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) (Revised in 2014)

Fa Shi [2014] No.2

February 20, 2014

(Adopted at the 1447th meeting of the Judicial Committee of the Supreme People's Court on May 5, 2008 and amended in accordance with the Decision on Amending the Provisions on Several Issues concerning the Application of the Company Law of the People's Republic of China which was adopted at the 1607th meeting of the Judicial Committee of the Supreme People's Court on February 17, 2014)

In order to correctly apply the Company Law of the People's Republic of China (hereinafter referred to as the "Company Law"), in light of judicial trial practices, issues concerning the application of the laws in the hearing of company dissolution and liquidation cases by the people's courts are hereby prescribed as follows:

Article 1 Where shareholder(s) individually or jointly holding 10% or more of the voting rights of all shareholders of a company initiates a company dissolution action for any of the following causes and the provisions of Article 182 of the Company Law are complied with, a people's court shall accept such action:
1. where the company has failed to call a meeting of shareholders or a general meeting of shareholders for two consecutive years or longer, and the operation and management of the company are in great difficulties;
2. where due to the fact that the statutory quorum or the quorum specified in the articles of association of the company cannot be present at the time of voting by shareholders, a meeting of shareholders or a general meeting of shareholders has not been able to adopt any valid resolution for two consecutive years or longer, and the operation and management of the company are in great difficulties;
3. where long-term disagreement between the directors of the company cannot be settled through meetings of shareholders or general meetings of shareholders, and the operation and management of the company are in great difficulties; or
4. where the operation and management of the company are in other great difficulties, and the continued existence of the company will cause great losses to the interests of shareholders.
Where any shareholder of a company initiates a company dissolution action on the grounds that his or its rights and interests, such as the right to know and the right to request profit distribution, have been harmed, or that the company suffers losses or its assets are inadequate to pay off all of its debts, or that the company has not gone through liquidation after its enterprise legal person business license has been revoked and so on, the relevant people's court shall not accept the action.

Article 2 Where any shareholder of a company initiates a company dissolution action to a people's court and at the same time submits an application to the people's court for liquidating the company, the people's court shall not accept the liquidation application submitted by the shareholder. The people's court may advise the relevant plaintiff to liquidate the company on his or its own or otherwise apply to the relevant people's court for the liquidation of the company after the people's court renders a judgment of dissolution, subject to Article 183 of the Company Law and of Article 7 hereof.

Article 3 Where any shareholder of a company applies to a people's court for preserving property or evidence when initiating a company dissolution action, the people's court may preserve the property or evidence under the circumstances where the shareholder provides corresponding guarantee and the ordinary operation of the company is not affected.

Article 4 Any shareholder of a company who commences a company dissolution action shall list the company as the defendant.
Where the plaintiff in a company dissolution action lists any other shareholder of the company as a co-defendant, the relevant people's court shall advise the plaintiff to list such other shareholder as a third party; where the plaintiff refuses to make the corresponding change, the people's court shall dismiss the action against any such other shareholder initiated by the plaintiff.
The plaintiff in a company dissolution action shall inform other shareholders of such an action. Alternatively, the relevant people's court shall notify other shareholders to participate in the action. Where any other shareholder or any interested party applies to participate in the action as a co-plaintiff or a third party, the people's court shall approve the application accordingly.

Article 5 In hearing a company dissolution action, a people's court shall attach importance to mediation. Where the parties concerned agree to the continued existence of the company in question through the acquisition of relevant shares of the company by the company itself or any other shareholder thereof, or by way of capital reduction or otherwise, which are not in violation of the mandatory provisions of laws and administrative regulations, the people's court shall support the mediation between the parties. Where the parties concerned fail to reach an agreement after negotiation as to the continued existence of the company in question, the people's court shall promptly render a judgment.
Where, upon mediation by the people's court, the company in question acquires the shares of the plaintiff in the action, the company shall transfer or deregister the relevant shares within six months of the effective date of the mediation agreement. Prior to the transfer or deregistration of the shares in question, the plaintiff shall not claim against any creditor of the company on the grounds that the company has acquired the shares of the plaintiff.

