1. If the enterprise is no longer in operation, if it is not liquidated in time or abandons liquidation, it will have a negative impact on shareholders, directors, actual controllers, etc.
The Mainland Company Law, the relevant judicial interpretations of the Company Law, and the Civil Code have made clear provisions on the legal liability for "failure to liquidate the company in a timely manner". For example, if the company is negligent in liquidation, the company's creditors may request the court to appoint a person to liquidate, and if the negligence in liquidation causes the company's property to be diminished or the liquidation is impossible, the company's creditors may sue the company's shareholders, directors, actual controllers, etc., and require them to bear the corresponding liability for compensation for the company's debts, or even joint and several liability, as follows:
1. Provisions of the Company Law
According to Article 183 of the current Company Law of the People's Republic of China (2018 Amendment) (hereinafter referred to as the "Company Law" (2018 Amendment)), when an enterprise is dissolved for four reasons, a liquidation team shall be established within 15 days for liquidation, otherwise the creditor may apply to the court to appoint a person for liquidation:
(1) If a company is dissolved for the following "four reasons", a liquidation team shall be established within 15 days from the date of occurrence of the cause of dissolution and liquidation shall begin.
Reason 1: The expiration of the business period specified in the articles of association or the occurrence of other reasons for dissolution stipulated in the articles of association;
Reason 2: The shareholders' meeting or the resolution of the shareholders' meeting is dissolved;
Reason 3: The business license has been revoked, ordered to close or revoked in accordance with the law;
Reason 4: If serious difficulties arise in the operation and management of the company, and the continued existence will cause significant losses to the interests of shareholders, which cannot be resolved by other means, shareholders holding more than 10% of the voting rights of all shareholders of the company may request the people's court to dissolve the company. Where the people's court agrees to dissolve it after trial.
(2) The liquidation group of the company
the liquidation group of a limited liability company, consisting of "shareholders";
The liquidation group of a company limited by shares is composed of "directors, or persons determined by the general meeting of shareholders".
(3) If the company fails to establish a liquidation team for liquidation within the time limit, the creditor may request the people's court to appoint relevant personnel to form a liquidation group for liquidation. The people's court shall accept the application and promptly organize a liquidation team to conduct liquidation.
2. Provisions of the relevant judicial interpretations of the Company Law
According to Article 18 of the Provisions of the Supreme People's Court on <中华人民共和国公司法>Several Issues Concerning the Application (II) (2020 Amendment) (also known as the "Judicial Interpretation II of the Company Law"), if the company fails to liquidate in a timely manner, resulting in "the depreciation, loss, damage or loss of the company's property", or "the company's main property, account books and important documents are lost, so that liquidation cannot be carried out", the company's creditors may request "the shareholders of the limited liability company, the directors and the controlling shareholders of the limited liability company" , as well as the relevant actual controllers, shall be liable for supplementary or joint and several compensation.
(1) Supplementary Liability:
If the shareholders of a limited liability company, the directors and the controlling shareholders of a joint-stock limited liability company fail to set up a liquidation group to start liquidation within the statutory time limit, resulting in "depreciation, loss, damage or loss of the company's property", the creditor has the right to demand that it bear the liability for compensation for the company's debts "within the scope of the losses caused" - as much as the losses caused, they will be compensated.
(2) Joint and several liability:
If the shareholders of a limited liability company, the directors and the controlling shareholders of a joint-stock limited liability company neglect to perform their obligations, resulting in the loss of "the company's main property, account books, important documents, etc., and cannot be liquidated", the creditor has the right to require them to bear joint and several liability for the company's debts - how much the company owes, the amount of compensation must be paid, joint and several compensation.
(3) The actual controller is also liable
In the above two cases, it is caused by the "actual controller of the company", and the creditor can also require the actual controller to bear the corresponding civil liability - supplementary liability, or joint and several liability.
3. Provisions of the Civil Code
According to Article 70 of the Civil Code of the People's Republic of China, if a legal person is dissolved, except in the case of merger or division, the liquidation obligor shall form a liquidation team for liquidation in a timely manner, among which the liquidation obligor shall be "a member of the executive or decision-making body such as directors and directors of the legal person" (or a person otherwise provided by laws and administrative regulations), and if the liquidation obligor fails to perform the liquidation obligation in a timely manner and causes damage, it shall bear civil liability.
2. Shareholders may lose the protection of "limited liability", and the "actual controller" of the company may also be liable for compensation. In other words, the debts of the company, which used to be traced only to the company, can now be traced to the individual.
