The third article in the series of research on the new Company Law: the criminal risk of overlapping with the obligations of directors, supervisors and senior executives
【Zhuhai lawyer, Zhuhai legal consultation, Zhuhai law firm, Jingshi law firm, Jingshi Zhuhai law firm】
In the previous article, the author summarized the obligations and civil risks of directors, supervisors and senior executives, mainly from the perspective of the duty of loyalty and diligence of directors, supervisors and senior executives to the company, to specifically analyze the civil compensation risks that directors, supervisors and senior executives may involve when performing their duties. In this article, the author analyzes and summarizes the criminal risks that directors, supervisors and senior executives may be involved in from the duty of loyalty and diligence to the company.
The same act may constitute civil liability, or it may involve criminal offenses, forming a competition of liabilities, which is the so-called "intersection of criminal and civil". For directors, supervisors and senior executives who perform the same duties, under the evaluation of different jurisdictions of the "Company Law" and the "Criminal Law", they may bear different responsibilities, and violating the provisions of the "Company Law" will be nothing more than facing compensation, but if they violate the provisions of the "Criminal Law", the consequences will be very serious, and they will be investigated and tried by the case-handling organs to a large extent, and they will lose their freedom to a large extent and can only make statements and explanations to the case-handling authorities, and there is almost no room for negotiation. However, there is a certain boundary between civil liability and criminal liability, but the boundary is relatively blurred, in practice, the transformation from civil liability to criminal liability may also be instantaneous, and the application may also intersect with each other, the more common is to resolve civil disputes through criminal means, but there are also some through civil means to resolve criminal risks. In this article, starting from the duty of loyalty and diligence of directors, supervisors and senior executives to the company stipulated in the new Company Law, the author tries to analyze and summarize the possible criminal risks of directors, supervisors and senior executives, and then tries to find out the boundary between "criminal and civil intersection".
1. The duty of diligence of directors, supervisors and senior executives overlaps with the provisions of the Criminal Law
The duty of diligence of directors, supervisors and senior executives is clearly explained and explained in the new Company Law, that is, "when performing their duties, directors, supervisors and senior executives shall exercise reasonable care in the best interests of the company". On the contrary to diligence, that is, failure to perform duties and responsibilities, the duties and responsibilities here are generally stipulated by laws, administrative regulations or the articles of association of the company, and if losses are caused to the company, directors, supervisors and senior executives need to bear civil liability for compensation to the company (Article 188 of the new Company Law). In the Criminal Law, it is not yet a crime to crack down on directors, supervisors and senior executives who have caused significant losses to the company by violating their duty of diligence to the company.
In the Criminal Law, there are many crimes committed due to dereliction of duty, most of which are dereliction of duty by state employees, but there are also the following two items, which are very close to the directors, supervisors and senior executives who perform their duties in the company, as can be seen below:
1. Article 167 of the Criminal Law, the crime of being deceived by dereliction of duty in signing or performing a contract.
2. Article 168 of the Criminal Law, the crime of dereliction of duty by personnel of state-owned companies, enterprises and public institutions;
The first charge is the person in charge directly responsible for a state-owned company, enterprise, or state-owned institution, and the second is a staff member of a state-owned company, enterprise, or state-owned institution.
2. The duty of loyalty of directors, supervisors and senior executives overlaps with the provisions of the Criminal Law
The duty of loyalty of directors, supervisors and senior executives is that directors, supervisors and senior executives "shall avoid conflicts between their personal interests and the interests of the company, and shall not use their power to seek improper interests", which is also clearly explained and enumerated in the new Company Law (see Article 181 of the new Company Law). The new Company Law prohibits the use of the company's authority to seek improper benefits, and the new Company Law lists and classifies the following five categories: (1) embezzlement of the company's property and misappropriation of the company's funds; (2) storing the company's funds in an account in his or her own name or in the name of other individuals; (3) taking advantage of his authority to bribe or accepting other illegal income; (4) accepting commissions from others for transactions with the company as his own; and (5) disclosing company secrets without authorization. If the directors, supervisors and senior executives engage in the aforesaid five acts in violation of the law, they will cause losses to the company to a certain extent, and thus need to bear the liability for compensation to the company (Article 188 of the new Company Law), and to a certain extent, they will also violate the provisions of the Criminal Law, constituting criminal acts.
