With the strengthening of enforcement efforts, more and more units that are unable to fulfill their obligations as determined by effective legal documents have been included in the list of persons subject to high limit or dishonest enforcement, and the relevant responsible subjects such as legal representatives, actual controllers, and other natural persons have also been included in the "high limit list" by the people's courts. Many people are concerned about whether there are other ways or means to extricate natural persons from the "high limit list" who are not able to fulfill all the obligations specified in the effective legal documents and who are punished by "sitting in tandem" due to their failure to perform. This article introduces, analyzes, and discusses the scope, impact, and relief avenues of the punished person in combination with our practical operations.

 

1、 Limit the scope of liability subjects for high consumption

 

After a unit is listed as a person subject to enforcement, many people mistakenly believe that it will only affect the legal representative of the unit, but in fact, it is not. According to the provisions of Article 3, paragraph 2, of the "Several Provisions of the Supreme People's Court on Restricting High Consumption by Persons Subject to Enforcement", if the person subject to enforcement is a unit, and after the measures to restrict consumption are taken, the person subject to enforcement, its legal representative, principal responsible person, directly responsible person who affects the performance of debts, and the actual controller shall not engage in the high consumption and non life and work necessary behaviors specified in Article 3, paragraph 1. It can be seen from this that when the unit is limited in height, the natural persons who are "connected" include four categories of persons: legal representative, main responsible person, directly responsible person who affects the performance of debts, and actual controller.

 

1. Legal representative: Generally, the person registered on the business license, unified social credit code certificate, etc. shall prevail. After the unit is implemented with height limit measures, the legal representative registered on the original business license will be included in the height limit. During the period of high limit, if the original legal representative of the unit changes, the approval of the original high limit enforcement court is required, and the market supervision authority (the original industrial and commercial registration authority) can cooperate to make the change. The changed legal representative will be included in the high limit list, and it is not allowed to implement the restricted high cost behavior, and the original legal representative will generally be lifted from the high limit. However, if the original legal representative belongs to the person directly responsible or the actual controller that affects the performance of the debt, after the unit changes the legal representative, it still belongs to the restricted height category and cannot be lifted.

 

Main responsible person: refers to the representative of an unincorporated organization, generally subject to the personnel registered in the business license, unified social credit code certificate, etc. According to the relevant provisions and interpretations of Article 102 of the Civil Code, the types of unincorporated organizations include: 1. sole proprietorship enterprises, partnerships, and professional service institutions without legal personality; 2. Branches and representative offices of social organizations; 3. Branches of legal persons; 4. Branches of banks and non bank financial institutions, etc. The registered person in charge of the above institution is a person who can be included in the high limit list.

 

"Directly responsible person who affects the performance of debts: refers to a person who, although not possessing specific identities such as legal representative or principal responsible person, can directly have a significant impact on the actual business activities of the unit through their actions (including actions and omissions).". When determining the person directly responsible for affecting the performance of a debt, the people's court will make a comprehensive judgment based on the identity, nature of behavior, impact, and consequences of the relevant person. Focus on reviewing the original legal representatives, shareholders (especially controlling shareholders), directors, supervisors, senior management personnel, etc. Senior management personnel include managers, deputy managers, financial principals, secretaries of the board of directors of listed companies, and other important personnel specified in the articles of association.

 

"Actual controller" refers to a person who is not a shareholder or other registered equity holder of the company, but can actually control the company's behavior through investment relationships, agreements, or other arrangements (such as equity holding agreements, family businesses, concerted action agreement control, and other forms). These individuals can be included in the high limit list.