Article 6 A judgment rendered by a people's court with respect to the dissolution of a company shall be binding on all shareholders of the company.
After a people's court has delivered a judgment that a request for dissolving a company filed by any shareholder of the company shall be dismissed, a company dissolution action initiated by the same shareholder or any other shareholder based on the same facts and causes shall not be accepted by the people's court.

Article 7 A company shall, in accordance with the provisions of Article 183 of the Company Law, establish a liquidation group within fifteen days of the occurrence of any cause for dissolution and commence liquidation on its own.
Where, under any of the following circumstances, any creditor of the company applies to a people's court for designating a liquidation team, the people's court shall accept the application:
1. where, upon the dissolution of the company, no liquidation group is established to carry out the relevant liquidation work;
2. where a liquidation group has been established, but the liquidation group willfully delays in carrying out the relevant liquidation work; or
3. where any illegal act in the liquidation of the company severely threatens the interests of creditors or shareholders of the company.
Where no creditor of the company files a liquidation application to a people's court under any of the circumstances set out in Paragraph 2 of this Article, but any shareholder of the company applies to the people's court for designating a liquidation group to carry out the liquidation of the company, the people's court shall accept the application of any such shareholder.

Article 8 After the acceptance of a company dissolution case, a people's court shall promptly establish a liquidation group by appointing relevant persons.
Members of a liquidation group may be selected from the following individuals or institutions:
1. shareholders, directors, supervisors and officers of the company in question;
2. legally established intermediaries such as law firms, accounting firms, and bankruptcy and liquidation firms; and
3. staff members with relevant professional knowledge and holding the relevant practicing qualification of legally established intermediaries such as law firms, accounting firms, and bankruptcy liquidation firms.

Article 9 Under any of the following circumstances, a people's court may, on the basis of an application by any creditor or shareholder of the relevant company or in accordance with its power, change any member of a liquidation group it designates:
1. where the member acts in violation of laws or administrative regulations;
2. where the member loses the relevant practicing competency or civil capacity; or
3. where the member acts in any way which severely harms the interests of the company or its creditors.

Article 10 Before the cancellation of a company subsequent to the completion of the liquidation carried out in accordance with the law, any civil action with respect to the company shall proceed in the name of the company.
Where a liquidation group has been established by the company, the liquidation group shall be responsible for representing the company in participating in the action. Where a liquidation group has not been established by the company, the original legal representative of the company shall represent the company in participating in the action.

Article 11 In carrying out the liquidation of a company, a liquidation group for the company shall notify in writing all known creditors thereof of matters relating to the dissolution and liquidation of the company in accordance with the provisions of Article 185 of the Company Law and shall, in light of the scale of the company and areas covered by its business, make a corresponding public announcement in a national newspaper or a provincial newspaper of the place in which the company is registered.
Where failure to perform the notification and public announcement obligations in accordance with the provisions of the preceding paragraph by a liquidation group for a company results in failure to promptly declare debt claims by any creditor of the company and to get the debt liquidated and any such creditor asserts that members of the liquidation group shall be responsible for indemnifying the creditor against any loss arising therefrom, the people's court shall support the claim in accordance with the law.

Article 12 In the course of the liquidation of a company, any creditor of the company that raises objections to debt claims ascertained by a liquidation group may request the liquidation group to ascertain debt claims once again. Where the liquidation group refuses to do so or any such creditor continues to raise objections to debt claims ascertained anew and the creditor brings an action against the company for a determination of the debt claims in a people's court, the people's court shall accept the action.

Article 13 Where any creditor of a company that fails to declare his or its debt claims within a specified time limit makes a supplementary declaration before the completion of the liquidation procedures of the company, a liquidation group for the company shall make a corresponding registration.
Completion of the liquidation procedures of a company shall mean the completion of the confirmation as to a liquidation report for a company made by a meeting of shareholders of the company, a general meeting of shareholders thereof, or a people's court.