1. Embezzlement of company property and misappropriation of company funds
If the directors, supervisors and senior executives carry out the above two acts, they will cause losses to the company and need to bear the liability for compensation, and to a certain extent, they will constitute two crimes: the crime of embezzlement and the crime of misappropriation of funds.
The crime refers to the act of "employees of companies, enterprises or other units who take advantage of their positions to illegally take possession of the property of their own units". Directors, supervisors, and senior executives are "employees of the company" when performing their duties, and are the subject of the crime.
There are three key points in the crime, which are "taking advantage of one's position", "one's own property", and "illegally taking possession of one's own property". "Taking advantage of one's position" mainly depends on whether the actor has taken advantage of the convenience of his position to be in charge of, manage, or handle the property of the unit; "property of the unit" includes movable and immovable property, and not only refers to the property owned by the unit, but also includes the property in the possession, management, use, or transportation of the unit in accordance with the law or in accordance with the agreement; "illegal possession for oneself" refers to the act of embezzling, stealing, fraudulently obtaining, or using other illegal means to treat the unit's property as its own and not return it, or to dispose of or change it into ownership.
Article 76 of the Provisions of the Supreme People's Procuratorate and the Ministry of Public Security on the Standards for Filing and Prosecution of Criminal Cases under the Jurisdiction of Public Security Organs (II) issued on April 6, 2022 stipulates that the standard for filing and prosecuting a case is more than 30,000 yuan (inclusive). That is, if the directors, supervisors and senior executives carry out the acts in the preceding article and reach the amount of this article, they may constitute the crime and shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention and a fine. And due to the gradual expansion of the amount, the result of the sentence is also becoming more and more severe, and the maximum sentence is life imprisonment.
This crime refers to "the staff of a company, enterprise or other unit who takes advantage of their position to embezzle the funds of their unit for personal use or lend to others, and the amount is relatively large and has not been repaid for more than three months, or although it has not exceeded three months, the amount is relatively large, and profit-making activities are carried out, or illegal activities are carried out". Directors, supervisors, and senior executives are "employees of the company" when performing their duties, and are the subject of the crime.
The crime also has the following two key points: "misappropriation" refers to the unauthorized disposal of the unit's funds without approval in accordance with the company's internal management regulations, and if it is made by the unit and the perpetrator is executing the unit's order, it does not belong to "misappropriation"; According to the "Reply of the Economic Crime Investigation Bureau of the Ministry of Public Security on Requests for Instructions on Issues Concerning the Crime of Misappropriation of Funds", if the recipient has performed the formalities of receiving the funds or goods of other units or individuals involved in economic transactions, such as the money or goods paid by the other party, or the goods delivered, etc., if the recipient has performed the formalities of receiving them in the name of the unit, the property or goods received shall be regarded as the assets of the unit.
Among them, the acts of misappropriation are mainly reflected in the following:
(1) Where the funds are used by an individual or lent to others and have not been repaid for more than three months, including the following three situations for personal use: the use of the unit's funds for the use of oneself, one's relatives, friends, or other natural persons; the use of the unit's funds for other units in the name of an individual; the individual's decision to use the unit's funds for the use of other units in the name of the unit for personal gain; and the return of the unit's funds within three months or within three months, does not constitute this crime. Amount of crime: 50,000 yuan.
