Article 54 of the new Company Law stipulates the accelerated maturity of shareholder contributions in non bankruptcy situations, which is a significant change under the subscribed capital system and a major highlight of this revision of the Company Law. However, due to the general nature of this regulation, there is considerable controversy in litigation practice regarding how to determine the conditions for initiating accelerated maturity of shareholder contributions, the flow of shareholder contributed assets, and how creditors can use this system to protect their legitimate rights and interests. This article intends to explore the above issues in order to provide practical and feasible litigation solutions for creditors' rights protection.

1、 Application of accelerated maturity of shareholder contributions before the promulgation of the new Company Law

In the third amendment of the Company Law in 2013, a comprehensive subscription system was established, in which shareholders enjoy term benefits on their subscribed capital. Before the promulgation of the new Company Law, the accelerated maturity of shareholder contributions clearly stipulated in laws and judicial interpretations mainly included two situations: accelerated maturity of shareholder contributions during company bankruptcy [1] and accelerated maturity of shareholder contributions during company dissolution and liquidation [2]. Article 6 of the "Minutes of the National Conference on Civil and Commercial Trial Work of Courts" (hereinafter referred to as the "Nine Civil Minutes") strengthens the protection of company creditors and stipulates two situations for accelerated maturity of shareholder contributions in non bankruptcy contexts. One is that in cases where the company is the subject of enforcement, the people's court has exhausted all enforcement measures and has no property available for enforcement, and there are already reasons for bankruptcy, but does not apply for bankruptcy; The second is that after the company's debts are incurred, the shareholders' (general) meeting of the company resolves or extends the shareholder contribution period in other ways.

Article 54 of the new Company Law stipulates the accelerated maturity system for shareholders who have not yet reached the capital contribution deadline, which means that "if the company is unable to repay its due debts, the company or creditors of matured debts have the right to demand that shareholders who have already subscribed for capital but have not yet reached the capital contribution deadline pay their capital contributions in advance". This provision specifies the conditions for triggering accelerated maturity of shareholder contributions, as well as the flow of capital assets after accelerated maturity of shareholder contributions. This article will analyze the above aspects from the perspective of.

2、 Understanding of 'Company unable to repay maturing debts'

The provisions of Article 54 of the new Company Law simplify the conditions for initiating accelerated maturity of shareholder contributions, retaining only one condition, which is that "the company cannot repay its due debts". As both the new Company Law and the Enterprise Bankruptcy Law belong to the same commercial legal system, the interpretation of their meanings should follow the consistency of their inherent logic. The bankruptcy threshold condition stipulated in Article 2, Paragraph 1 of the Enterprise Bankruptcy Law is that the enterprise legal person cannot repay its due debts, and its assets are insufficient to repay all debts or it clearly lacks the ability to repay. Article 2 of the "Provisions of the Supreme People's Court on Several Issues Concerning the Application of the Enterprise Bankruptcy Law of the People's Republic of China (I)" further stipulates the constituent elements of "inability to repay due debts", namely (1) the creditor debtor relationship is established in accordance with the law; (2) The deadline for debt repayment has expired; (3) The debtor has not fully repaid the debt. According to the above provisions, the term "inability to pay off due debts" in the Enterprise Bankruptcy Law has actually been changed from "payment cannot be modified" to "cessation of payment", that is, regardless of the debtor's subjective will or objective payment ability, as long as the situation of cessation of payment occurs, the condition of "inability to pay off due debts" is met. The provision in Article 54 of the new Company Law regarding "inability to repay matured debts" should be interpreted in the same way.

In practice, creditors can provide evidence from the following aspects to prove that the debtor company meets the criteria for being unable to repay due debts: (1) the creditor has repeatedly collected debts, but the debtor company refuses to fulfill them on the grounds of being unable to repay; (2) Compulsory execution has been carried out but still unable to realize all debts; (3) The debtor company is unable to obtain execution or terminate the execution of the execution case as the debtor, not limited to the execution case initiated by the creditor itself.

3、 The flow of assets contributed by shareholders after accelerated maturity

There is a dispute between the rules of entry into the treasury and the rules of direct compensation for creditors regarding the flow of assets contributed by shareholders after accelerated maturity. The warehousing rule refers to shareholders fulfilling their capital contribution obligations to the debtor company first, and then the debtor company repaying the creditors. Supporters believe that in legal logic, the object of shareholders' obligation to contribute capital is the company rather than creditors, and there is no direct legal relationship between shareholders and creditors. The capital contribution obligation of shareholders who have not yet matured becomes a matured debt due to the triggering of accelerated maturity conditions. If the shareholders still fail to fulfill it, they shall be subject to the provisions of Article 13 (2) [6] 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 (Revised in 2020)" (hereinafter referred to as "Interpretation III of the Company Law") and shall bear supplementary repayment responsibility for the company's debt within the scope of non capital contribution principal and interest. As an independent legal entity, the company needs to consider its interests, and the role of shareholder contributions is not limited to debt guarantee for the company.