 

2、 Limit the scope of liability for high consumption

 

（1） Listed on the restricted high consumption list

 

Article 3, paragraph 1, of the "Several Provisions of the Supreme People's Court on Restricting High Consumption and Related Consumption by Persons Subject to Enforcement" stipulates that if the person subjected to enforcement is a natural person, after taking measures to restrict consumption, the following high consumption and consumption behaviors that are not necessary for life and work shall not be allowed:

 

1. When taking a transportation vehicle, choose a plane, a soft sleeper on a train, or a second class or higher cabin on a ship;

 

2. High consumption in hotels, hotels, nightclubs, golf courses, and other places above star level;

 

3. Purchase of real estate or new, expanded, or high-grade decorated houses;

 

4. Lease high-end office buildings, hotels, apartments, and other places to work;

 

5. Purchase of non business necessary vehicles;

 

6. Tourism and vacation;

 

7. Children attend high fee private schools;

 

8. Pay high premiums to purchase insurance and wealth management products;

 

9. Other consumption behaviors that are not necessary for life and work, such as taking all seats on the G-shaped multiple unit train, and other multiple unit trains with first class or above seats.

 

"If the person subjected to execution is a unit and after measures to restrict consumption have been taken, the person subjected to execution, its legal representative, principal responsible person, directly responsible person who affects the performance of the debt, and actual controller may not commit the acts specified in the preceding paragraph.". "Anyone who commits the acts specified in the preceding paragraph with personal property due to private consumption may apply to the enforcement court.". "If the examination by the enforcement court is true, permission shall be granted.".

 

According to the above provisions, although the law gives certain relief rights to the above-mentioned personnel of the unit, if they are restricted due to private consumption, they can apply to the court for relief, but they have to bear a large burden of proof, which is difficult to obtain in practice

 

（2） Restrictions on exit

 

Article 37 of the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the Civil Procedure Law of the People's Republic of China to the Enforcement Procedure stipulates that if the person subjected to enforcement is a unit, the legal representative, principal responsible person, or directly responsible person who affects the performance of the debt may be restricted from leaving the country. "If the person subjected to execution is a person without or with limited civil capacity, his legal representative may be restricted from leaving the country.".

 

（3） Cooperate with the investigation

 

Article 15 of the "Provisions of the Supreme People's Court on Several Issues Concerning Property Investigation in Civil Enforcement" stipulates that in order to ascertain the property situation and the ability to perform obligations of the person subjected to enforcement, the legal representative, responsible person, actual controller, and directly responsible person of the person subjected to enforcement may be summoned to the people's court for investigation and inquiry. "If the person subjected to execution, the legal representative, responsible person, or actual controller of the person subjected to execution who must be investigated and questioned refuses to appear without justified reasons after being summoned according to law, the people's court may compel him to appear.".

 

（4） Fines, Detention, and Criminal Liability

 

Article 9 of the "Provisions of the Supreme People's Court on Several Issues Concerning Property Investigation in Civil Enforcement" stipulates that if the person subjected to enforcement refuses to report, makes a false report, or delays in reporting property information without justifiable reasons, the people's court may, depending on the seriousness of the case, impose a fine or detention on the person subjected to enforcement or his legal representative; If a crime is constituted, criminal responsibility shall be investigated according to law. The people's court may impose a fine or detention on the main responsible person or directly responsible person of a unit that commits one of the acts specified in the preceding paragraph; If a crime is constituted, criminal responsibility shall be investigated according to law. The term "criminal responsibility" as used herein refers to the crime of refusing to execute a judgment or ruling as stipulated in Article 313 of the Criminal Law.

 

To sum up, if a unit is listed as a person subject to dishonesty or high limit, the impact on the legal representative and other responsible persons of the unit will not only be included in the list of persons subject to high limit consumption, restrictions on exit, and investigation, but also involve the risk of being investigated for criminal responsibility.

 

3、 The difference between two disciplinary measures: restricting high consumption and listing on the list of dishonest offenders

 

On December 16, 2019, the Supreme People's Court issued the "Opinions of the Supreme People's Court on Further Strengthening the Concept of Good Faith and Civilized Implementation in the Implementation Work" (hereinafter referred to as the "Opinions on Good Faith and Civilized Implementation"), Article 16 stipulates that "If a unit is a person subject to enforcement of dishonesty, the people's court shall not include its legal representative, main responsible person, directly responsible person who affects the performance of the debt, or actual controller in the list of dishonesty." According to this provision, many people mistakenly believe that after the unit is listed as a person subject to enforcement of dishonesty, the people's court should no longer take restrictive measures against its legal representative and other responsible persons, and those already taken should also be lifted. This is actually a cognitive misconception about two different disciplinary measures, namely, restricting high consumption and the list of dishonest offenders. There are still differences between the list of high-ranking personnel and the list of dishonest personnel:

