Re-examination case | Should shareholders be liable for company debts when the company is deregistered without liquidation? Lin Aili, Lin Jing, Zhongcheng Qingtai Law Firm, February 6, 2025, 18:35, Shandong.

Plaintiff A filed a lawsuit against the court, claiming that Plaintiff A is a shareholder and legal representative of a certain company, which has now been deregistered. On November 14, 2014, a certain company signed an outdoor heating pipeline installation contract with a property management company for a certain community, stipulating a charge of 35 yuan per square meter based on the building area for each household, with a total of 336 households, a total area of 30,000 square meters, and a total project cost of over 1 million yuan. After the project was completed and delivered to the property management company for use, they refused to settle and refused to pay Plaintiff A the project payment. The property management company was deregistered on November 14, 2019, and Defendant B is the sole shareholder of the property management company, holding 100% of the shares. Defendant C, as the original shareholder and initiator of the company, should bear responsibility according to law. Requests: 1. Order Defendants B and C to pay Plaintiff A 1 million yuan for the project payment and interest; 2. Order Defendants B and C to compensate Plaintiff A for losses of 30,000 yuan; 3. Defendants B and C to bear the litigation costs of the case.

The first and second instance courts found that on March 28, 2014, Chen signed a share transfer agreement with Plaintiff A, stipulating that Chen would transfer 50% of the shares he held in a certain underfloor heating engineering company to Plaintiff A for 200,000 yuan. Plaintiff A actually paid Chen 200,000 yuan as the transfer payment, and Chen issued a receipt to Plaintiff A but did not handle the share transfer registration.

On November 14, 2014, a certain property management company (Party A) signed an outdoor pipeline installation contract with a certain underfloor heating engineering company (Party B) for a certain community, stipulating that the underfloor heating engineering company would advance all project funds for the heating external pipeline and unit risers of two high-rise buildings in the community. The project was to be carried out under the terms of 'contracting for labor and materials, ensuring construction period, quality, safety, civilized construction, environmental protection, and compliance with Party A's commitments and regulations to Party B.' Party B must carry out construction according to Party A's technical processes and technical disclosures, and comply with the urban heating indoor heating construction and acceptance standards. The project quality must be accepted and confirmed by Party A. The charge was based on a building area of 35 yuan per square meter, with a total of 336 households and a total area of about 30,000 square meters. Party A assisted in collecting the advance payment for the external pipeline, which was uniformly delivered to Party B. If the number of households collected does not reach the total number of households, the remaining households will not be assisted by Party A in collecting heating fees and will be delivered to Party B. After Party B has collected the total project payment for the external pipeline, the entire external pipeline and facilities will belong to Party A.

In December 2014, the external pipeline of a certain community was put into use, and the installation fees were collected by the property management company, which paid a small portion of the outstanding project payment to Plaintiff A.

On May 15, 2015, the underfloor heating engineering company was deregistered, and Chen acknowledged in court that all rights of the underfloor heating engineering company were held by Plaintiff A.

On September 24, 2014, Defendant C became the legal representative and shareholder of the property management company by subscribing for 500,000 yuan, holding 100% of the shares. On March 4, 2019, the legal representative and shareholder of the property management company changed to Defendant B, holding 100% of the shares. On November 14, 2019, the property management company was deregistered, but the company did not conduct liquidation according to law.