The viewpoint that supports the individual repayment rules for creditors advocates that Article 13 of Interpretation 3 of the Company Law stipulates the individual repayment of creditors, and the acceleration of capital contribution to maturity is essentially a debt that the company has lost its term benefits, and should not be treated differently from Article 13 of Interpretation 3 of the Company Law; Article 537 of the Civil Code [8] stipulates the system of subrogation, in which the debtor's counterparty fulfills the debt to the creditor, explicitly waives the rule of entering into the treasury, and applies the principle of individual repayment to accelerate the maturity of shareholder contributions, which is in line with the provisions of the Civil Code. [9]

By combining the court's judgment on the application of Article 54 of the new Company Law, we can gain insight into the court's attitude towards the issue of the flow of capital assets after the accelerated maturity of shareholder contributions. The People's Court of Xicheng District, Beijing (hereinafter referred to as "Xicheng Court") announced the first case of applying Article 54 of the new Company Law to make a judgment in court on the day when the new Company Law came into effect. The main fact of this case is that in 2023, Li applied for compulsory enforcement to the Xicheng Court based on a labor arbitration mediation agreement reached with a cultural company. However, due to the lack of property available for enforcement, the Xicheng Court made a ruling to terminate this enforcement. Later, Li applied to add Zhang, a shareholder of a certain cultural company, as the debtor. Zhang is a 60% shareholder of a cultural company, with a subscribed capital of 1.8 million yuan, and the subscribed capital date is March 15, 2052. The Xicheng Court ruled to add Zhang as the debtor. Zhang filed a lawsuit against the execution objection, claiming that he enjoyed the benefits of the subscribed capital before the expiration of the deadline. This case does not meet the bankruptcy situation and should not be directly subject to the accelerated maturity rule. The Xicheng Court held that due to a certain cultural company meeting the legal conditions of being unable to repay its due debts, the judgment determined that shareholder Zhang should apply the accelerated maturity rule to fulfill the debt of early payment of capital contributions. Li, as a creditor, has the right to claim supplementary compensation liability from Zhang for debts that the company cannot repay within the scope of his non contribution, based on the principle of subrogation.

From this case, it can be seen that the Xicheng Court adopted the individual repayment rule for creditors when applying Article 54 of the new Company Law. However, as Xicheng Court is a grassroots court with a lower level of court hierarchy, whether its judgment views can represent the judicial views of most courts still needs to be tested by judicial practice, or clarified by the Supreme People's Court issuing relevant judicial interpretations of the Company Law.

4、 The Selection of Creditors' Litigation Plans and the Connection of Execution Procedures

The different interpretations of Article 54 of the new Company Law directly affect the litigation strategies and claims of creditors when the debtor company fails to fulfill its due debts, which has a huge impact on litigation practice. At present, in judicial practice, there are several litigation schemes for creditors to claim that the debtor company's shareholders who have not contributed capital shall bear responsibility, including the following:

（1） Creditors sue the debtor company and shareholders together

Creditors, in order to improve efficiency and save litigation costs, often include shareholders who have not yet reached their capital contribution deadline as defendants when filing debt repayment lawsuits. Most courts will support the creditor's lawsuit request, ruling that the debtor company shall bear corresponding responsibilities, while the non contributing shareholders shall bear supplementary compensation responsibilities for the portion that the company cannot repay within the scope of non contribution. Many courts also believe that one of the prerequisites for accelerating the maturity of shareholder contributions is that the company is unable to repay the due debts of creditors. Therefore, in cases where the creditor and the company's debt cannot be determined, it is not appropriate to sue shareholders together in disputes between creditors and debtor companies. [10]

If Article 54 of the New Company Law is understood as applying the individual repayment rules for creditors, creditors may sue the debtor company and shareholders together in accordance with this provision; If understood as a warehousing rule, the capital contribution property of shareholders after accelerated maturity should belong to the debtor company, as the general liability property of the debtor company. If creditors sue both the debtor company and shareholders together, their claims against the shareholders will be rejected by the court due to the lack of clear legal basis.

