Case Description

Although it is known that Company B still has a subscribed capital contribution of 10 million yuan in its subsidiary Company C that has not yet reached the deadline, based on its trust in Company B, Company A signed an Equipment Purchase Agreement with Company C in October 2020 and paid the initial futures payment of 20 million yuan in accordance with the agreement. In February 2021, Company B transferred all of its equity interests in Company C to three natural persons and went through shareholder change procedures. The three natural persons become the new shareholders of Company C and agree to fulfill the investment obligations of Company B in the future, with the investment period remaining unchanged. In March 2021, due to the failure of Company C to deliver the equipment as agreed, Company A notified Company C to terminate the agreement between the two parties and requested Company C to return the 20 million already paid for the goods, but Company C delayed in returning the payment. After investigation, Company A found that Company C did not have much assets, and the assets of current shareholders were unclear. Moreover, the deadline for the 10 million yuan contribution subscribed by current shareholders had not yet arrived. Company B claims to have withdrawn as a shareholder of Company C and is not currently associated with Company C. In this case, how should Company A protect its legitimate rights and interests?

Lawyer Analysis

1. Company A may file a civil lawsuit requesting Company C to return the payment for the goods to it; If Company B maliciously evades its obligation to contribute capital, Company B can be listed as a co defendant.

According to the provisions of Article 28, Paragraph 1, of the Company Law of the People's Republic of China, "Shareholders shall pay their respective subscribed capital contributions in full and on schedule as stipulated in the company's articles of association." Before the expiration of the subscription period, shareholders enjoy the benefits of the period. Therefore, failure to pay or fully pay their capital contributions within the subscription period does not constitute failure to fulfill or incomplete performance of their capital contribution obligations. Article 6 of the Minutes of the Civil and Commercial Trial Work Conference of the National Court stipulates that "under the registered capital subscription system, shareholders are entitled to the benefits of the term in accordance with the law. If creditors request shareholders who have not reached the term of their capital contributions to assume supplementary liability for the debts that the company cannot repay within the scope of their capital contributions, the people's court shall not support them.". Based on this, shareholders have the right to transfer their equity holdings before the expiration of the subscription period, and are not required to assume responsibility for the company's debts that cannot be repaid within the scope of the unpaid principal and interest.

Of course, if the creditor has evidence that can prove that the shareholder has maliciously transferred his equity to evade his or her capital contribution obligations, the creditor can list the original shareholder as a co defendant and require him or her to assume supplementary liability for the debts that the company cannot repay. In practice, the judgment on malicious evasion of capital contribution obligations is based on factors such as whether the consideration for equity transfer is reasonable, whether the equity transfer payment is actually paid, whether the transferee obviously lacks the ability to pay the subscribed capital contribution, and whether the company has debts that cannot be repaid at the time of transfer.

In this case, Company A may list Company C as the defendant alone or Company C and Company B as co defendants, depending on the evidence.

2. After Company A wins the lawsuit, during the execution stage, if Company C is unable to repay its debts and falls under the legal situation of "should not be broken", Company A may add the current shareholder of Company C as the executor, requiring him to assume supplementary compensation liability for the debts that Company C cannot repay within the scope of his non capital contribution.

According to Article 6 of the Minutes of the Civil and Commercial Trial Work Conference of the National Court, in cases where the company is the subject of enforcement, the people's court exhausted the enforcement measures and has no property to enforce. If the company has bankruptcy reasons but does not apply for bankruptcy, the creditors may request shareholders who have not reached the deadline for capital contributions to assume supplementary compensation responsibilities for the company's debts that cannot be repaid within the scope of their capital contributions. In practice, if creditors claim to apply this legal situation, they bear the burden of proof to prove that Company C has the cause for bankruptcy, i.e., its assets are insufficient to pay off the debts of the effective judgment and it is obviously lacking in solvency.

Therefore, in the execution stage after Company A wins the lawsuit, Company C fails to fulfill the judgment, and Company A has the right to apply to the court for compulsory execution. During the execution process, if it is found that Company C is insolvent, which belongs to a situation where bankruptcy reasons have been met but no bankruptcy application has been filed, Company A may apply for additional compensation to the current shareholders of the company, namely, three natural persons, as the executors, and require them to assume supplementary compensation responsibilities for the debts that Company C cannot repay within the scope of the non capital contribution, i.e., 10 million yuan.