Shareholders of the company bear joint and several liability for repayment, how to start the limitation of action？

Articles 18-20 of the Supreme People’s Court’s Provisions on Several Issues Concerning the Application of the Company Law of People’s Republic of China (PRC) (II) (hereinafter referred to as Interpretation II of the Company Law) adopt liquidation responsibility, liquidation responsibility and joint and several liquidation responsibility for the liquidation (non-bankruptcy liquidation only) of companies (only limited liability companies).

This paper only discusses the type of joint and several liability of liquidation obligor stipulated in the second paragraph of Article 18 of Interpretation II of Company Law, which belongs to the category of liquidation liability. A certain consensus has been reached on the subject scope of liquidation obligor, whether the statute of limitations is applicable, the legal basis of liability and the type of liability. The author uses the key words "disputes over the liability of shareholders for damaging the interests of creditors of the company" and "Article 18, paragraph 2 of the Supreme People’s Court’s Provisions on the Application of the Company Law of People’s Republic of China (PRC) (II)", and searches in No Litigation and China Judgment Document Network, with a total of 948 cases; Then the keyword "limitation of action" was used to search in the above results, with a total of 138 cases; Then the keyword "beyond the limitation of action" was searched in the results, and there were 103 cases. It is found that the focus of disputes involving shareholders’ joint and several liability in practice is mainly whether the creditor claims that shareholders bear joint and several liability exceeds the limitation of action; The core of judging whether the limitation of action is exceeded is to determine the starting point of the limitation of action.

Regrettably, courts at all levels have different opinions on the starting point of determining the limitation of action for joint and several liability of shareholders of a company, and it is not uncommon for courts to pass different judgments on similar cases. The root of this phenomenon is that the starting point of our legislation during the limitation of action is a principled provision, which adopts subjective standards, that is, counting from the day when the right holder knows or should know that the right has been damaged and the obligor lacks uniform applicable rules in practice. This paper aims to provide a solution for China’s Company Law to solve this problem, taking into account the balance of shareholders’ limited liability, independent personality of the company and creditors’ interests, exploring the "general+typology" identification standard of shareholders’ joint and several liability, and exerting the power of typology. In the field of non-performing assets, shareholders of a company often fail to perform or improperly perform liquidation obligations, which seriously damages creditors’ rights and interests to recover creditor’s rights, and frequently leads to disputes over shareholders’ joint and several liability for liquidation when the company cannot be liquidated. It is helpful to study the typology of the starting point of the limitation of action for joint and several liability for liquidation of shareholders of a company.

First, empirical research: "different judgments on similar cases" in the case law.

After searching the court cases at all levels, when determining the starting point of the limitation of action for joint and several liability of shareholders of a company, "different judgments on similar cases" are common and have different reasons. What is more serious is that the same court and the same presiding judge have two completely different judgments on similar cases in a short period of time.

In the first category, some courts hold that the limitation period of action for joint and several liability of shareholders of a company should be counted from the date of promulgation of Interpretation II of the Company Law, that is, May 19, 2008. The reason is: regarding the tort civil liability caused by the liquidation obligor’s delay in performing his obligations, the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of the Company Law of People’s Republic of China (PRC) (II), which came into effect on May 19, 2008, has been clarified, and the company’s creditors can claim the civil liability from the shareholders because of their delay in liquidation obligations. At this time, the applicant, as the company’s creditor, has the right to request the company’s shareholders to bear the corresponding civil liability. Therefore, his right to claim is from 2000.

Secondly, some courts hold that the limitation period of action for joint and several liability of shareholders of a company should be counted from 15 days after the date of knowing that the company has been revoked. The reason is that the Company Law stipulates that a liquidation group shall be established within 15 days from the date when the company is revoked. If the liquidation group is not established within the time limit, the creditor has the right to apply to the court to appoint a person to set up the liquidation group. The creditor should know that the shareholders are lazy in performing the liquidation obligations, so the limitation period of action should be counted from 15 days after the date when the company is revoked.