(2) For profit-making activities, there is no need to divert time, and the common ones are stock speculation and lending. Amount of crime: 50,000 yuan;
(3) There is no need to divert time for illegal activities, such as gambling, soliciting prostitution, etc. Amount of crime: 30,000 yuan;
If the directors, supervisors and senior executives carry out the above acts up to the prescribed amount, they may constitute the crime and be sentenced to fixed-term imprisonment of not more than three years or criminal detention. In addition, due to the gradual expansion of the amount of this crime, the result of the sentence is becoming more and more severe, and the maximum sentence may be 15 years in prison. However, if the misappropriated funds are returned before a public prosecution is initiated, the punishment may be mitigated or commuted. Of these, where the crime is relatively minor, punishment may be commuted or waived.
2. Store the company's funds in his personal name or in the name of other individuals
If directors, supervisors, or senior executives violate the regulations by opening an account in their own name or in the name of other individuals, and the amount exceeds 50,000 yuan, and they fail to return it for more than three months, it may constitute the crime of misappropriation of funds.
3. Taking advantage of authority to bribe or accept other illegal income
If directors, supervisors and senior executives violate the above provisions, it may constitute the crime of accepting bribes by non-state functionaries, see Article 163 of the Criminal Law.
The crime of accepting bribes by non-state functionaries refers to the conduct of "the staff of a company, enterprise or other unit who takes advantage of their position to solicit other people's property or illegally accept other people's property to seek benefits for others", and "the staff of a company, enterprise or other unit in the course of economic dealings, takes advantage of their position to violate state regulations and accepts kickbacks and fees in various names, which belong to individuals".
The crime mainly has the following key points: "taking advantage of one's position" is the same as embezzling or misappropriating funds in one's position, and if the perpetrator does not seek benefits for others within the scope of his authority, it does not constitute this crime; "Property" here includes not only money and goods, but also property interests that can be calculated in money, such as the provision of house decoration, debt forgiveness, membership services, token cards (coupons), travel expenses, etc., and the specific amount is actually paid or should be paid. In the course of economic exchanges, taking advantage of one's position, violating state regulations, and accepting kickbacks and fees in various names, which belong to individuals, constitutes the crime.
Article 10 of the Provisions of the Supreme People's Procuratorate and the Ministry of Public Security on the Standards for Filing and Prosecution of Criminal Cases under the Jurisdiction of Public Security Organs (II) issued on April 6, 2022 stipulates that the standard for filing and prosecuting a case is more than 30,000 yuan (inclusive). That is, if the directors, supervisors and senior executives carry out the above-mentioned acts to reach the prescribed amount, they may constitute the crime and shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention and a fine. And due to the gradual expansion of the amount, the result of the sentence is also becoming more and more severe, and the maximum sentence is life imprisonment.
4. Accept the commission of others to trade with the company as your own
If the directors, supervisors and senior executives accept the commission of another person's transaction with the company as their own, reaching more than 30,000 yuan, and seek benefits for others, then it may constitute the crime of accepting bribes by non-state functionaries. If there is no benefit for another person, it may not constitute the offence.
However, if the state regulations do not allow the collection of transaction commissions and collect them, and they are owned by individuals, it will also constitute the crime of accepting bribes by non-state functionaries, and there is no need to seek benefits for others. "State provisions" here refer to the laws and decisions formulated by the National People's Congress and its Standing Committee as provided for in Article 96 of the Criminal Law, and the administrative regulations, administrative measures provided, and decisions and orders issued by the State Council, excluding local provisions.
5. Unauthorized disclosure of company secrets
The scope of company secrets is very large, mainly referring to information that is not known to the public, including information that is not disclosed internally and externally, and generally belongs to company secrets, such as employee promotion, salary, year-end bonus, financial statements, technology, user information, etc. The company secrets protected in the field of the Criminal Law mainly refer to trade secrets and important information, so if disclosed without authorization, it may constitute the crime of infringing on trade secrets (Article 219 of the Criminal Law) and the crime of disclosing important information in violation of regulations (Article 161 of the Criminal Law).