（2） Creditors add shareholders of the debtor company as the subject of enforcement in the execution procedure

Article 17 [11] of the "Provisions of the Supreme People's Court on Several Issues Concerning the Amendment and Addition of Parties in Civil Execution (2020 Revision)" (hereinafter referred to as the "Amendment and Addition Provisions") provides a legal basis for creditors to add shareholders of the debtor company as the executed party in the execution procedure. However, the mainstream judicial viewpoint believes that this provision cannot be extended to situations where shareholders contribute capital to accelerate the maturity. In case No. 2920 of the Supreme People's Court (2023), the Supreme People's Court held that Article 17 of the "Provisions on Changes and Additions" does not apply to the situation where shareholders have not paid their capital contributions before the deadline for subscribed capital has expired. At the same time, the addition of a new subject as the executed party in the execution procedure must follow the principle of legality. Currently, there is no legal or judicial interpretation that allows for the addition of a shareholder as the executed party on the grounds of accelerated capital contribution due before the deadline for subscribed capital contributions has expired. Therefore, regardless of whether the deadline for subscribed capital in the case should be accelerated, the shareholder should not be directly added as the debtor in the execution procedure.

Based on the above judicial viewpoint, it is already difficult for creditors to directly add shareholders of the debtor company as the executed party in the execution procedure. Usually, after the court rejects the application for addition, creditors need to further file an objection to the execution, and the court entity will review and confirm whether to add shareholders who have not contributed capital as the executed party. If the new Article 54 of the Company Law is interpreted according to the entry rules, there is still a lack of legal basis for creditors to add shareholders who have not yet reached the capital contribution period as the executed person in the execution procedure. However, according to the interpretation of individual repayment rules for creditors, Article 54 of the new Company Law can be used as a legal basis for creditors to add shareholders who have not yet reached the capital contribution period as the executed person. However, it can be foreseen that creditors will inevitably need to go through execution objection lawsuits to successfully add shareholders who have not yet reached the capital contribution period as the executed person.

（3） Creditors sue the debtor company and apply for preservation of shareholders' contributions. If shareholders raise objections, they also sue shareholders for accelerated maturity of their contributions

As mentioned earlier, if the new Article 54 of the Company Law is understood as a storage rule, whether creditors directly sue shareholders or add shareholders as executed persons in the execution procedure against the debtor company, it will not be supported due to the lack of clear legal basis. In this case, if creditors want to better realize their legitimate rights and interests, they can consider suing the debtor company first, applying to freeze the capital contributions of the debtor company's shareholders who have not yet expired in the lawsuit, and applying for enforcement after the judgment takes effect. If shareholders raise objections to enforcement, creditors can sue shareholders separately to request accelerated capital contributions.

Article 499 [12] of the Interpretation of the Supreme People's Court on the Application of the Civil Procedure Law and Article 45 [13] of the Provisions of the Supreme People's Court on Several Issues Concerning the Execution Work of the People's Courts (Trial Implementation (Revised in 2020)) provide legal basis for creditors to apply for the execution of the due debt rights of the executed person. Article 13 [14] of the Several Opinions of the Supreme People's Court on Punishing and Evading Execution Acts in accordance with the Law provides guidance for creditors to apply for the freezing of the unexpired debt rights of the executed person. However, in practice, there are differences in whether courts in different regions can freeze them.

5、 Conclusion

Article 54 of the new Company Law should be understood from a literal perspective as applying the warehousing rules, but Article 13 of Interpretation III of the Company Law and Article 6 of the Nine Civil Minutes both apply to the individual repayment rules of creditors. Whether shareholder contributions can be directly used to repay individual creditors depends on the game of efficiency and fairness values, and it is necessary to consider whether the interests of creditors or the interests of the company should be prioritized. Legislators and judicial officials seem to have adopted different attitudes towards this issue, which requires further clarification from judicial interpretations.

Prior to this, as the court seemed to follow the interpretation path of Interpretation 3 of the Company Law when applying Article 54 of the new Company Law, creditors could sue shareholders who had not yet reached the capital contribution deadline when suing the debtor company. If the future judicial interpretation clarifies that Article 54 of the new Company Law should be interpreted in accordance with the warehousing rules, creditors may adjust their litigation plans in a timely manner, first sue the debtor company, and at the same time apply for the preservation of shareholders' contributions. After the judgment enters the execution procedure, creditors may file another lawsuit to request shareholders to accelerate the maturity of their contributions, and apply for the execution of the preserved shareholders' contributions after obtaining an effective judgment.

