company Law, which stipulates that "if the shareholders of a limited liability company, the directors and controlling shareholders of a joint stock limited company fail to fulfill their obligations, resulting in the loss of the company's main assets, accounting books, important documents, etc., and cannot be liquidated, and if the creditor claims joint and several liability for the company's debts, the people's court shall support it in accordance with the law, Require Jiande BB Factory and Mr. Bao to bear joint and several liability for the debts of Hangzhou CC Company. Given that the debt involved in the case occurred for a long time and the liquidation of Hangzhou CC Company occurred, the Interpretation II of the Company Law had not yet been implemented. This case is based on the basic principle of "non retroactivity of the law" and recognizes the obligations of the two shareholders in accordance with the then effective "Measures for the Liquidation of Foreign-invested Enterprises", which effectively protects the reasonable expectations of Chinese and foreign investors regarding the obligations and responsibilities of investors and avoids the improper breach of the principle of limited liability of company shareholders. In addition, this case belongs to the category of tort liability disputes. According to the general principles of tort law, the establishment of tort liability should include three constituent elements: infringement, damage consequences, and causal relationship. This case is based on the fact that Hangzhou CC Company had no property available for execution before the cause of liquidation occurred, and it is determined that there is no legal causal relationship between the fact that the company cannot be liquidated and the consequences of the inability to realize the creditor's rights of Hunan AA Company. Therefore, all claims of Hunan AA Company are rejected. The decision rules established in this case have played an important reference and guiding role for the trial of such cases, and are also in line with the spirit of the "Minutes of the National Conference on Civil and Commercial Trials of Courts" passed in 2019.