Recently, a case involving a dispute over liability for harming corporate interests, represented by Attorney Zhu Yuanxiao of King&Capital law Firm, resulted in a complete victory. The plaintiff company sued its legal representative and executive director, alleging that he had harmed the company’s interests, and sought to recover the relevant funds and obtain compensation for losses. Attorney Zhu constructed a defense strategy based on multiple dimensions, including standing to sue, the resulting damages, and causation. Ultimately, the court ruled that the plaintiff had failed to prove that the disputed funds constituted its independent assets and could not verify the specific amount of losses, and thus dismissed all of the plaintiff’s claims. This case unfolded against a backdrop of a power struggle for corporate control and a high degree of intermingling among affiliated entities, making it a landmark precedent for both plaintiffs and defendants in similar disputes.
I. Case Challenges: A Defendant Who Seemed “a Sure Thing,”
The Key to Breaking the Deadlock Lies in the Determination of Actual Damages
The primary challenge in representing this case lay in the misalignment of the focal points of the offense and defense. In such disputes, plaintiffs can often file a lawsuit based solely on the preliminary allegation that “senior executives harmed the company’s interests,” which, on the surface, appears extremely unfavorable to the defendant; however, the legal outcome ultimately depends on whether the plaintiff can prove that the disputed funds are indeed the company’s separate property and whether the amount of loss can be specifically determined. The challenge for the defense counsel lies precisely in countering the unfavorable perception established at the time of case filing and redirecting the litigation back to the core issue: “whether the plaintiff has truly met its burden of proof.”
Even more challenging is the high level of complexity at the factual level. The case is set against the backdrop of an internal power struggle for control within the company: the plaintiff company is dominated by its major shareholder and actual controller, and it is highly intertwined with multiple affiliated entities in terms of business operations, finances, and personnel. Determining whether the disputed funds truly belong to the plaintiff company, whether the plaintiff actually suffered losses, and how to calculate the amount of those losses requires painstaking analysis across multiple entities, sifting through vast amounts of bank statements, business system records, chat logs, and contractual materials. The organization of evidence and the allocation of the burden of proof directly determine the outcome of the case.
II. Professional Approach: Using the Plaintiff’s Own Weapons Against Them
Faced with these challenges, King&Capital Law Firm established a multi-pronged defense strategy combining “procedural arguments and proof of damages,” rather than staking the case’s outcome on a single breakthrough:
First, on the procedural level, the firm pointed out flaws in the formation of the plaintiff’s intent to file the lawsuit in the company’s name, arguing that the lawsuit had not undergone the company’s proper internal decision-making process and that the plaintiff’s standing to sue was questionable.
Second, and crucial to victory—at the level of damages—the attorneys successfully leveraged their prior experience in winning cases involving the “dual denial of corporate personality (vertical and horizontal),” as identifying and arguing the commingling of business operations, finances, and personnel among affiliated companies is their area of expertise. In this case, the attorney applied this expertise “in reverse”: by systematically analyzing the evidence submitted by the plaintiff regarding multiple affiliated entities, the attorney demonstrated the intermingling of business operations, finances, and personnel among these entities, thereby refuting the plaintiff’s claim of independent legal personality and assets. Consequently, the attorney argued that the plaintiff could not prove that the disputed funds belonged to its own assets nor specify the exact amount of loss, rendering the plaintiff’s claim of “damages to its interests” untenable.
Third, the precise application of the rules governing the burden of proof: When a company alleges that directors, supervisors, or senior executives have harmed its interests, it must first prove that the company’s own assets were infringed upon and specify the exact amount of the loss; if the plaintiff fails to provide sufficient evidence, it shall bear the adverse consequences in accordance with the law. The defense counsel countered each point around this core principle, ultimately leading the court to dismiss the plaintiff’s application for investigation and evidence collection, as well as all of its claims.
III. Two-Way Lessons: Professionalism Is Indispensable Whether on the Offensive or the Defensive
This case serves as a cautionary lesson for both parties.
Advice for Defended Directors, Supervisors, and Senior Executives: In scenarios where a company is dominated by a de facto controller and there is commingling of assets with affiliated entities, a claim of “harming the company’s interests” is not insurmountable. A professional defense should be mounted from multiple angles, including procedural aspects and the nature of the damages. In particular, defendants should skillfully use the plaintiff’s own evidence to highlight ambiguities regarding ownership and the extent of losses, thereby effectively shifting the burden of proof back to the plaintiff.
Advice for Companies and Shareholders: Bringing a lawsuit for liability arising from harm to the company’s interests cannot be based solely on “suspicions that executives have acted improperly.” The prerequisite for winning the case is establishing a clear and unbroken chain of evidence—proving that the company’s own independent assets were infringed upon, and that the losses are genuine and quantifiable. If there is commingling among affiliated entities, it is even more critical to clarify ownership and losses and gather evidence before filing the lawsuit; otherwise, the case is highly likely to be lost due to insufficient evidence.
Conclusion
This case represents another successful practice by King&Capital Law Firm at the intersection of corporate disputes and shareholder rights disputes, demonstrating a precise grasp of the determination of liability for directors, supervisors, and senior executives, the allocation of the burden of proof, and issues of commingling among affiliated enterprises. Notably, this is the second successful case this year in which Attorney Zhu has represented a client in a dispute over liability for harming corporate interests: in the previous case, he represented company directors and senior executives, and the court dismissed a claim for damages in the tens of millions of yuan filed by a minority shareholder on behalf of the company. Therefore, whether you are a director, supervisor, or senior executive facing corporate litigation, or a company or shareholder seeking to hold insiders accountable, King&Capital law Firm can provide professional and practical legal services.