The provisions related to the unauthorized disclosure of company secrets mainly refer to "(3) disclosing, using, or allowing others to use the trade secrets in their possession in violation of confidentiality obligations or the requirements of the right holder for the preservation of trade secrets." ".
If the directors, supervisors and senior executives of the company disclose the trade secrets they have access to or control in violation of the confidentiality agreement or the company's confidentiality requirements without authorization, it may constitute the crime. There are several key points that need to be paid attention to here: "trade secrets" refer to commercial information such as technical information and business information that is not known to the public, has commercial value and has been subject to corresponding confidentiality measures taken by the right holder, including technical information such as software source code, technical solutions, equipment drawings, or business information such as price information and personalized customer needs. "Unauthorized disclosure" refers to the fact that directors, supervisors and senior executives "violate confidentiality obligations or violate the company's requirements for keeping trade secrets", resulting in the leakage of trade secrets, and the disclosure method is not limited, and it is possible to secretly inform a third party or publish it to the public, either orally or through books, magazines, newspapers and periodicals, television, radio, the Internet and other media.
In Amendment 11 of the Criminal Law, the constitutive element of "significant loss" is deleted, but in practice, the cause of significant loss to the company is still taken as a factor in the judgment. Article 7 of the 2004 Interpretation of the Supreme People's Court and the Supreme People's Procuratorate on Several Issues Concerning the Specific Application of Law in Handling Criminal Cases of Infringement of Intellectual Property Rights stipulates that "the amount of losses caused to the right holder of trade secrets is more than RMB 500,000" constitutes a serious circumstance and meets the criteria for filing a case, and the amount of losses can generally be determined on the basis of the loss of sales profits caused by the infringement of the right holder. Therefore, the standard for filing and prosecuting the case is to cause a loss of 500,000 yuan to the company, and if the amount is reached, it can be sentenced to fixed-term imprisonment of not more than three years and/or a fine. In addition, due to the gradual expansion of the amount of this crime, the result of the sentence is becoming more and more severe, and the maximum sentence is 10 years imprisonment and a fine.
The subject of the crime is a company or enterprise, but the responsible entity includes the company's shareholders or responsible managers and other directly responsible personnel, so if directors, supervisors and senior executives are responsible for disclosing such important information in violation of regulations when performing their duties, it may constitute this crime.
6. Other behaviors that violate the duty of loyalty to the company
In addition to the above-mentioned prohibition on directors, supervisors and senior executives from carrying out the five acts, the new Company Law also provides that directors, supervisors and senior executives are not allowed to carry out other acts of loyalty to the company.
Special provisions: If a director, supervisor or senior executive of a listed company violates his duty of loyalty to the company, Article 169-1 of the Criminal Law provides for special provisions, which constitutes the crime of breach of trust and harming the interests of the listed company.
The crime refers to "the directors, supervisors, and senior managers of a listed company violating their duty of loyalty to the company and taking advantage of their positions to manipulate the listed company." Specific behaviors fall into the following six categories:
(1) Providing funds, goods, services, or other assets to other units or individuals free of charge;
(2) Providing or accepting funds, goods, services, or other assets on obviously unfair terms;
(3) Providing funds, goods, services, or other assets to units or individuals that are clearly insolvent;
(4) Providing guarantees for units or individuals that are clearly insolvent, or providing guarantees for other units or individuals without legitimate reasons;
(5) Waiver of creditor's rights or assumption of debts without justifiable reasons;
(6) Using other methods to harm the interests of the listed company.
If the directors, supervisors, and senior executives of a listed company carry out the above acts, causing direct economic losses of more than 1.5 million yuan to the listed company, as well as causing the company or enterprise to issue stocks or corporate or enterprise bonds, If the listing and trading of depositary receipts or other securities determined by the State Council in accordance with the law are terminated, the directors, supervisors and senior executives of the listed company may be sentenced to fixed-term imprisonment of not more than three years or criminal detention and/or a fine, and the maximum sentence for this crime may be up to seven years imprisonment and a fine due to the expansion of the amount of economic losses caused to the listed company.
