"The shareholders of limited liability companies and joint stock limited liability companies are responsible for the company to the extent of their subscribed capital contributions or subscribed shares, which is the most basic principle of limited liability in China's company law system.". However, the limited liability system is not absolute and unconditional, and in special circumstances it will break through this principle. If, after the dissolution of the company, the liquidation obligor is negligent in performing its liquidation obligations, resulting in the company being unable to liquidate, causing serious losses to the interests of creditors. In such cases, requiring only the liquidation obligor to bear limited liability can cause an imbalance in social interests, so the law makes special provisions.

With the promulgation of the Company Law of the People's Republic of China (hereinafter referred to as the "Company Law"), 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 "Interpretation II of the Company Law"), and the Minutes of the Civil and Commercial Trial Work Conference of the National Courts (hereinafter referred to as the "Nine People's Minutes"), Liquidation obligors and their liability composition have undergone several different stages of development. This article will sort them out in chronological order.

1、 Stage 1: After the implementation of the "Company Law" in 1994 and before the introduction of the "Interpretation II of the Company Law" in 2008, the scope and responsibilities of liquidation obligors have not been clearly defined in the law.

The Company Law entered into force on July 1, 1994, Article 191 stipulates: "The company shall, in accordance with the provisions of Items (1) and (2) of the preceding article "If a company is to be dissolved in accordance with the provisions of paragraph, a liquidation group shall be established within 15 days. The liquidation group of a limited liability company shall be composed of shareholders, and the candidates for the liquidation group of a joint stock limited company shall be determined by the shareholders' meeting."; "If a liquidation group is not established to carry out liquidation within the time limit, the creditors may apply to the people's court to designate relevant personnel to form a liquidation group to carry out liquidation.". "The people's court shall accept the application and promptly appoint members of the liquidation team to conduct liquidation."

In 2005, the Company Law made partial adjustments to the above provisions, changing the members of the liquidation group of a joint stock limited company to "directors or personnel determined by the shareholders' meeting.".

The above provisions only specify who shall serve as the members of the liquidation team of limited liability companies and joint stock limited liability companies, but do not specify the liquidation obligors and their responsibilities.

2、 Stage 2: In 2008, "Interpretation 2 of the Company Law" implemented and stipulated the liquidation obligors and their civil liabilities, including liquidation liabilities, liquidation compensation liabilities, and liquidation liabilities.

Due to the lack of provisions on the scope of liquidation obligors and their legal responsibilities in the Company Law, it often occurs in judicial practice that companies do not organize liquidation after dissolution in order to avoid company debts. When creditors request the people's court to designate relevant personnel to form a liquidation team to carry out liquidation, the company's main assets, account books, and important documents have long been destroyed and cannot be liquidated, resulting in serious losses to the interests of creditors, But it is difficult to hold accountable.

Therefore, in May 2008, the Supreme People's Court issued the "Interpretation II of the Company Law", Article 18 stipulates that: "If the shareholders of a limited liability company, the directors and controlling shareholders of a joint stock limited company fail to establish a liquidation group within the statutory time limit to commence liquidation, resulting in the depreciation, loss, damage, or loss of the company's assets, and the creditors claim that they are liable for compensation for the company's debts within the scope of the losses caused, the people's court shall support them in accordance with the law. If the shareholders of a limited liability company, the directors and controlling shareholders of a joint stock limited company fail to fulfill their obligations "If the company's main assets, account books, important documents, etc. are lost and cannot be liquidated, and creditors claim that they bear joint and several liability for the company's debts, the people's court shall support them in accordance with the law.". "The above situation is caused by the actual controller. If a creditor claims that the actual controller shall bear corresponding civil liability for the company's debts, the people's court shall support it according to law."