 

"Limit on high consumption" is an abbreviation for restricting the high consumption of the person subjected to execution, which refers to the fact that the person subjected to execution fails to fulfill the payment obligations specified in the effective legal documents within the period specified in the execution notice, and the people's court may limit the high consumption of the person subjected to execution. The height limit focuses on restricting the "extravagant" behavior of the person subjected to execution in the consumption field. As mentioned earlier, the height limit mainly includes restricting the person subjected to execution from using specific transportation methods to travel, restricting the person subjected to execution from high consumption behaviors such as purchasing real estate and vehicles, traveling on vacation, children attending school, paying high premiums to purchase insurance and financial products, etc.

 

Listing on the list of persons subject to enforcement of dishonesty refers to the fact that the person subject to enforcement has the ability to perform but fails to perform the obligations specified in the effective legal documents. The people's court should include him or her in the list of persons subject to enforcement of dishonesty and punish him or her according to law. This list is commonly known as the "blacklist". The object of "dishonesty" is the person subjected to execution, and in addition to the person subjected to execution failing to fulfill the obligations determined by the effective legal instrument, it is also necessary to meet any of the following conditions: 1. The person who has the ability to perform but refuses to fulfill the obligations determined by the effective legal instrument; Obstructing or resisting execution by falsifying evidence, violence, threats, etc; 3. Evading execution by means of false litigation, false arbitration, or concealment or transfer of property; 4. Violating the property reporting system; 5. Violating the consumption restriction order; 6. Refusing to perform the settlement agreement without justified reasons. "Bad faith" focuses on punishing the person subjected to execution for credit at multiple social levels, including job employment, government procurement, bidding, administrative approval, government support, financing credit, market access, qualification recognition, etc. It can make the person subjected to execution "dishonest and subject to restrictions everywhere.". Therefore, being placed on the high limit list does not necessarily mean being placed on the dishonest list, but being placed on the dishonest list will definitely mean being placed on the high limit list.

 

In practice, it is necessary to distinguish between two different disciplinary measures, namely, the high limit imposed by the unit as the person subjected to execution and the breach of trust. In a nutshell, if the unit is limited in height, the responsible person such as the legal representative of the unit will definitely be limited in height (sitting side by side). However, dishonesty of the unit does not mean that the responsible person such as the legal representative of the unit is also dishonest.

 

4、 Relevant regulations and implementation of current application for lifting height limit

 

According to the relevant provisions of Article 17 of the "Good Faith and Civilized Implementation Opinions", if the people's court applies for the lifting or temporary lifting of the height limit after taking measures to limit the height of the person subjected to execution, the person subjected to execution and its related personnel shall be dealt with according to the following circumstances:

 

（1） "After the person subjected to execution of the unit is restricted from consumption, if the legal representative, principal responsible person, directly responsible person who affects the performance of the debt, or actual controller of the unit proposes to engage in consumption with personal property on the grounds of private consumption, and if it is verified to be true, permission shall be granted.".

 

（2） After the person subjected to execution of the unit has been restricted from consumption, if the legal representative or principal in charge of the unit has indeed undergone changes due to operational management needs, and the original legal representative or principal in charge applies for the lifting of the consumption restriction measures against the person, proof should be provided to prove that the person is not the actual controller of the unit or the person directly responsible for affecting the performance of the debt. The people's court shall grant permission if it is verified to be true after examination, and take measures to restrict consumption on the changed legal representative and main responsible person according to law.

 

（3） Individuals subject to consumption restrictions who urgently need to travel to other places due to their or their close relatives' serious illness, funeral, or other emergencies such as performing or cooperating in the performance of official duties, participating in foreign affairs activities, or important examinations, apply to the People's Court for the temporary lifting of restrictions on flying and high-speed rail travel. After strict review and approval by the President of the Court, they may be granted a temporary lifting period of not more than one month.

