Lufa case [2024] 017
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Brief facts of the case
In the labor dispute between Chen and Li and an engineering company, the Yinan County Labor Dispute Arbitration Commission arbitrated that the engineering company paid 7,020 yuan in arrears of Chen's wages and 11,750 yuan in Li's wages, and paid 35,745 yuan in economic compensation for Chen's termination of the labor contract and 27,380 yuan in Li. In July 2023, Chen and Li applied to the court for compulsory enforcement, and during the enforcement period, because an engineering company failed to pay off its debts, Chen and Li applied to the court to add Ji, a shareholder of the engineering company, as the person subject to enforcement, and requested the shareholder Ji to bear joint and several liability for the debts of the engineering company.
Heard by the courts
It was ascertained that the type of engineering company subject to enforcement was a limited liability company wholly owned by natural persons (hereinafter referred to as the "one-person company"), and Ji was the legal representative and shareholder of the company. In the course of the execution of this case, the property in the name of an engineering company was insufficient to pay off the debts determined by the effective legal documents, and the execution of the case could not be completed, so Chen and Li applied to add Ji, a shareholder of an engineering company, as the person subject to enforcement. During the court's review, Ji failed to submit evidence to prove that the company's property was independent of his own.
The court held that the focus of the dispute in this case was whether an engineering company, as a one-person company, could add a shareholder Ji as the person subject to enforcement when it was unable to pay off its debts. According to Article 63 of the Company Law and Article 20 of the Provisions of the Supreme People's Court on Several Issues Concerning the Change and Addition of Parties in Civil Enforcement, Ji, a shareholder of a one-person company, failed to provide evidence to prove that the company's property was independent of his own property, that is, the company's property and the shareholder's property were mixed, and the shareholder Ji should bear the legal consequences of failing to provide evidence and be jointly and severally liable for the company's debts. The court ruled to add Ji as the person subject to execution in this case.
What the judge said
A one-person company refers to a limited liability company with only one natural person shareholder or one legal person shareholder. Have an independent personality and enjoy the rights and capacity to act independently of its funders. When the assets of a one-person company are insufficient to pay off the debts, do the shareholders need to be jointly and severally liable for the company's debts, and can the court directly add the company's shareholders as the person subject to enforcement? According to the relevant provisions of the Company Law and the Provisions of the Supreme People's Court on Several Issues Concerning the Change and Addition of Parties in Civil Enforcement, if a shareholder of a one-person company cannot prove that the company's property is independent of his own property (i.e., "property commingling"), the denial of the company's legal personality shall apply, and the shareholder shall be jointly and severally liable for the company's debts. At the same time, the principle of reversal of the burden of proof is adopted in the case of "property mixing", that is, the shareholders bear the burden of proof. If the shareholder fails to provide evidence to prove that the company's property is independent of his own property, that is, there is a "property mix" between the one-person company and the shareholder, the company's legal personality will be denied, resulting in the shareholder being jointly and severally liable for the company's debts and being added as the person subject to enforcement. Therefore, a one-person company should standardize its daily business behavior in accordance with the law, prepare a financial accounting report at the end of each accounting year, and strictly distinguish between the company's property and the shareholder's property, so as to avoid confusion between the company's property and the shareholder's property, otherwise it will lead to the loss of the company's independent personality.
Links to legal provisions
Article 62 of the Company Law of the People's Republic of ChinaThe shareholders of a one-person limited liability company shall prepare a financial accounting report at the end of each fiscal year, which shall be audited by an accounting firm.
Article 63 If a shareholder of a one-person limited liability company cannot prove that the company's property is independent of the shareholder's own property, he shall be jointly and severally liable for the company's debts.
Article 20 of the Provisions of the Supreme People's Court on Several Issues Concerning the Change and Addition of Parties in Civil EnforcementIt is stipulated that if the property of a one-person limited liability company as the person subject to enforcement is insufficient to pay off the debts determined in the effective legal documents, and the shareholder cannot prove that the company's property is independent of his own property, and the applicant for enforcement applies to change or add the shareholder as the person subject to enforcement, and bears joint and several liability for the company's debts, the people's court shall support it.
Paragraph 1 of Article 67 of the Civil Procedure Law of the People's Republic of ChinaIt is the responsibility of the parties to provide evidence for their own claims.
*: Yinan Court.
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