Article 14 Debt claims declared additionally by any creditor of a company may, in accordance with the law, be repaid with the undistributed properties of the company. Where the undistributed properties of the company are insufficient to satisfy the debt claims and any such creditor asserts the repayment of the debt claims with properties obtained by shareholders of the company in the distribution of the company's remaining properties, a people's court shall support the assertion, except for debt claims not declared by the creditor within a specified time limit due to a serious fault on the part of the creditor.
Where any creditor of a company or a liquidation group for the company files a bankruptcy petition to a people's court on the ground that debt claims declared additionally by any such creditor cannot be fully liquidated with the undistributed properties of the company and properties obtained by shareholders of the company in the distribution of the company's remaining properties, the people's court shall not accept the petition.

Article 15 Where a company carries out the relevant liquidation work on its own, the relevant liquidation proposal shall be submitted to a meeting of the shareholders of the company or a general meeting of the shareholders thereof for confirmation. Where a people's court organizes the liquidation of a company, the relevant liquidation proposal shall be submitted to the people's court for confirmation. A liquidation group for a company shall not implement a liquidation proposal that is not confirmed.
Where a company or any shareholder of the company or any creditor thereof asserts that members of a liquidation group shall be liable for any loss suffered by the company or any such creditor as a result of the implementation of an unconfirmed liquidation proposal, a people's court shall support the assertion in accordance with the law.

Article 16 Where a people's court organizes the liquidation of a company, the relevant liquidation group shall complete the liquidation procedures within six months of the date on which the liquidation group is established.
Where the liquidation procedures of a company cannot be completed within the six-month time limit due to any special circumstance, a liquidation group shall apply to the relevant people's court for an extension of the time limit.

Article 17 Where a liquidation group designated by a people's court for a company discovers that the company's properties are inadequate to pay off its debts when cleaning up the company's properties and preparing the balance sheet and list of properties, it may negotiate with the creditors of the company to work out a relevant debt repayment proposal.
Where a debt repayment proposal is confirmed by all creditors of a company and does not damage the interests of any other interested party, a people's court may, on the basis of an application made by the relevant liquidation group, make a ruling that the debt repayment proposal is recognized by the court. After repaying debts in accordance with the debt repayment proposal, the liquidation group shall apply to the people's court for a ruling of the termination of the liquidation procedure.
Where a debt repayment proposal is not confirmed by the creditors of a company or recognized by a people's court, the relevant liquidation group shall file a bankruptcy petition to the people's court in accordance with the law.

Article 18 Where failure to establish a liquidation group within the statutory time limit and to commence the relevant liquidation work by shareholders of a limited liability company or directors or the controlling shareholder of a joint-stock company result in any impairment, drain, or the destruction or loss of the company's properties and any creditor of the company asserts that such shareholders, directors or the controlling shareholder shall be responsible for the debts of the company to the extent of any loss caused by them, a people's court shall support the assertion in accordance with the law.
Where any delay in the performance of obligations by shareholders of a limited liability company or directors or the controlling shareholder of a joint-stock company results in the loss of the main properties, account books, material documents or other things of the company and in an impossibility of liquidation of the company and any creditor of the company asserts that such shareholders, directors or the controlling shareholder shall be severally and jointly responsible for the debts of the company, a people's court shall support the assertion in accordance with the law.
Where any of the circumstances described above is caused by the actual controller of the company in question and any creditor of the company asserts that the actual controller shall bear corresponding civil responsibilities for the debts of the company, a people's court shall support the assertion in accordance with the law.