 

When applying to the people's court, the above-mentioned personnel shall submit sufficient and effective evidence and make a written commitment as required; "If a person provides untrue evidence or engages in consumer behavior in violation of a commitment, the people's court shall promptly resume the measures taken to restrict consumption, and at the same time, impose a heavier punishment in accordance with Article 111 of the Civil Procedure Law, and refuse to approve his or her reapplication.".

 

Although the "Opinions on the Implementation of Good Faith and Civilization", in order to reflect humanistic care, stipulates that after a person subjected to execution of a unit is restricted from consumption, its legal representative, principal responsible person, directly responsible person who affects the performance of the debt, and actual controller propose to engage in consumption behavior with personal property on the grounds of private consumption, and if verified to be true through examination, approval may be granted. However, in judicial practice, it is difficult for the parties to obtain permission for the above limitations. The reasons are as follows:

 

First of all, the enforcement department of the court is responsible for reviewing the application of the parties, but in reality, the work of the enforcement judge is very busy, making it difficult for the applicant to contact the enforcement judge, let alone allowing the enforcement judge to take time to verify whether the applicant's consumption is for private or public consumption. Therefore, in most cases, the applicant's application can only stay at the application stage, except for very few special circumstances where permission is granted.

 

Secondly, if the applicant applies for changing the legal representative, it shall bear the burden of proof to prove that it is not the actual controller of the unit or the person directly responsible for affecting the performance of the debt. However, in fact, this issue is more difficult to prove.

 

Once again, if the applicant wants to apply for the temporary termination of the period, in addition to providing their own evidence, they also need to report to the President of the People's Court for approval.

 

It can be seen that the above provisions on lifting the high limit are currently only in writing, and if they are to be truly implemented in judicial practice, the operational difficulties can be imagined.

 

5、 Relief means for lifting the height limit

 

As mentioned earlier, according to current relevant regulations, it is difficult for parties who are subject to height limit measures to lift the height limit in practice. Is there any other relatively easy and effective method to completely free natural persons such as legal representatives who are implicated in the height limit of the unit from the "height limit list"? Based on our years of experience in bankruptcy liquidation business, it is advisable to consider taking the path of "restructuring" or "bankruptcy" of the applicant unit, so as to relieve the legal representatives, actual controllers, and other natural persons who are "implicated", which is currently a relatively effective means of relief.

 

（1） "Reorganization" of the applicant unit is one of the effective methods for resolving the limit, but the operation is relatively complex.

 

If the entity being executed still has expected benefits and the value of its continued existence, it can apply to the people's court for "reorganization". The successful reorganization of the enterprise has smoothed out its debts and restored its reputation. The legal representative and other responsible persons will naturally be freed from the "high limit list", but the process of applying for reorganization by the implementing entity may not be easy. An enterprise applying for restructuring and rescue must first have a certain scale, with the hope of maintaining value and regeneration. Secondly, there must be investors willing to enter the takeover, or creditors willing to "swap debt for equity". Finally, a key factor in restructuring is that the enterprise needs the support of the local government and the people's court, and sunset industries or industries with overcapacity should not consider restructuring this path. The process of reorganization is a difficult process in which creditors and debtors "negotiate, compromise, reduce benefits, renegotiate, and compromise" each other. Therefore, this method can completely lift the height limit, but the operation is relatively complex.

 

（2） In addition to the path of reorganization, another realistic way for responsible persons such as legal representatives who want to be completely freed from the "high limit list" is to apply for "bankruptcy" of the unit.

 