"Interpretation 2 of the Company Law" clarifies for the first time that shareholders of limited liability companies, directors and controlling shareholders of joint stock limited companies have the responsibility to perform liquidation obligations as liquidation obligors. "If the liquidation obligor fails to establish a liquidation team to commence liquidation within the time limit specified in the Company Law, resulting in the depreciation, loss, damage, or loss of the company's assets, it shall be liable for compensation for the company's debts to the extent of the losses incurred;"; "If the liquidation obligor is negligent in performing its liquidation obligations, resulting in the loss of the company's main assets, account books, important documents, etc., and is unable to carry out liquidation, it shall bear joint and several liability for paying off the company's debts.". Among them, requiring the liquidation obligor to bear compensation liability within the scope of losses is based on the provisions made from the perspective of tort liability; The theoretical basis for investigating the joint and several liability of liquidation obligors is the legal personality denial system, which is an exception to the limited liability system.

The provisions on liquidation obligors and civil liability for non performance of liquidation obligations in the Interpretation II of the Company Law have filled the gaps in the Company Law and further improved the legal person withdrawal mechanism.

[Reference case]

With the promulgation of the Second Interpretation of the Company Law, a large number of cases have emerged in practice in which shareholders of limited liability companies have been judged to be negligent in fulfilling their liquidation obligations and have assumed joint and several liability for the company's debts.

In the (2015) Yizhong Min (Shang) Zhong Zi No. 6889 case, the Beijing First Intermediate People's Court held that "II. As a shareholder of Passion Baidu Company, Liu Zhiming failed to fulfill his liquidation obligations in a timely manner, and whether he should be jointly and severally liable to the creditors of Passion Baidu Company. 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) stipulates: "If the shareholders of a limited liability company, the directors and controlling shareholders of a joint stock limited company fail to establish a liquidation group within the statutory time limit to commence liquidation, resulting in the depreciation, loss, damage, or loss of the company's assets, and the creditors claim that they are liable for compensation for the company's debts within the scope of the losses caused, the people's court shall support them in accordance with the law. If the shareholders of a limited liability company, the directors and controlling shareholders of a joint stock limited company fail to fulfill their obligations "If the company's main assets, account books, important documents, etc. are lost and cannot be liquidated, and creditors claim that they bear joint and several liability for the company's debts, the people's court shall support them in accordance with the law." In this case, Liu Zhiming, as the sole shareholder of Passion Baidu, was obligated to liquidate the company within the legal period after the company's business license was revoked. Although Liu Zhiming published a cancellation announcement in the Beijing Morning Post on April 2, 2015 and sent a notice of creditor's rights declaration to Zhongtian Company, the time when Passion Baidu Company's business license was revoked was October 9, 2013. Liu Zhiming published an announcement in 2015 to carry out liquidation work, "The period specified in Article 183 of the Company Law of the People's Republic of China, which states that a liquidation group should be established within 15 days from the date of the occurrence of the cause of dissolution to commence liquidation, has been far exceeded.". According to the above provisions, Liu Zhiming has constituted a default in fulfilling his liquidation obligations. In addition, during the trial of this case, Liu Zhiming was only able to provide some of the accounting records of Passion Baidu from April 2009 to 2013. Upon inquiry by the court, Wang Jian, a financial officer of Passion Baidu, stated that if the company's financial information was incomplete and could not be liquidated, Liu Zhiming had already started the liquidation process, but because Liu Zhiming was unable to provide complete financial and accounting information of Passion Baidu, Objectively, it is already in a state that cannot be liquidated. Taking into account the fact that the above shareholders were negligent in fulfilling their liquidation obligations and the company was unable to liquidate, the court of first instance, in accordance with the provisions of the above judicial interpretation, ruled that Liu Zhiming was not unduly liable for the debts of Passion Baidu. "The Court will not accept Liu Zhiming's appeal that although he was negligent in fulfilling his liquidation obligations, the debt of Zhongtian Company was not repaid due to Liu Zhiming's failure to liquidate in a timely manner."