The term "limited" in a limited liability company and a joint-stock limited liability company refers to the limited liability of the shareholder, as an investor, to the extent of his subscribed capital contribution, for the company's debts.
For example, if the capital contribution subscribed by the shareholder is 500,000 yuan, assuming that the company's debt reaches 5 million, under normal circumstances, the shareholder only needs to bear limited liability for the capital contribution of "500,000 yuan", and the rest does not need to bear the liability for compensation.
However, if the company is insolvent and needs to be dissolved, but fails to form a liquidation group for liquidation in a timely manner, resulting in the impairment of the company's property or the inability to liquidate, the company's liquidation obligor, including shareholders and others, needs to be liable for compensation for the company's debts, or even joint and several liability.
From the perspective of shareholders, at this time, they are no longer protected by "limited liability" and may become "unlimited liability".
In addition, the actual controller of the company must also come to the front of the stage from behind the scenes at this time, and must be liable for compensation for the company's debts.
3. After the enterprise ceases to operate, if it is ignored for a long time, it will cause a series of problems
1. Failure to submit the annual report in a timely manner will be included in the "abnormal business list"
According to Article 70 of the Detailed Rules for the Implementation of the Regulations on the Registration and Administration of Market Entities, if an enterprise fails to publicize or submit an annual report within the time limit prescribed by laws and administrative regulations, it will be included in the "List of Abnormal Business Operations" and may be fined up to 10,000 yuan.
2. If an enterprise has been included in the "List of Abnormal Business Operations" for 3 years but still has not fulfilled its disclosure obligations, it will be included in the "List of Enterprises with Serious Violations", and thereafter the legal representative or person in charge of the enterprise shall not serve as the legal representative or responsible person of another enterprise for 3 years.
According to Article 15 of the Interim Measures for the Management of the List of Enterprises with Abnormal Business Operations, if an enterprise has been included in the list of abnormal business operations for three years but still fails to perform its disclosure obligations, it will be included in the "List of Enterprises with Serious Violations".
According to the third paragraph of Article 17 of the current Interim Regulations on the Disclosure of Enterprise Information, once an enterprise is included in the list of enterprises with serious violations, its legal representative or responsible person shall not serve as the legal representative or responsible person of another enterprise for three years. [Note: The Interim Regulations on the Disclosure of Enterprise Information (revised in 2024), which will come into effect on May 1, 2024, will be changed to the second paragraph of Article 18, and it is also prohibited from serving as the legal representative or person in charge of other enterprises for three years.] ]
3. If the enterprise is suspended for a long time, the business license may also be revoked, and as the legal representative of the revoked enterprise, if he bears personal responsibility for this, he shall not serve as a director, supervisor or senior manager of the company for 3 years.
According to the first paragraph of Article 211 of the Company Law (2018 Amendment), if a company fails to commence business for more than six months without justifiable reasons after its establishment, or suspends business on its own for more than six consecutive months after commencement of business, its business license may be revoked by the company registration authority.
According to Article 146 (4) of the Company Law (2018 Amendment), if he serves as the legal representative of a company or enterprise whose business license has been revoked or ordered to close down due to illegal acts, and bears personal liability, the relevant legal representative shall not serve as a director, supervisor or senior manager of another company within three years from the date on which the business license of the company or enterprise is revoked.
Relevant regulations:
Company Law of the People's Republic of China (2018 Amendment)
(3) It is necessary to dissolve due to the merger or division of the company;
Article 182.
Article 183. The liquidation group of a company limited by shares shall be composed of directors or persons determined by the general meeting of shareholders. The people's court shall accept the application and promptly organize a liquidation team to conduct liquidation.
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) (2020 Revision)
Article 18 The people's courts shall support the shareholders of a limited liability company and the directors and controlling shareholders of a company limited by shares in accordance with law.
The people's court shall support the shareholders of a limited liability company, the directors and controlling shareholders of a company limited by shares in accordance with law.
Where the circumstances described above are, the people's courts shall support them in accordance with law.
Civil Code of the People's Republic of China
Article 70: Where a legal person is dissolved, except in the case of merger or division, the liquidation obligor shall promptly form a liquidation team to conduct liquidation.
The directors and directors of a legal person and other members of the executive or decision-making body are liquidation obligors. Where laws and administrative regulations provide otherwise, follow those provisions.
The competent authority or interested parties may apply to the people's court to appoint relevant personnel to form a liquidation team for liquidation.
Detailed Rules for the Implementation of the Regulations of the People's Republic of China on the Administration of Registration of Market Entities
Article 70.