The bankruptcy of a unit can be divided into the voluntary application for bankruptcy by the debtor unit itself and the passive bankruptcy by the creditor applying for the debtor unit. If the debtor voluntarily applies for bankruptcy, According to Article 7 of the Notice on Strengthening the Coordinated Operation of Bankruptcy Trial and Enforcement issued by the Beijing Higher People's Court "If the debtor voluntarily applies for bankruptcy and cooperates with the administrator to take over and transfer all seals, account books, property, documents, etc., and its legal representative, actual controller, and main responsible person apply for lifting the consumption restriction measures against him/herself, a written application shall be submitted. The administrator shall negotiate with the applicant for enforcement, and with the consent of the applicant for enforcement, the bankruptcy adjudication department shall transfer the application to the enforcement department. The enforcement department shall, within five days after receiving the application, transfer the application to the enforcement department." "Remove restrictions in the enforcement case handling system." Therefore, if the debtor voluntarily applies for bankruptcy and actively cooperates with the administrator in bankruptcy liquidation, after the debtor enters the bankruptcy proceedings, the legal representative and other responsible persons can apply to the bankruptcy administrator and the people's court for relief. The administrator and the applicant for enforcement can negotiate and communicate to obtain understanding, especially with the support of the court accepting the bankruptcy case. The administrator and the judge in charge of the bankruptcy trial can communicate and coordinate with the judge in the enforcement department, Instead of applying for relief, the person seeking relief should go to the enforcement judge to apply. Therefore, the process and difficulty of solving the limit are greatly reduced, and can be easily and effectively implemented.

 

If the debtor enters the bankruptcy proceedings with a bankruptcy application filed by the creditor, can the legal representative and other responsible persons be relieved through the bankruptcy proceedings? The answer is also possible.

 

According to Article 515 (1) of the Interpretation of the Supreme People's Court on the Application of the Civil Procedure Law of the People's Republic of China, "if the people's court of the place where the person subjected to execution has ruled to declare the person subjected to execution bankrupt, the execution court shall rule to terminate the execution of the person subjected to execution." A ruling to terminate the execution means that the execution process is completely ended, and if the court decides to terminate the execution according to law, the court cannot resume the execution, unless the law The judicial interpretation clearly provides for exceptions. The court's ruling to accept a bankruptcy liquidation case and the court's ruling to declare the debtor bankrupt are two different stages. There are still differences between the debtor's active application for bankruptcy and the creditor's passive application for bankruptcy in terms of the time limit for applying for relief. If the debtor voluntarily applies for bankruptcy, the time limit for applying for relief can be applied simultaneously after the court accepts the bankruptcy case. "If the debtor is passively bankrupt, an application cannot be filed immediately after the case enters bankruptcy proceedings, but can only be filed after the debtor is declared bankrupt.". From the stage of accepting a case to the stage of resolving it, depending on the complexity and difficulty of each case and the debtor's own situation, the time varies. Some enforcement judges also require that the limit be lifted only after the bankruptcy proceedings are concluded, the debtor's industrial, commercial, and tax affairs are cancelled, and the debtor's legal personality is extinguished. Therefore, this road can only be completed with the full support of bankruptcy liquidation lawyers and administrators.

 

To sum up, in the limited liability company system, shareholders assume limited liability. "If it is not a mixture of public and private entities, or if it is" pierced through the company's veil, "shareholders do not need to bear joint liability for the debts of the limited company.". The purpose of listing relevant responsible persons such as legal representatives on the high limit list is to urge them to fulfill their obligations as determined by the effective legal documents, faithfully fulfill their legal responsibilities, and avoid illegal acts such as flight, hiding, and concealment that further harm the interests of creditors. However, for natural persons such as legal representatives and actual controllers who do not intentionally hide, flee, or hide from their legal obligations and are willing to actively cooperate, even if the company is listed as a dishonest person or subject to high restrictions, they are also included in the "high limit list", which restricts their activities everywhere and makes it difficult to achieve their private consumption, Natural persons such as legal representatives who are so confused or tangled need not worry too much. By consulting a professional bankruptcy law team and under the guidance of professional bankruptcy liquidation lawyers, legal means can be used to reasonably, legally, and legally implement relief and help lift the worries of high restrictions.

 

(The above article was contributed by the Bankruptcy Law Team of Beijing Gaopeng Law Firm)

 

Beijing Gaopeng Law Firm is a member of the first and second batch of bankruptcy administrators selected by the Beijing Higher People's Court. Currently, it is one of the 50 law firms with administrator qualifications in Beijing. The bankruptcy team of Beijing Gaopeng Law Firm is a professional team of lawyers engaged in bankruptcy affairs, with nearly 20 years of rich experience in managers.

 

(This article is translated by software translator for reference only.)