Article 19 Where shareholders of a limited liability company, directors or the controlling shareholder of a joint-stock company, or the actual controller of the company cause any loss to the creditors of the company as a result of any malignant disposition of the company's properties upon the dissolution of the company or without carrying out the relevant liquidation work in accordance with the law, goes through the registration formalities for legal person cancellation by deceiving an company registration authority with a false liquidation report and any creditor of the company asserts that such shareholders, directors, controlling shareholder or actual controller shall bear corresponding liabilities for the debts of the company, a people's court shall support the assertion in accordance with the law.

Article 20 After the relevant liquidation procedures are completed upon the dissolution of a company, a cancellation registration for the company shall be applied for. Where shareholders of a limited liability company, directors or the controlling shareholder of a joint-stock company, or the actual controller of the company make a cancellation registration for the company without going through the relevant liquidation procedures, leading to an impossibility of the liquidation of the company, and any creditor of the company asserts that such shareholders, directors, controlling shareholder, or actual controller shall be responsible for repaying the debts of the company, a people's court shall support the assertion in accordance with the law.
Where, under the circumstance where a cancellation registration is made by company without going through the relevant liquidation procedures, any shareholder of the company or any third party promises to be responsible for the debts of the company when the company makes a cancellation registration with a company registration authority, and any creditor of the company asserts that any such shareholder or any such third party shall bear corresponding civil responsibilities, a people's court shall support the assertion in accordance with the law.

Article 21 Where shareholders of a limited liability company, directors or the controlling shareholder of a joint-stock company, or the actual controller of the company described above are two persons or more, and one or several such persons, after bearing civil liabilities in accordance with the provisions of Article 18 and Paragraph 1 of Article 20 hereof, assert that other persons shall bear the liabilities in light of the extent of their respective faults, a people's court shall support the assertion in accordance with the law.

Article 22 Upon the dissolution of a company, capital contributions not paid in by any shareholder of the company shall be treated as liquidation properties. Capital contributions not paid in by any shareholder of a company shall include capital contributions due and payable but not paid in yet and capital contributions to be made in installments in the paid-in period as required under the provisions of Article 26 and Article 80 of the Company Law.
Where the properties of a company are inadequate to repay its debts and any creditor of the company asserts that any shareholder thereof that has not made the required capital contributions and other shareholders existing at the time of establishment of the company or promoters shall be severally and jointly responsible for repaying the debts of the company to the extent of the capital contributions not paid in, a people's court shall support the assertion in accordance with the law.

Article 23 Where a violation of laws, administrative regulations or the articles of associations committed by any member of a liquidation group for a company in carrying out the relevant liquidation work causes any loss to the company or any creditor of the company, and the company or any such creditor asserts that any such member shall bear the liability for compensation, a people's court shall support the assertion in accordance with the law.
Where any shareholder of a limited liability company or shareholder(s) of a joint-stock company individually or jointly holding 1% or more of the share of the company for 180 consecutive days or more, in accordance with the provisions of Paragraph 3 of Article 151 of the Company Law, initiate an action to a people's court on the ground that any member of the relevant liquidation group has the action as described in the preceding paragraph, the people's court shall accept the action.
Where the company in question is cancelled after the completion of the relevant liquidation procedures, and the above-mentioned shareholder, by reference to the provisions of Paragraph 3 of Article 151 of the Company Law, files an action in a people's court in which members of the relevant liquidation group are directly listed as the defendant and any other shareholder are directly listed as a third party, the people's court shall accept the action.

Article 24 The people's court at the place of domicile for a company shall have jurisdiction over any case involving the dissolution of the company and any case involving the liquidation of the company. The place of domicile for a company shall mean the place where the headquarters of a company is located. Where the place where the headquarters of a company is located is unclear, the people's court at the place where the company is registered shall have jurisdiction.
People's courts at the grassroots level shall have jurisdiction over any case involving the dissolution of a company approved and registered by the company registration authority of a county, a county-level city or a district and any case involving the liquidation of such a company. Intermediary people's courts shall have jurisdiction over any case involving the dissolution of a company approved and registered by a company registration authority at the region or prefecture level or above and any case involving the liquidation of such a company.