Third, some courts hold that if a creditor makes an order to terminate the compulsory liquidation after applying for compulsory liquidation by the court, the creditor should know the fact that the debtor company cannot be liquidated at this time, so the limitation period of action for joint and several liability of shareholders of the company should be counted from the date when the court makes an order to terminate the compulsory liquidation.

Fourth, some courts hold that there is no statute of limitations for creditors to claim joint and several liability to shareholders according to Article 18, paragraph 2 of Interpretation II of the Company Law, when they cannot know the fact that the debtor’s company can’t be liquidated, that is, whether it can be liquidated is uncertain and the right of claim has not been established.

Fifth, some courts hold that the fact that creditors know or should know that the company’s shareholders are slow to perform liquidation obligations, resulting in the loss of the company’s main property, account books, important documents, etc., and it is impossible to carry out liquidation should be borne by shareholders. If shareholders cannot prove that creditors know or should know, they should bear the consequences of failing to prove, that is, if shareholders cannot prove, there will be no problem of exceeding the limitation of action.

Sixth, some courts hold that the creditor knows or should know that the company’s rights and interests have been damaged due to shareholders’ laziness in liquidation when the court makes a ruling to terminate execution or terminate this execution ruling or terminate bankruptcy proceedings, and can’t prove that it can’t be liquidated, so the limitation period for creditors to claim their rights is calculated from the time when the court makes a ruling to terminate execution or terminate this execution ruling or terminate bankruptcy proceedings.

Undoubtedly, although there are different arguments and judgments in local courts, most of them emphasize that the starting point of the limitation of action for joint and several liability of shareholders of a company should start from the fact that creditors know or should know that shareholders of the company are slow to perform liquidation obligations, resulting in the loss of the company’s main property, account books, important documents, etc., and the fact that liquidation cannot be carried out should occur before or at the same time as the starting point. The main reason for different judgments lies in the fact that the creditor knows or should know that the shareholders who have happened or happened immediately are lazy in liquidation and unable to liquidate, and some courts will make inaccurate judgments because of different understandings of the "facts" that they know or should know.

After searching, the author found that the court showed the following trends in the trial: First, if the creditor has applied for compulsory liquidation of the debtor company, and the court has made a ruling on the termination of compulsory liquidation for reasons that cannot be liquidated, the court tends to take the time when making a ruling on the termination of compulsory liquidation as the starting point when trying the creditor’s claim for joint and several liability to shareholders; Second, the court pays more attention to the fact that creditors know and should know. Third, in view of the burden of proof of facts that creditors know or should know, the court has adopted the phenomenon of inversion of burden of proof. It should be pointed out that the starting point of the limitation of action for joint and several liability of shareholders of a company should start from the fact that creditors know or should know that shareholders of the company are slow to perform liquidation obligations, resulting in the loss of the company’s main property, account books, important documents, etc., and it is impossible to carry out liquidation. However, judges have greater discretion as to what facts can be determined that creditors know or should know, without clear legal provisions. In order to solve the creditor’s relief dilemma, correct the alienation of judgment, curb the abuse of discretion and safeguard the court’s judgment authority, it is necessary to make efforts to unify the judgment rules, enhance the practicality and explore the types of starting points.

Second, the innovation of judicial ideas: from creditor protectionism to interest balance

The system of limitation of action should carry out purposeful value judgment, and the existence of the system of limitation of action revolves around the conflicts of several value interests. If we want to pursue justice, we should build on the balance of various value goals and balance and coordinate the interests of all parties in order to resolve their ethical conflicts. The litigation system aims to maintain the balance of multiple values such as creditors, debtors and social order.