Plaintiff A signed a share transfer agreement with Chen, stipulating that Chen would transfer his shares in the underfloor heating engineering company to Plaintiff A for 200,000 yuan. Plaintiff A holds 100% of the shares of the company, and after the company was deregistered, Chen also acknowledged that all rights of the company were enjoyed by Plaintiff A. Therefore, Plaintiff A is a qualified party in this case. Article 64 of the Supreme People's Court's interpretation of the application of the Civil Procedure Law of the People's Republic of China stipulates that 'when an enterprise legal person is dissolved, it shall be a party before liquidation and deregistration; if it is deregistered without liquidation, the shareholders, initiators, or contributors of the enterprise legal person shall be parties.' The property management company was deregistered without legal liquidation, and Plaintiff A's inclusion of B and C as defendants in this case complies with legal provisions, which this court supports. Article 8 of the Contract Law of the People's Republic of China stipulates that 'a legally established contract is binding on the parties,' and Article 251 stipulates that 'a contract for work is a contract in which the contractor completes the work according to the requirements of the client and delivers the work results, and the client pays the remuneration.' In this case, the property management company signed an outdoor pipeline installation contract with the underfloor heating engineering company, stipulating that the underfloor heating engineering company would install the outdoor pipeline for the community according to the requirements of the property management company, and also stipulating the total area, project payment, and that the entire external pipeline and facilities belong to the property management company. Therefore, there is a contracting relationship between the property management company and the underfloor heating engineering company, with the property management company as the client and the underfloor heating engineering company as the contractor. Article 263 stipulates that 'the client shall pay the remuneration according to the agreed deadline. If there is no agreement on the payment deadline or the agreement is unclear, and it cannot be determined according to Article 61 of this law, the client shall pay when the contractor delivers the work results; if the work results are partially delivered, the client shall pay accordingly.' In this case, the outdoor pipeline of the community was put into use in December 2014, and the work results have been delivered. Combined with the receipts submitted by Plaintiff A, which are all stamped with the financial special seal of the property management company, the property management company collected the pipeline fees from the owners of the involved community. As the client, the property management company should pay the remuneration. Article 63 of the Company Law of the People's Republic of China states that 'if the shareholder of a one-person limited liability company cannot prove that the company's assets are independent of the shareholder's own assets, they shall bear joint liability for the company's debts.' In this case, when the project was completed and put into use, the only shareholder of the property management company was Defendant C, holding 100% of the shares, and Defendant C also failed to provide sufficient evidence to prove that the company's assets are independent of his own assets. Therefore, he should bear joint liability for the debts involved. Article 19 of the Supreme People's Court's provisions on several issues concerning the application of the Company Law of the People's Republic of China (II) stipulates that 'the shareholders of a limited liability company, the directors and controlling shareholders of a joint-stock company, and the actual controllers of the company shall bear corresponding compensation liability for the company's debts if they maliciously dispose of the company's assets after the company is dissolved, causing losses to creditors, or if they obtain the deregistration of the company by fraudulent liquidation reports without legal liquidation.' Article 22 stipulates that 'when a company is dissolved, the unpaid contributions of shareholders shall be treated as liquidation assets. The unpaid contributions of shareholders include contributions that should have been paid but have not been paid, as well as contributions that are to be paid in installments according to Articles 26 and 80 of the Company Law that have not yet reached the payment deadline. When the company's assets are insufficient to pay off debts, creditors may claim that unpaid contributing shareholders, as well as other shareholders or initiators at the time of the company's establishment, bear joint liability for the company's debts within the scope of unpaid contributions, and the people's court shall support this according to law.' In this case, Defendant B subscribed for 500,000 yuan and held 100% of the shares of the property management company, and did not actually pay the capital at the time of the company's deregistration, nor did he provide sufficient evidence to prove that the company's assets are independent of his own assets. Therefore, he should also bear joint liability for the debts involved.

In summary, Plaintiff A's request for Defendants B and C to pay the project payment of 1 million yuan and interest (calculated based on 1 million yuan, from May 8, 2020, until the date of full payment, according to the loan interest rate of the People's Bank of China for the same period) is in accordance with legal provisions, and this court supports it; other litigation requests of the plaintiff that do not comply with legal provisions are not supported.

First instance court judgment:1. Defendants B and C shall pay Plaintiff A 1 million yuan and interest within fifteen days from the effective date of this judgment (1 million yuan as the base amount, calculated from May 8, 2020, until the date of full payment, according to the loan interest rate of the People's Bank of China for the same period). 2. The other claims of Plaintiff A are dismissed. B and C appealed the first instance judgment, and the second instance court upheld the judgment of the first instance.

After the second instance judgment took effect, B was dissatisfied with the second instance judgment and applied for retrial.

During the retrial investigation, C claimed dissatisfaction with the second instance judgment and submitted a retrial application online. After verification by the judge, C was informed that the online application had not been approved. The court allowed C to state reasons as a retrial applicant, while we, as the agent of the respondent A, disagreed with C expressing opinions as a retrial applicant, as C's litigation status was that of the original defendant. The reason is that during the retrial investigation, C had exceeded the retrial period; secondly, the retrial application submitted by C had not been approved, and C did not supplement materials within the corresponding period nor resubmit the retrial application, meaning the court had not accepted C's retrial application; finally, C, as the original defendant, could only express opinions in the capacity of the original defendant and could not make a retrial request. The court accepted A's opinion, and C expressed opinions as the original defendant, and the court would no longer review C's so-called retrial request.

The facts of the installation contract signed between a property management company and a floor heating engineering company are clear. After the construction was completed, the property management company should pay the outstanding project funds. Retrial applicant B is the sole shareholder of the property management company, with a subscribed capital of 500,000 yuan, holding 100% of the shares. Retrial applicant B did not provide sufficient evidence to prove that the company's assets are independent of its own assets, and did not actually pay the capital when the company was deregistered. The original trial court ruled that retrial applicant B should bear the repayment responsibility based on Article 63 of the Company Law of the People's Republic of China and Articles 19 and 22 of the Supreme People's Court's Provisions on Several Issues Concerning the Application of the Company Law of the People's Republic of China (Revised in 2020), which is not inappropriate. Regarding whether respondent A's claim exceeds the statute of limitations, according to Article 3 of the Supreme People's Court's Provisions on Several Issues Concerning the Application of the Statute of Limitations in Civil Cases: "If a party does not raise a statute of limitations defense during the first instance, and raises it during the second instance, the people's court will not support it. If a party does not raise a statute of limitations defense as stipulated in the previous paragraph, and applies for retrial or raises a retrial defense on the grounds of the expiration of the statute of limitations, the people's court will not support it." Therefore, this retrial reason put forward by the retrial applicant is not established. In summary, the retrial application submitted by the applicant does not meet the retrial conditions stipulated in the Civil Procedure Law of the People's Republic of China, and the retrial request is dismissed.

