Are minority shareholders not liable for liquidation, and are they not liable for compensation to the company's creditors?

Partnership Guide | Author: Li Li

This is the 989th text of Li Li's blog and partnership guide public account

Are minority shareholders not liable for liquidation, and are they not liable for compensation to the company's creditors?

One

The practical understanding of the law is more taboo and simplified and extreme, and it is very easy to make cognitive errors and then make wrong decisions and behaviors.

Simplified and extreme methods of understanding can indeed reduce the burden on the brain, and it is also a method that humans have formed since ancient times. For example, when it is found that someone has died after eating a brightly colored mushroom, it is found that animals with bright colors often use poison, so a simplified, extreme thinking is formed: bright things are poisonous and cannot be eaten. Because this conclusion is simple, it is easy to remember, convey and pass on, which is good for the survival of the group.

However, this way of thinking is not available in any field. What's more, human civilization is constantly growing, and human beings have long passed the era of thinking that "everything that is brightly colored is poisonous".

When I was a child, I heard a story of "tomatoes", and I did not verify whether it was true or false, but I was impressed. People in the country where the story is told do not eat tomatoes because of the bright red color, and they are worried about poisoning, and a scientist decided to test himself in order to confirm whether people will be poisoned when they eat tomatoes. He first explained the aftermath to the family, and then ate a tomato in public, although the taste was very good, but at that time he was still very worried, and went back to his room to sleep in bed, waiting for the fate to arrange. After a long time, he sat up from his bed and said to the people around him, "It tastes so good."

I may have strayed from the topic again, now back to the subject. It is about the understanding of legal rules, and smart people do not carry out simplistic and extreme understandings.

For example, some time ago, someone posted a message on the Internet in that high tone, saying that the Civil Code stipulates that the housewives (husbands) should be compensated for the housework when divorcing, and that housework is no longer a value that is despised, and so on.

You see, "you can ask for housework compensation in the event of divorce", which is a simplistic conclusion. Because, in order to clarify this rule, it is also necessary to understand what the compensation standard is, what the burden of proof is required, and how to prove that it is a housewife (husband).

In fact, I have done a case search, and at present, the highest judgment of courts across the country on family compensation in the event of divorce is only 50,000 yuan, and the evidentiary requirements are not low. Sometimes, when one party in court says that she is a housewife who does not work, and the other party says that she is also doing some housework, it is difficult for the court to determine who is responsible for the heavy housework, and it is difficult to judge how much weight and how much compensation should be given accordingly.

Moreover, such a legal rule, from a practical point of view, is even quite difficult to explain thoroughly in one sentence.

Back to the topic: Are minority shareholders not liable for liquidation, and are they not liable to the company's creditors for losses arising from breach of liquidation obligations?

Two

The company is dissolved, there is no timely liquidation, or the company information related to the liquidation is lost, which causes losses to the company's creditors, and the company's creditors can claim compensation for losses from the company's shareholders.

In terms of the practical understanding of this legal rule, according to my observation, the people's courts have undergone two stages of change:

The first stage: many courts held that as long as the company is not liquidated in a timely manner, all shareholders must unconditionally bear the legal liabilities arising therefrom, whether they are major shareholders or not, whether they actually participate in the operation and management of the company.

The second stage: after summarizing practice, the court begins to carry out a certain balance and correction in judicial understanding. In 2019, the Supreme People's Court's Minutes of the National Court's Civil and Commercial Trial Work Conference mentioned that "some people's courts have not accurately grasped the applicable conditions of the above provisions, and have ruled that small shareholders who have not "neglected to perform their obligations" or minority shareholders who have "neglected to perform their obligations" but have no causal relationship with the loss of the company's main assets, account books, important documents, etc., bear responsibility for the company's debts far exceeding the amount of their capital contributions, resulting in a phenomenon of obvious imbalance of interests." At the same time, it is clarified that "if a shareholder produces evidence to prove that he has taken positive measures to fulfill his liquidation obligations, or that a minority shareholder proves that he is neither a member of the board of directors nor the board of supervisors of the company, nor has he appointed a person to serve as a member of the organ, and has never participated in the operation and management of the company, and claims that he should not bear joint and several liability for the company's debts on the grounds that it does not constitute "neglect to perform his obligations", the people's court will support it in accordance with law." ”

To sum up, the second stage, that is, at present, the understanding of the law is that the shareholders have taken positive measures, or the minority shareholders are not senior executives of the company and have not participated in the operation and management of the company, and they are not jointly and severally liable for the repayment of the company's debts.

However, there are always people who must simplify the above legal understanding, and will simplify and extreme this understanding into "minority shareholders do not bear the responsibility for liquidation", so the correct understanding is simplified to the wrong expression.

The understanding that "minority shareholders do not bear the responsibility for liquidation" is not only wrong, but also outrageously wrong.