Specific to the design of the starting point of the limitation of action for the joint and several liability of shareholders of a company, it is not only to protect the interests of creditors, but also to implement the multiple values of balancing the limited liability of shareholders, the independent personality of legal persons, the interests of creditors and social order. The existing principle of starting the limitation period of action adopts the subjective standard of the creditor, which is based on the fact that the creditor knows or should know, and is not affected by the actual occurrence time of the infringing fact. However, when the maximum limitation period of action is 20 years, it is based on the starting time of the infringing fact, which is actually safeguarding the balance of interests of all parties. To implement the multiple values such as balancing the limited liability of shareholders, the independent personality of legal persons, the interests of creditors and social order, we should respect the principle of starting from the limitation period, and also type the starting point to mediate the value conflict. Typing the starting point of the limitation of action for joint and several liability of shareholders of a company is undoubtedly the response to implementing the purposeful value judgment. In other words, the court should carry out the judgment to balance the limited liability of shareholders, the independent personality of legal persons, the interests of creditors and the social order, and avoid neglecting the interests of one party.

Third, suggestions for improvement: the standard of "general+typology" for determining the starting point of the limitation of action for joint and several liability of shareholders of a company.

Any construction of the statute of limitations system from the perspective of protecting creditors, debtors or social interests fails to accurately implement the multi-value purpose of the statute of limitations to balance the interests of all parties, and so does the starting point of the statute of limitations for joint and several liability of shareholders of the company. Typing the starting point can effectively solve practical problems. China is a written law country, and court decisions are based on the law, which needs to be determined and embodied by the legislature through amending the Company Law or the relevant judicial interpretation issued by the Supreme People’s Court.

(a) the "general rules" of the starting point of the limitation of action for the joint and several liability of shareholders of the company

China’s General Principles of Civil Law stipulates that the starting point of the limitation period of ordinary litigation is "from the time when you know or should know that your rights have been infringed", and at the same time, it limits the maximum limitation period of 20 years to "from the date when your rights have been infringed". The current "General Principles of Civil Law" has revised the system of limitation of action, and Article 188 stipulates that the starting point of the limitation period of ordinary action is "from the day when the obligee knows or should know that the right has been damaged and the obligor. If there are other provisions in the law, it shall be in accordance with its provisions ",that is, on the basis of the original provisions, the words" know or should know the obligor "and" if there are other provisions in the law, it shall be in accordance with its provisions "are added. Its legislative purpose is to strengthen the protection of creditors and embody the spirit of the principle of being able to exercise; On the other hand, it shows that the law considers the special situation in the real society.

The "general rule" structure of the starting point of the limitation of action for joint and several liability of shareholders of a company is the concrete application result of the starting point of the limitation of action in the General Principles of Civil Law. Combined with Interpretation II of the Company Law and the Supreme People’s Court No.2 People’s Court’s Reply on Asking for Instructions on the Limitation of Action for Creditors’ Claims on Shareholders’ Liability for Liquidation Compensation (2014) Miner Zi No.16, the limitation of action for shareholders’ joint and several liability for liquidation of a company should start from the date when creditors know or should know that shareholders are slow to liquidate, the company’s main property, account books and important documents are lost, and liquidation obligations cannot be carried out. This is the "general rule" of the starting point of the limitation of action for joint and several liability of shareholders of the company.

(2) "Typed rules" for the starting point of the limitation of action for joint and several liability of shareholders of the company.

Considering that the law stipulates that the liquidation obligations of a limited liability company are all shareholders (including actual controllers), a consensus has been reached in practice. Although some scholars in the academic field believe that the subject scope of liquidation obligor should be defined as the company’s directors and controlling shareholders according to the standard of "having a dominant influence on the company’s management", there is still room for application until it is clearly stipulated by law. Because the shareholders of the company publicize it to the outside world, creditors can inquire at any time, and the time when creditors know or should know should be regarded as the day when the rights are infringed. Therefore, the fact that creditors know or should know the "liquidation obligor" is unique and there is no typology problem. Therefore, this paper only focuses on the typology of three starting points, namely, the creditors know or should know that shareholders are lazy in liquidation, the company’s main property, account books and important documents are lost, and liquidation cannot be carried out. It should be noted that the starting point of the limitation period for shareholders of a company to bear joint and several liabilities for liquidation is not the starting point of any fact that creditors know or should know about "shareholders are lazy in liquidation", "the company’s main property, account books and important documents are lost" and "liquidation obligor cannot be liquidated", but as a whole, creditors know or should know about "shareholders are lazy in liquidation" and "the company’s main property and account books".