In the (2017) Jing 02 Min Zhong 8275 case, the Beijing Second Intermediate People's Court held that "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)" Article 18 (2) stipulates that if a shareholder of a limited liability company, a director or controlling shareholder of a joint stock limited company is unable to carry out liquidation due to their default in performing their obligations, resulting in the loss of the company's main assets, account books, important documents, etc., and the creditor claims that they are jointly and severally liable for the company's debts, the people's court shall support them in accordance with the law. In this case, in April 2007, the court of first instance terminated the execution procedure on the grounds that Tongbao Construction Company had no property to be enforced. Tongbaojian Company was revoked its business license in October 2007, but Zheng Xiaoyi and Wu Mingjian have not established a liquidation team to carry out liquidation. Tongbaojian Company has not yet repaid the amount owed to Qiu Zongquan. Qiu Zongquan sued and demanded that the shareholders of Tongbao Construction Company, Zheng Xiaoyi and Wu Mingjian, bear joint and several liability in accordance with the law, and have completed the preliminary burden of proof. Zheng Xiaoyi, as one of the shareholders of Tongbao Construction Company, advocates that Tongbao Construction Company can still carry out liquidation, and should submit evidence to prove it. "However, Zheng Xiaoyi did not submit evidence to prove that the financial account books of Tongbao Construction Company are still available and can be liquidated. Therefore, the court of first instance ruled that Zheng Xiaoyi and Wu Mingjian should bear joint and several liability for the debt interest incurred during the delayed performance period and the debt interest doubled during the delayed performance period caused by Tongbao Construction Company's failure to perform the effective judgment. There was no improper handling of the joint and several liability."

3、 Stage 3: In November 2019, the "Nine People's Minutes" was issued, clarifying the judgment thinking for cases where liquidation obligors were negligent in fulfilling their liquidation obligations

Background for the introduction of relevant provisions of the "Nine People's Minutes"

The provisions of Article 18 of the Second Interpretation of the Company Law have played a positive role in urging companies to liquidate in accordance with the law after dissolution, and protecting the interests of creditors during the dissolution and liquidation of companies. However, there have also been negative consequences, namely, increasing the responsibilities of shareholders and being abused by professional debt collectors as a tool for arbitrage. After professional debt collectors have purchased "old accounts" of zombie enterprises from other creditors at ultra low prices in batches, they require the shareholders of limited liability companies and controlling shareholders of joint stock limited companies to assume continuous liability for paying off the company's debts in accordance with Article 18, paragraph 2, of the Interpretation II of the Company Law. In practice, some courts have failed to accurately grasp the applicable conditions of the above provisions, and have ruled that minority shareholders who have not "failed to fulfill their obligations" or shareholders who have "failed to fulfill their obligations" but have no causal relationship with the loss of the company's main assets, account books, important documents, etc. bear joint and several liabilities for the company's debts, which is obviously unfair. At the same time, it has encouraged arbitrage behavior by professional debt collectors, which is contrary to public order and good customs. In order to solve this problem, on November 8, 2019, the Supreme People's Court issued the "Nine People's Minutes" to unify the judgment thinking of cases involving "the liability of liquidation obligors of limited liability companies", including the determination of "default in performing obligations", the application of causal defenses, and the determination of the starting point during the limitation period of action, Trying to adjust the imbalance of interests caused by inappropriate expansion of the liability of liquidation obligors in judicial practice.

2. Relevant provisions of "Minutes of the Nine People"

Article 14 of the Minutes of the Ninth People stipulates: "[Determination of Delay in Performing Liquidation Obligations] The term" delay in performing obligations "specified in Article 18, paragraph 2, of the Judicial Interpretation of the Company Law (II) refers to the negative behavior of shareholders of a limited liability company who deliberately delay or refuse to perform liquidation obligations, or who are unable to conduct liquidation due to negligence, after the occurrence of a statutory liquidation cause and are able to perform liquidation obligations. "If a shareholder provides evidence to prove that it has taken positive measures to fulfill its liquidation obligations, or a minority shareholder provides evidence to prove that it is neither a member of the company's board of directors or supervisory board, nor has it selected personnel to serve as a member of the organ, and has never participated in the company's operation and management, and claims that it should not bear joint and several liability for the company's debts on the grounds that it does not constitute a" default in fulfilling its obligations, "the people's court shall support it in accordance with the law."