Judging from the provisions and logic of the Company Law, it is a principle that shareholders bear the responsibility for liquidation. "Shareholders are not jointly and severally liable for the debts of the company" is an exception and requires sufficient proof in accordance with the rules. It is impossible not to assume this responsibility just because you are a minority shareholder.

In a second-instance case at the end of last year in a Shanghai intermediate people's court, Company B, one of the shareholders of Company XX, claimed that it was only a minority shareholder of the company, so it should not bear the losses caused by the company's creditors due to the company's failure to liquidate.

Three

XX Company was established on January 11, 1993, the company type is a limited liability company (natural person investment or holding), the registered capital of 20 million yuan. There are 5 shareholders in total, of which the major shareholder, Company A, holds 68% of the shares, and the sub-shareholder holds 30% of the shares.

On June 3, 2018, XX Company was revoked its business license by the Market Supervision Administration for "violating the company's failure to open for more than six months without a legitimate reason after its establishment, or its self-suspension for more than six consecutive months after opening", and its enterprise status is now "revoked and not cancelled", and a liquidation team has not yet been established to liquidate the company.

Company A is a creditor of Company XX and has an effective court judgment to apply to the court for enforcement of the unenforced payments.

As a result, Company A filed a lawsuit again with the court, listing the shareholders of Company XX as defendants, and requesting the court to order all shareholders of Company XX to bear joint and several liquidation liability for the part of the payment obligations under the effective judgment of so-and-so.

The court of first instance ruled in favor of Company A's claims.

Company B appealed against the first-instance judgment. In the appeal, the main grounds of appeal of Company B were:

1. Company B is only a minority shareholder of Company XX, and the company's financial books are controlled by the major shareholders, and Company B cannot establish a liquidation team to liquidate. Company B has revoked its business license against Company XX, and has not yet established a liquidation team, which is subjectively not at fault.
2. Company A failed to provide evidence of the consequences of the impairment of Company XX's property as a result of Company B's failure to perform its liquidation obligations. Company A also did not provide evidence to establish a legal causal relationship between the conduct of Company B and the loss of Company XX's property. Company A only proves that Company B has not liquidated Company XX within the statutory time limit, so its claim does not meet the constituent elements of the shareholders' liability for liquidation liability stipulated in Article 18 of the Provisions of the Supreme People's Court on Several Issues Concerning the Application of the Company Law of the People's Republic of China (II) (hereinafter referred to as the Judicial Interpretation of the Company Law).

After trial, the court of second instance rejected the above-mentioned grounds of appeal of Company B, and the court of second instance held that:

……

According to the ascertained articles of association of XX company, company B has appointed two directors and one supervisor to xx company, which shows that company B participates in the operation and management of xx company.

Company B holds 30% of the shares, although it is not the controlling shareholder, but it is still the second largest shareholder, and it is still obligated and able to take positive measures to fulfill its liquidation obligations in a timely manner after the statutory liquidation causes arise. Company B is at fault for failing to perform its obligations. Company B's appeal that it should be exempted from obligations and liabilities because it did not have information such as the financial books of Company XX could not be established.

Secondly, according to the series of balance sheets of XX Company in 2010, its total net assets at the end of the year were more than 7 million yuan, and in the execution of the judgment in another case, XX Company had no assets available for enforcement, and Company B participating in the operation and management should prove or reasonably explain the purpose and destination of the assets displayed in the aforementioned books, but it did not make a reasonable, detailed and specific explanation. This simply means that the property was depleted between 2011 and the period during which the business license was revoked. Company B did not prove that the net assets of more than 7 million yuan of Company XX were exhausted due to the normal operating expenses of Company XX or were spent through other reasonable means.

Not only that, Company B has not yet started the liquidation procedure in time when the debt of Company XX has not been repaid or even its business license has been revoked due to the suspension of business for more than six months, and the company's management has entered a vacuum period.

The Court held that Company B's claims were difficult to establish due to lack of factual basis.

In summary, in this case, the basic requirements of Company A's claim that Company B bears liability for compensation within the scope of its depreciation, loss, damage or loss of Company XX's property can be established.

The second-instance judgment upheld the original judgment and rejected the appeal.

Four

Is Company B a minority shareholder?

There is also a shareholder who holds 68% of the shares in front, so the 30% shareholding is indeed not a major shareholder.

However, Company B is not a "minority shareholder" as the court understands it in such cases. The court's understanding in such cases refers to minority shareholders who are "neither members of the board of directors nor the board of supervisors of the company, nor have they appointed personnel to serve as members of the organ, and have never participated in the operation and management of the company". Company B not only assigns directors, but also participates in the daily operation and management of the company.

In fact, the focus of the court is not on the major shareholders or minority shareholders, but on whether "the shareholders have reasonably exhausted their own means to fulfill their statutory responsibilities". In some cases, even the majority shareholder may still be held by the court for reasonable reasons not to be liable to the company's creditors for such liquidation. I remember talking about a case not long ago in which the company was seized by the court of all its financial information and assets, and the shareholders could not in fact liquidate it, so the court rejected the claims of the company's creditors.