1. The creditor knows or should know the "typology rule" of the starting point of "shareholders’ delay in liquidation"

According to Article 181 of the Company Law, there are five reasons for the dissolution of the company, namely: (1) the business term stipulated in the articles of association expires or other reasons for dissolution stipulated in the articles of association appear; (2) The shareholders’ meeting or the shareholders’ meeting decides to dissolve; (3) The company needs to be dissolved due to merger or division; (4) Its business license has been revoked, ordered to close down or revoked according to law; (5) The people’s court shall dissolve it in accordance with the provisions of Article 183 of this Law. Where the company is dissolved in accordance with the provisions of items (1), (2), (4) and (5), a liquidation group shall be established within 15 days from the date of the occurrence of the reasons for dissolution according to Article 184 of the Company Law, and the liquidation obligations shall be fulfilled.

Based on the different reasons for the dissolution of the company, creditors know or should know that the starting point of "shareholders’ delay in liquidation" is different. Generally speaking, it can be classified into the following types: First, if the company is revoked, ordered to close down or cancelled according to law, the liquidation group will not be established for a long time, and creditors know or should know that the starting point of "shareholders’ delay in liquidation" should start from 15 days after the company’s business license is revoked, ordered to close down or cancelled. Because the company’s business license is revoked, ordered to close down or revoked according to law, it should be publicized to the public, and creditors can inquire through public channels, and they cannot plead ignorance. Second, if the company’s business license is revoked, it is ordered to close down or be cancelled according to law, a liquidation group shall be organized within a certain period of time, but there are other behaviors (such as the obligation to properly keep the company’s property, account books and important documents), or it belongs to the first, second and fifth cases. As all the above situations are internal factors, the creditor, as a third party, has no way of knowing. Generally speaking, there is no problem of exceeding the limitation of action. If the creditor has filed a lawsuit in accordance with Article 18, paragraph 2 of Interpretation II of the Company Law and then withdraws the lawsuit, it shall be counted from the date when the court makes a ruling to allow the withdrawal of the lawsuit; If the shareholder has sufficient evidence to prove that the creditor knows that the shareholder has the obligation to be lazy in liquidation, it shall be counted from the date when the creditor actually knows that the shareholder is lazy in liquidation. Some scholars have pointed out that China can build a commercial registration system for company dissolution and liquidation, break the information barrier between shareholders and creditors, and realize information symmetry.For example, Germany, Japan and other countries outside the country stipulate that after the dissolution of a company, it should declare commercial registration to a specific institution within a certain period of time.

2. The creditor knows or should know the "typology rules" of the starting point of "loss of the company’s main property, account books, important documents, etc."

The loss of the company’s main property, account books and important documents is also an internal matter of the company, and creditors have no way to know it under normal circumstances, but there are also the following special circumstances. First, there has been a lawsuit dispute between the creditor and the debtor company or the debtor company has entered bankruptcy proceedings. If the court makes a final execution ruling or terminates this execution ruling or bankruptcy proceedings based on the loss of the company’s main property, the creditor knows or should know that the company may have lost its main property, account books, important documents, etc. due to shareholders’ laziness in liquidation, so the limitation period for creditors to claim their rights is counted from the date when the court makes a final execution ruling or terminates this execution ruling or terminates bankruptcy proceedings. Second, if the shareholders have evidence to prove that the creditors have actually known the loss of the company’s main property, account books, important documents, etc., if the shareholders have informed the creditors by written letter that they can’t repay their debts due to the loss of the company’s property, the fact that the creditors know or should know that "the company’s main property, account books, important documents, etc." is counted from the date of the shareholders’ actual proof.