3. The relative prohibition of directors, supervisors and senior executives overlaps with the provisions of the Criminal Law
On December 29, 2023, the Standing Committee of the National People's Congress deliberated and passed the new Company Law, as well as the Criminal Law Amendment (12), which amended seven articles, three of which were amended in response to the amendment of the new Company Law. The main reason is that in the previous Criminal Law, in addition to the above-mentioned four crimes of embezzlement, misappropriation of funds, bribery of state functionaries, and infringement of trade secrets, there is no criminal law level sanction for other means of illegally conveying benefits and harming the interests of enterprises.
The new Company Law prohibits directors, supervisors and senior executives from violating their duty of loyalty, namely, prohibiting related party transactions, prohibiting the pursuit of business opportunities belonging to the company, and prohibiting engaging in similar businesses. The 12th Amendment to the Criminal Law expands the scope of the crimes of illegally operating similar businesses, illegally making profits for relatives and friends, favoritism and malpractice, and selling company and enterprise assets from the original state-owned companies and enterprises' directors and senior executives and related personnel to private companies, enterprises, directors, supervisors, senior executives and related personnel.
1. For the crime of illegally operating the same type of business, see Article 165 of the Criminal Law
A new second paragraph has been added to the 12th Amendment to the Criminal Law, that is, "Where the directors, supervisors, or senior managers of other companies or enterprises violate the provisions of laws and administrative regulations and carry out the acts described in the preceding paragraph, causing major losses to the interests of the company or enterprise, they shall be punished in accordance with the provisions of the preceding paragraph." It can be seen from this that the subject of the crime has been expanded to the directors, supervisors and senior executives of companies and enterprises.
This offence is a reflection of the elevation of the new Company Law's "prohibition of engaging in similar businesses" to the level of the Criminal Law. It is to prevent the directors, supervisors and senior executives of the company from taking advantage of their authority and status advantages to operate or operate the same kind of business behavior as the company they work for others when performing their duties, mainly to prevent the directors, supervisors and senior executives from causing significant losses to the company in order to obtain personal interests. The "use of one's own position" here includes not only the convenience and advantages based on one's actual position, but also the use of others' authority and convenience through the restraint and subordination between others' positions. "Similar business" usually includes whether it is the same type or type of business in form, or the same, similar or similar business, and whether it is in competition in substance. In practice, the company usually compares and examines the industry, customer group, variety, use, performance and other aspects of the company's business, and will also make judgments by comparing the industrial and commercial registration data of the enterprise. In order to distinguish between "similar business" and "similar business", the same kind means "the same category" in the literal sense, and the same kind cannot contain similar semantics, so this interpretation is suspected of being interpreted by analogy. Moreover, the meaning of "similar" is rather vague, and in practice it is easy to cause confusion about the applicable law.
In terms of civil liability, in accordance with Article 186 of the new Company Law, all the income obtained by the directors, supervisors and senior executives shall belong to the company, and if losses are caused to the company, the company also has the right to require the directors, supervisors and senior executives to bear the liability for compensation (see Article 188 of the new Company Law). However, if the board of directors or shareholders of the company agrees to do so, then there is no breach of the duty of loyalty and therefore no crime.
2. For the crime of illegally making profits for relatives and friends, see Article 166 of the Criminal Law
A new second paragraph has been added to the 12th Amendment to the Criminal Law, that is, "Where the staff of other companies or enterprises violate the provisions of laws and administrative regulations and carry out the acts described in the preceding paragraph, causing major losses to the interests of the company or enterprise, they shall be punished in accordance with the provisions of the preceding paragraph." From this provision, it can be seen that the subject of the crime not only includes directors, supervisors and senior executives, but also extends to other staff members of the company.