Interim Measures for the Management of the List of Enterprises with Abnormal Business Operations
Article 15: Within 60 days prior to the completion of 3 years before an enterprise is entered into the directory of abnormal business operations, the administrative departments for industry and commerce shall remind them to perform relevant obligations through an announcement through the enterprise credit information publicity system;
Interim Regulations on the Disclosure of Enterprise Information
Article 17: In any of the following circumstances, the administrative departments for industry and commerce at the county level or above are to enter them into the directory of abnormal business operations, and announce them to the public through the enterprise credit information publicity system, reminding them to perform their disclosure obligations; where the circumstances are serious, the relevant competent departments are to give administrative punishments in accordance with the relevant laws and administrative regulations; where losses are caused to others, they shall bear responsibility for compensation in accordance with law; and where a crime is constituted, criminal responsibility shall be pursued in accordance with law:
(1) Enterprises fail to disclose their annual reports within the time limits provided for in these Regulations or fail to disclose information on enterprises within the time limits ordered by the administrative departments for industry and commerce;
(2) The information disclosed by the enterprise conceals the true situation or falsifies it.
Where enterprises entered into the directory of abnormal business operations perform their disclosure obligations in accordance with the provisions of these Regulations, the administrative departments for industry and commerce at the county level or above are to remove them from the directory of abnormal business operations;
Where the circumstances provided for in the first paragraph have not occurred again for 5 years since the enterprise was entered into the list of enterprises with serious violations, the administrative department for industry and commerce under the State Council or the administrative department for industry and commerce of the people's government of a province, autonomous region, or directly governed municipality is to remove it from the list of enterprises with serious violations.
Interim Regulations on the Disclosure of Enterprise Information (Revised in 2024)
(Note: It has not yet come into effect, and will only come into effect on May 1, 2024)
Article 18: Where enterprises fail to disclose their annual reports within the time period provided for in these Regulations, or fail to disclose information on enterprises within the time period ordered by the departments for market regulation, the departments for market regulation at the county level or above are to enter them into the directory of abnormal business operations, and give administrative punishments in accordance with law. Where an enterprise is included in the list of abnormal business operations for two consecutive years because it has not submitted an annual report in accordance with the provisions and has not made corrections, and it is impossible to get in touch through the registered domicile or business place, the market regulation department at or above the county level shall revoke its business license.
Where an enterprise conceals the true situation or falsifies the information disclosed by an enterprise, where there are provisions in laws and administrative regulations, follow those provisions; if there are no provisions, the market regulation department shall order corrections and impose a fine of between 10,000 and 50,000 RMB; if the circumstances are serious, a fine of between 50,000 and 200,000 RMB shall be imposed, and it shall be included in the list of the untrustworthy with serious violations of market supervision and management, and its business license may be revoked.
After an enterprise has its business license revoked, it shall go through the process of deregistration in accordance with law, and if it fails to do so, the market regulation department shall handle it in accordance with law.
Company Law of the People's Republic of China (2018 Amendment)
Article 211 The company has not commenced business for more than six months without justifiable reasons after its establishment, or
In the event of a change in the registration of a company, if it fails to go through the relevant change registration in accordance with the provisions of this Law, the company registration authority shall order it to register within a time limit, and if it fails to register within the time limit, it shall be fined not less than 10,000 yuan but not more than 100,000 yuan.
(1) Lack of or limited capacity for civil conduct;
(2) Where they have been sentenced to a criminal punishment for corruption, bribery, embezzlement of property, misappropriation of property, or undermining the order of the socialist market economy, and the period of enforcement has not yet exceeded 5 years, or they have been deprived of political rights for committing a crime and the period of enforcement has not yet exceeded 5 years;
(3) Where a director, factory director, or manager of a company or enterprise in bankruptcy liquidation bears personal responsibility for the bankruptcy of the company or enterprise, three years have not elapsed since the completion of the bankruptcy liquidation of the company or enterprise;
(5) Debts of a relatively large amount borne by individuals are not paid off when due.
Where the Company violates the provisions of the preceding paragraph in electing or appointing directors or supervisors or appointing senior managers, the election, appointment or appointment shall be invalid.
Where directors, supervisors, or senior managers have any of the circumstances listed in the first paragraph of this article during their tenure of office, the company shall remove them from their positions.
Note: The views in this article are for reference only, and any case may have legal risks, so readers are advised to exercise with caution.
Author: Huang Weisheng, a practicing lawyer in Shenzhen.
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