3. The creditor knows or should know the "typology rule" of the starting point of "unable to liquidate"

In practice, there are six main criteria for the court to determine that a company can’t be liquidated: First, it can’t provide any property, account books and important documents; Second, account books and important documents are untrue and incomplete; Third, the whereabouts of company personnel, account books and important documents are unknown; Fourth, the property is not enough to pay the liquidation expenses; The fifth is the loss of main property; Sixth, it is cancelled without liquidation. The company’s "inability to liquidate" essentially involves accounting and auditing issues. Unless an authoritative department or institution issues a conclusive document on the company’s "inability to liquidate", creditors will not know. Theoretically, there is controversy about the subject of the company’s "inability to liquidate". Some people think that the subject of the company’s "inability to liquidate" should be comprehensively judged by the court in combination with auditing and other relevant units; Some people believe that the determination of the company’s "inability to liquidate" is a professional issue, and the liquidation audit report issued by the audit and accounting shall prevail. At this point, the starting point for creditors to know or should know that "liquidation is impossible" can be classified as follows. First, the creditors or shareholders have applied to the court for compulsory liquidation of the company, and the court has made a ruling to terminate the compulsory liquidation on the grounds that it is impossible to liquidate. Except that the shareholders can prove that the creditors have known that the company has been unable to liquidate due to the loss of the company’s main property, account books and important documents, the creditors know or should know that the starting point of "unable to liquidate" should be counted from the day after the ruling takes effect. Second, creditors or shareholders have not applied to the court for compulsory liquidation of the company, but the liquidation team has hired a professional accounting firm to conduct liquidation audit of the company.If the liquidation audit report issued by an accounting firm concludes that it is impossible to liquidate, and the liquidation team has notified the known creditors in writing and published it in influential newspapers at the national or provincial level according to the size and business area of the company (refer to Article 21 of Interpretation II of the Company Law), it shall be deemed that the creditors know or should know the fact that the company is "unable to liquidate". Third, if the liquidation team has hired a professional accounting firm to conduct liquidation audit on the company, but it has not notified the creditors of the liquidation audit report by referring to the provisions of Article 21 of Interpretation II of the Company Law, or there are no cases in the first and second categories, except that shareholders can prove that the creditors know that the company has been unable to liquidate due to the loss of the company’s main property, account books, important documents, etc., the rights of creditors in accordance with Article 18, paragraph 2 of Interpretation II of the Company Law generally do not exist beyond litigation. If the creditor has filed a lawsuit in accordance with Article 18, paragraph 2, of Interpretation II of the Company Law and then withdraws the lawsuit, it shall be counted from the date when the court makes a ruling to allow the withdrawal of the lawsuit.

(3) the applicable relationship between the "general rules" and "typological rules" of the starting point of the limitation of action for joint and several liability of shareholders of the company.

The standard of "general+typology" is adopted as the starting point of the limitation of action for joint and several liability of shareholders, in order to reconcile the value conflicts of creditors, shareholders’ priority responsibility and social order. Among them, the "general rules" of the starting point of the limitation of action for joint and several liability of shareholders of a company take the creditor’s rights as the standard, aiming at protecting the creditor’s rights and urging shareholders to actively perform liquidation obligations. The "typological rule" of the starting point of the limitation of action for joint and several liability of shareholders of a company aims to standardize the judgment rules, avoid the alienation of court judgment, and urge creditors to actively exercise their rights, properly protect shareholders’ limited liability, and maintain social order and investment enthusiasm. The "general rules" and "typological rules" of the starting point of the limitation of action for joint and several liability of shareholders of a company are not contradictory. The former has principles, guidance, explanation and supplementary functions, while the latter is the concretization of the former, which legalizes some common typical situations. Of course, typology is not a simple enumeration, but also an abstraction and generalization of a kind of behavior in practice, but its abstraction can be almost ignored compared with general provisions. Therefore, the "general rules" and "typed rules" of the starting point of the limitation of action for joint and several liability of shareholders of a company should be integrated to ensure the universality, stability and predictability of the application of legal provisions.

(The author Bing Wang is the executive director of Guangdong Fasheng Law Firm, and Yuan Jianyang is an intern lawyer of Guangdong Fasheng Law Firm.)