The objective acts regulated by this crime mainly include the following:
(1) Leaving the unit's profit-making business to their relatives and friends to operate;
(2) Purchasing goods or receiving services from units operated and managed by one's relatives or friends at prices that are clearly higher than the market, or selling goods or providing services to units operated and managed by one's relatives or friends at prices clearly lower than the market price;
(3) Purchasing or accepting substandard goods or services from units operated and managed by their relatives or friends. If the directors, supervisors and senior executives engage in the above-mentioned acts, they may not only violate the two acts of "prohibiting related party transactions" and "prohibiting the pursuit of business opportunities belonging to the company" stipulated in the new Company Law, but also cause significant losses to the company and will be punished by the Criminal Law. "Profit" here should refer to the company's existing profits, and cannot be evaluated on the basis of the company's original unprofitable and others' profits after operation; "market price" includes different prices such as wholesale prices, retail terminal prices, and large preferential prices in the market, and should be judged on the basis of prices corresponding to the actual situation of the company or enterprise; and "unqualified" should be appraised and evaluated by an objective and neutral institution, and a unique conclusion should be made. And the "relatives and friends" here include not only "relatives", but also "friends", that is, all those who are related to the transaction.
Compared with the prohibition of related-party transactions and the prohibition of seeking business opportunities belonging to the company under the new Company Law, if the directors, supervisors, senior executives or staff of the company engage in the above acts as normal performance of duties, that is, when their relatives and friends enter into contracts or conduct transactions with the company, the performance of reporting and approval procedures will lead to exemption from legal liability and thus do not constitute a crime. However, this does not apply if there is deception or concealment.
3. For the crimes of favoritism and malpractice in discounting shares at low prices and selling company or enterprise assets, see Article 169 of the Criminal Law
A new second paragraph has been added to this crime in the 12th Amendment to the Criminal Law, that is, "Where the person in charge directly responsible for another company or enterprise commits favoritism and irregularities by converting the assets of the company or enterprise into shares at a low price or selling them at a low price, causing major losses to the interests of the company or enterprise, he shall be punished in accordance with the provisions of the preceding paragraph." It can also be seen from this that the subject of the crime has been expanded to the person in charge who is directly responsible, and of course it may not be limited to the directors, supervisors and senior executives of the company.
It can also be seen from the provisions that the difference from the previous two articles is that as long as the act of "discounting shares at a low price or selling at a low price" does not need to violate the provisions of laws and administrative regulations, it may constitute the crime.
The boundary between crime and non-crime: whether it has caused significant losses to the company or enterprise.
4 Epilogue
If the directors, supervisors and senior executives of the company violate the duty of loyalty and the duty of diligence, the civil liability for compensation can be resolved through director insurance, etc., and the criminal risks arising are serious or difficult to solve regardless of whether the enterprise or the individual, so the enterprise or individual should take corresponding preventive measures. For enterprises, it is necessary to build a clearer and more reasonable governance structure, improve the corresponding management system such as the approval and decision-making process for major matters such as related party transactions, clarify the "red line" and "bottom line" of the company's directors, supervisors and senior executives, review and formulate codes of conduct for key positions and important matters, and conduct key training for directors, supervisors and senior executives, and even personnel in corresponding key positions of the company. For individual directors, supervisors and senior executives, they should abide by the provisions of laws and regulations, the articles of association of the company, as well as the company's internal reporting and approval system, and conduct key training or learning, so as to keep the risks in mind and make them invisible.
About the Author:
Lawyer Yan Xiaoyu Zhou
Deputy Director of the Real Estate Legal Affairs Department of Beijing Jingshi (Shenzhen) Law Firm, Researcher of the Research Institute of the Trial Research Center of Jingshi Shenzhen Law Firm, Dean of the Calligraphy and Painting Institute of Jingshi Shenzhen Law Firm, and member of the 11th Real Estate Law Professional Committee of Shenzhen Lawyers Association.
Business Areas:
He is mainly engaged in real estate litigation and non-litigation, creditor's rights and debts processing, construction engineering, corporate governance, criminal defense and other fields.