References and comments (slide down to view)

[1] Article 35 of the Enterprise Bankruptcy Law stipulates: "If, after the people's court accepts the bankruptcy application, the debtor's investor has not fully fulfilled the obligation of capital contribution, the administrator shall require the investor to pay the subscribed capital contribution, without being limited by the deadline for capital contribution

[2] Article 22 of the Interpretation 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 that when a company is dissolved, any unpaid capital contributions by shareholders shall be treated as liquidation property. The unpaid capital contributions of shareholders include the capital contributions that are due but not yet paid, as well as the capital contributions that have not yet reached the due payment deadline in accordance with Article 26 and Article 80 of the Company Law.

[3] Zhao Xudong, Editor in Chief: "Interpretation of Articles of the New Company Law", Law Press, page 137.

[4] Liu Guixiang: "Several Issues on the Application of the New Company Law (Part 1)", published in the 6th issue of "Application of Law" in 2024.

[5] Chen Ke: "Whether the accelerated expiration of shareholders' contributions should follow the warehousing rules - disputes and legal principles of Article 54 of the New Company Law", published on the "Law and Thought" WeChat official account.

[6] Article 13, Paragraph 2 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 (Revised in 2020)" stipulates: "If a creditor of a company requests a shareholder who has not fulfilled or fully fulfilled its capital contribution obligation to bear supplementary compensation liability for the portion of the company's debt that cannot be repaid within the scope of the principal and interest of the capital contribution, the people's court shall support it; if a shareholder who has not fulfilled or fully fulfilled its capital contribution obligation has already borne the above-mentioned liability, and other creditors make the same request, the people's court shall not support it.

[7] Zhao Xudong, Editor in Chief: "Interpretation of Articles of the New Company Law", Law Press, p. 139.

[8] Article 537 of the Civil Code stipulates: "If the people's court determines that the right of subrogation is established, the counterparty of the debtor shall perform its obligations to the creditor. After the creditor accepts the performance, the corresponding rights and obligations between the creditor and the debtor, and between the debtor and the counterparty shall terminate. If the debtor takes preservation or enforcement measures against the counterparty's rights or related rights, or if the debtor goes bankrupt, it shall be handled in accordance with relevant laws and regulations

[9] Liu Guixiang: "Several Issues on the Application of the New Company Law (Part 1)", published in the 6th issue of "Application of Law" in 2024.

[10] Shanghai No. 1 Intermediate People's Court: Trial Ideas and Key Judgment Points of Dispute Cases Concerning the Acceleration of Expiration of Shareholders' Contributions, published on the WeChat official account of "Shanghai No. 1 Intermediate People's Court".

[11] Article 17 of the "Provisions of the Supreme People's Court on Several Issues Concerning the Change or Addition of Parties in Civil Enforcement (Revised in 2020)" stipulates: "As a for-profit legal person subject to enforcement, if its assets are insufficient to repay the debts determined by effective legal documents, the people's court shall support the application for enforcement to change or add shareholders, contributors who have not paid or fully paid their capital contributions, or initiators who bear joint and several liability for such capital contributions in accordance with the provisions of the Company Law as the subject of enforcement

[12] Article 499 of the Interpretation of the Supreme People's Court on the Application of the Civil Procedure Law stipulates: "The people's court may make a ruling to freeze the debt of the person subject to enforcement against another person when enforcing the due debt, and notify the other person to fulfill it to the applicant. If the other person objects to the due debt and the applicant for enforcement requests compulsory enforcement of the objected part, the people's court shall not support it. If an interested party objects to the due debt, the people's court shall handle it in accordance with Article 234 of the Civil Procedure Law. If the other person denies the due debt determined by an effective legal document, the people's court shall not support it

[13] Article 45 of the "Provisions of the Supreme People's Court on Several Issues Concerning the Execution Work of the People's Courts (Trial Implementation (Revised in 2020)" stipulates: "If the executor is unable to repay the debt, but has matured creditor's rights against a third party outside the case, the people's court may, upon the application of the applicant for execution or the executed party, issue a notice to the third party to perform the matured debt. The performance notice must be directly served on the third party

[14] Article 13 of the "Several Opinions of the Supreme People's Court on Punishing and Evading Enforcement Acts in Accordance with the Law" stipulates: "The unexpired creditor's rights of the person subject to enforcement shall be preserved in accordance with the law. The enforcement court may freeze the unexpired creditor's rights of the person subject to enforcement in accordance with the law, and execute them with reference to the matured creditor's rights after the creditor's rights have expired. If a third party raises an objection solely on the grounds that the debt has not yet matured, it does not affect the preservation of the creditor's rights