Article 3 of the Company Law of the People's Republic of China states: "A company is a legal person with independent legal property and enjoys legal property rights. A company is liable for its debts with all its property. The shareholders of a limited liability company are liable for the company's debts only to the extent of their subscribed capital." Article 19 of the Supreme People's Court's Provisions on Several Issues Concerning the Application of the Company Law (Revised in 2020) states: "If the shareholders of a limited liability company, the directors and controlling shareholders of a joint-stock company, and the actual controllers of the company maliciously dispose of the company's assets after the company is dissolved, causing losses to creditors, or if they deregister the company without legal liquidation by deceiving the company registration authority with false liquidation reports, the people's court shall support the creditors' claims for corresponding compensation for the company's debts." The first paragraph of Article 20 states: "A company shall apply for deregistration only after completing legal liquidation. If a company is deregistered without liquidation, resulting in the inability to liquidate, and creditors claim that the shareholders of a limited liability company, the directors and controlling shareholders of a joint-stock company, and the actual controllers of the company should bear the repayment responsibility for the company's debts, the people's court shall support it according to law." Article 22 states: "When a company is dissolved, the unpaid capital contributions of shareholders shall be treated as liquidation property. Unpaid capital contributions by shareholders include overdue contributions that have not been paid, as well as contributions that are to be paid in installments according to Articles 26 and 80 of the Company Law that have not yet reached the payment deadline. When the company's assets are insufficient to repay its debts, creditors claim that unpaid capital shareholders, as well as other shareholders or promoters at the time of the company's establishment, should bear joint repayment responsibility within the scope of unpaid contributions, the people's court shall support it according to law." In this case, retrial applicant B did not submit evidence of the liquidation of the property management company to the court, nor did it submit evidence of actual capital contribution. The shareholders of the property management company at the time of its establishment were C, holding 100% of the shares, and did not make actual contributions. On March 4, 2019, the legal representative and shareholder of the property management company changed to defendant B, holding 100% of the shares, with the method of contribution being subscribed capital. On November 14, 2019, the property management company was deregistered, but the company did not legally liquidate. B neither submitted evidence of actual capital contribution nor proved that its assets are independent of the property management company's assets. Under the premise of not liquidating, B proceeded with the deregistration of the property management company and should bear the repayment responsibility according to law.

Article 62 of the Company Law of the People's Republic of China states: "A one-person limited liability company shall prepare financial accounting reports at the end of each accounting year and have them audited by an accounting firm." Article 63 states: "If the shareholder of a one-person limited liability company cannot prove that the company's assets are independent of the shareholder's own assets, they shall bear joint liability for the company's debts." A one-person limited liability company has the obligation to regularly prepare statutory accounting reports to prove the independence of the company's assets from the personal assets of the shareholder. B and C, as one-person shareholders of the property management company at different times, did not prove that the property management company's assets are independent of their personal assets. As the legal representatives and sole shareholders of the property management company, B and C should comply with laws, administrative regulations, and the company's articles of association, exercise shareholder rights according to law, and must not abuse shareholder rights to harm the interests of the company; they must not abuse the independent status of the company and the limited liability of shareholders to harm the interests of the company's creditors. B and C have not provided evidence to prove the independence of the company's assets from the shareholders' assets; therefore, the plaintiff's request for a ruling that B and C bear joint responsibility for the debts of the property management company has factual and legal basis.

The Supreme People's Court's interpretation on the application of the "Civil Procedure Law of the People's Republic of China" (2022 Revision) Article 127 states: "The six months stipulated in Article 59, paragraph 3, Article 212, and this interpretation Articles 372, 382, 399, 420, and 421, as well as the one year stipulated in Article 230 of the Civil Procedure Law, are non-variable periods and do not apply to the provisions for the suspension, interruption, or extension of the statute of limitations." The time limit for a party to apply for retrial is six months, which is a time limit for exclusion, and should be submitted within six months after the judgment, ruling, or mediation document takes legal effect; if any of the following circumstances occur, it should be submitted within six months from the date of knowledge or should have known: (1) there is new evidence sufficient to overturn the original judgment or ruling; (2) the main evidence for the facts determined by the original judgment or ruling is forged; (3) the legal documents based on which the original judgment or ruling was made have been revoked or changed; (4) the trial personnel had corruption or bribery during the trial of the case. If a third party is dissatisfied with the ruling rejecting their execution objection, believing that the content of the original judgment, ruling, or mediation document is erroneous and harms their civil rights, they should submit it within six months from the date of delivery of the execution objection ruling. In this case, although C wanted to submit a retrial application online after receiving the second-instance judgment, it was not approved, and the materials were not supplemented within the time limit. Since the application was not submitted within six months, it should be regarded as not submitted, thus the reason for requesting to be treated as a retrial applicant cannot be established.