Recently, Yang Hangsheng and Peng Qi, senior partners of King&Capital Law Firm, represented a shareholder of a former one-person limited liability company to be added as an executor in the execution procedure, and obtained a favorable decision in a provincial high court, and the application for addition of the other party was rejected in full, which successfully prevented the party from assuming joint and several liabilities for the company's debt of more than 300 million RMB.
Background of the case
Our client was the sole shareholder of a company. In the course of the performance of the contract in question, our party transferred a small portion of its equity and the company was changed to an ordinary limited liability company.
After the dispute in the case arose, the court ruled that the company was liable for a debt of more than RMB 300 million and took enforcement measures against it. The court found that there was no actual property available for execution after investigating the property under the name of the company, based on which, the applicant applied to a provincial high court to add our client as an executor based on Article 17 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 (hereinafter referred to as the “Judicial Interpretation”). The specific reasons are: (1) when the dispute occurred, our party as a shareholder of the one-person limited liability company, and has been another effective judgment that it can not prove that its personal property is independent of the company, based on this, should be jointly and severally liable for the company's debts; (2) although our party's capital contribution period has not yet expired, but because of the current insolvency of the executed person, in line with the accelerated capital contribution of the shareholders. Expiry of the circumstances, it should be in the tens of millions of dollars in the scope of unpaid contributions to bear the responsibility in accordance with the law.
Challenges in this case
Although our party did not hold 100% equity in the executor of a company in the execution stage and its capital contribution period has not expired, but in the current judicial practice, there have been cases will be the “Judicial Interpretation” of Article 17, Article 20 for the expansive interpretation and application, that: will be executed as a one-person limited liability company is not only limited to the execution stage, but also extends to the trial of the case and even debt formation; in the case of company When the company has lost its solvency and is unable to pay the debts due to the creditors, the shareholders lose the benefit of the term. Although these judicial decisions are currently controversial, the existing jurisprudence has increased the legal risk of our client assuming the debts of the company, and our client is facing an unfavorable situation.
Defense Strategy
In view of the unfavorable situation of this case, Yang Hangsheng team of lawyers formulated a comprehensive defense strategy for our client from the perspectives of factual analysis, legal application and procedural propriety, and expressed the following main points to the court:
1. additional shareholders as the executor in the execution process should strictly follow the principle of legalism, will be “one person limited liability company” limited to the execution stage
According to Article 20 of the Judicial Interpretation, the identity of a one-member limited liability company is the “executor” rather than the “debtor”, therefore, the additional shareholders as executors, “one-member limited liability company” or not should be recognized as the executor. Therefore, the additional shareholders as the executor, “a limited liability company” or not should be limited to the implementation stage. Specifically to this case, in the execution of the case, a company is not a limited liability company, should not apply the provisions of article 20.
In addition, the res judicata of the effective judgment is limited to individual cases, another case that the shareholders can not prove that the personal property independent of the company, does not ipso facto become exempted from the fact and in this case. Legal person personality denial system should follow the principle of individual cases, in the implementation of the direct application of the “separation of trial and execution” of the basic jurisprudence.
2. The shareholders have not yet reached the deadline for capital contribution, the case has not yet been “finalized”, and there is no condition for accelerated expiration of the shareholders' capital contribution.
King&Capital lawyers argued to the court in detail that the registered capital contribution system under the unexpired shareholders do not apply to the “Judicial Interpretation” of Article 17, “not paid or not paid in full” situation.
In response to the opposing party's proposal to apply the accelerated expiration system for shareholders as stipulated in Article 6 of the Proceedings of the Civil and Commercial Trial Work Conference of the National Courts, King&Capital's lawyers explained to the court in detail that a company still had claims against the outside world, and that the case had not been adjudicated by the court as “finalizing the execution procedure”, etc., in order to show that the conditions for accelerated expiration of the shareholders' capital contribution did not apply to this case. The court explained in detail that the company had claims against other parties and the case had not been adjudicated by the court as “closed for execution” to show that the conditions for accelerated expiration of shareholders' contributions were not met, i.e., “the court has exhausted the enforcement measures and there is no property available for enforcement, and the company has reasons for bankruptcy but does not apply for bankruptcy.
3. Applying for a public hearing and seeking to present a defense in court
From the procedural point of view, King&Capital lawyers argued that the case is complex, controversial, and actively apply to the court to convene a public hearing, and strive for the court to state the facts of the case, the evidence, the application of the law and other matters, to safeguard our client's interests.
Write in the end
After a comprehensive, detailed and thorough defense, a provincial high court rejected the other party's application to add shareholders as executors, and our party did not need to assume joint and several liability for the company's debt of more than 300 million yuan.
Although a one-person limited liability company has the advantages of simplicity, flexibility and efficiency, in the event that the shareholders are unable to prove that the company's property is independent of their own property, then the shareholders need to be jointly and severally liable for the company's debts, and there is a very high legal risk. Therefore, if there is no special consideration, try to choose to set up a one-person limited liability company as carefully as possible.
