On December 29, 2023, the Seventh Session of the Standing Committee of the 14th National People's Congress amended and passed the Company Law, and the new Company Law will come into force on July 1, 2024.
This is the sixth revision of the Company Law since its promulgation in 1993 and the largest amendment. According to the statistics of the Institute of Commercial Law of China University of Political Science and Law, this revision deletes 16 articles in the 2018 Company Law, and adds and modifies 228 articles, of which 112 articles are substantively modified. It is conceivable that the revision of the Company Law will have a significant impact on the commercial relations and even social life related to companies in China.
Since there are many revisions, it is impossible to discuss in detail in this Baijiahao article. Today, Mr. Wang will only discuss one issue that people have not paid much attention to in the past, that is, the horizontal denial of the corporate personality of the company.
According to the second paragraph of Article 23 of the new Company Law, "if a shareholder uses two or more companies under its control to carry out the acts specified in the preceding paragraph, each company shall be jointly and severally liable for the debts of either company." This is the horizontal denial of the corporate personality.
Corresponding to the horizontal denial of the personality of a corporate legal person is the "vertical denial", that is, the third paragraph of the original Article 20 and the first paragraph of the new Article 23 of the Company Law, which stipulates that "if a shareholder of a company abuses the independent status of the corporate legal person and the limited liability of shareholders to evade debts and seriously damage the interests of the company's creditors, he shall be jointly and severally liable for the company's debts." Obviously, the original provisions only dealt with shareholders abusing "the independent status of a corporate legal person and the limited liability of shareholders to evade debts", and did not cover the situation where shareholders of a company used two or more companies under their control to "evade debts and seriously harm the interests of the company's creditors".
The real social and economic life is complex, and the ways and means of debtors to escape debts are also refurbished and endless, among which shareholders use a number of companies controlled by them to escape debts is one of the important methods.
In previous judicial practice, this problem has already been discovered. Therefore, on November 8, 2019, the Supreme People's Court issued the Minutes of the National Work Conference on Civil and Commercial Trial of Courts, which elaborated on this issue. In the section on "Excessive Domination and Control", the minutes of the meeting stated that "the controlling shareholders of the company have excessive domination and control over the company, manipulate the decision-making process of the company, make the company completely lose its independence, become a tool or shell of the controlling shareholders, and seriously damage the interests of the company's creditors, and the company's personality should be denied, and the shareholders who abuse their control rights shall be jointly and severally liable for the company's debts." Common situations in practice include: (1) the transfer of interests between parent and subsidiary companies or between subsidiaries;(2) Transactions between parent and subsidiary companies or between subsidiaries where the gains belong to one party but the losses are borne by the other party;(3) Withdrawing funds from the original company and then establishing a company with the same or similar business purpose to evade the debts of the original company".
However, after all, meeting minutes are not judicial interpretations and cannot be the direct basis for judicial adjudication, but can only be used as the basis for interpreting the law and reasoning in the adjudication process. As a result, the views taken in the minutes are less useful in practice.
It can be predicted that after the formal implementation of the new Company Law, there will be significant changes in the handling of creditor's rights and debts between shareholders and companies, and between companies controlled by shareholders, which are different from those in the past, and such changes should be beneficial to creditors and not to shareholders or actual controllers who attempt to evade debts.
Tao Te Ching says, "The sky net is magnificent, negligent but not leaky." In the process of rule of law governance, the continuous tightening of the legal network will regulate the dishonest behavior of all kinds of subjects, so as to make our social operation more orderly, just, and hopeful.