Article 15 of the Minutes of the Ninth People stipulates: "[Defense of Causality] If a shareholder of a limited liability company adduces evidence to prove that there is no causal relationship between his negative omission of" neglecting to fulfill his obligations "and the result of" the loss of the company's main assets, account books, important documents, etc., which cannot be liquidated ", and claims that he should not bear joint and several liability for the company's debts, the people's court shall support it in accordance with the law."

Article 16 of the "Minutes of the Ninth People's Republic of China" stipulates: "During the [limitation period of litigation], company creditors request shareholders to assume joint and several liability for paying off company debts. Shareholders plead that the company's creditors' claims against the company have exceeded the limitation period of litigation, and if it is verified to be true, the people's court shall support it in accordance with the law. Company creditors shall be subject to the judicial interpretation of the Company Law (II)." "Based on the second paragraph of Article 18, if a shareholder of a limited liability company is requested to assume joint and several liability for the company's debts, the limitation period for litigation shall be calculated from the date on which the company's creditors know or should know that the company cannot be liquidated."

As can be seen from the above, the "Nine Minutes of the People" specifies the exemption conditions for liquidation obligors, and should consider whether it is due to negligence in performing liquidation obligations, whether there is a causal relationship with inability to liquidate, and whether the creditor's claim has passed the statute of limitations. The introduction of the "Nine People's Minutes" has cracked down on the arbitrage behavior of professional debt collectors, with significant results.

4、 Relevant provisions on liquidation obligors and their civil liabilities in the Civil Code

The Civil Code of the People's Republic of China entered into force on January 1, 2021, Article 70 stipulates that: "If a legal person is dissolved, except in the case of merger or division, the liquidation obligors shall promptly form a liquidation team to carry out liquidation. The directors, directors, and other members of the executive or decision-making bodies of the legal person shall be the liquidation obligors. If there are other provisions in laws and administrative regulations, such provisions shall prevail. If the liquidation obligor fails to perform its liquidation obligations in a timely manner and causes damage, it shall bear civil liability; the competent authority or interested parties may apply to the people's court." "The court designates relevant personnel to form a liquidation team to carry out liquidation.".

From the above provisions, it can be seen that the Civil Code abstracts the liquidation obligations and civil liabilities applicable to all legal persons based on Article 183 of the Company Law and Article 18 of the Interpretation II of the Company Law: first, liquidation liabilities; "The second is liability for compensation, which means that if the liquidation obligor fails to perform its liquidation obligations in a timely manner and causes damage, it shall bear civil liability.". At the same time, the Civil Code also stipulates the scope of liquidation obligors, that is, members of executive or decision-making bodies such as directors and directors of legal persons are liquidation obligors. If laws and administrative regulations provide otherwise, such provisions shall prevail. In response, the series of books entitled "Understanding and Application of the Civil Code of the People's Republic of China" published by the People's Court Press holds that the Civil Code is a general provision for the liquidation obligors of all legal persons, and that limited liability companies and joint stock limited liability companies are still subject to the special provisions of the Company Law and Interpretation II of the Company Law, namely, the shareholders of limited liability companies The directors and controlling shareholders of a joint stock limited company are the liquidation obligors of the company.

The above is the author's summary of the liquidation obligor and its liability composition. From its development, we can see the importance of law in economic life. The important role of law is to regulate the interests of different subjects, such as the interests of corporate creditors and liquidation obligors mentioned above, with the aim of balancing their interests and promoting economic and social development.

Citation

[1] Article 190 of the Company Law of 1994: A company may be dissolved under any of the following circumstances: (1) When the business term specified in the company's articles of association expires or other causes for dissolution specified in the company's articles of association occur; （2） The shareholders' meeting resolves to dissolve

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