1. The company's provision of external guarantee shall be subject to the company's resolution
According to Article 16 of the current Company Law (2018 Amendment), if a company provides external guarantees, it shall go through the procedures of "Resolution on External Guarantees of the Company", as follows:
1. If the company provides guarantee for others, it shall be resolved by the board of directors or the shareholders' meeting or the general meeting of shareholders in accordance with the provisions of the articles of association. If the articles of association of the company have a limit on the total amount of the guarantee and the amount of the guarantee, it shall not exceed the prescribed limit.
2. If the company provides guarantee for the shareholders or actual controllers of the company, it must be resolved by the shareholders' meeting or the general meeting of shareholders.
3. The shareholders mentioned in the preceding paragraph (shareholders who accept the guarantee) and the shareholders who are at the disposal of the actual controller (the shareholders who are controlled by the actual controller who accepts the guarantee) shall not participate in the voting on the matter. The vote shall be passed by a majority of the voting rights held by the other shareholders present at the meeting.
2. If the company provides a guarantee to the outside world, and the legal representative constitutes an "ultra vires guarantee" without the company's resolution, is the guarantee contract valid?
If the legal representative of the company enters into a guarantee contract with a third party on behalf of the company without the above-mentioned company resolution procedures, and exceeds his authority, and stipulates that the company will provide guarantee for other persons, according to Article 7 of the Interpretation of the Supreme People's Court on the Application <中华人民共和国民法典>of the Relevant Guarantee System (hereinafter referred to as the "Interpretation"), the following provisions apply:
(1) When the legal representative exceeds his authority to guarantee, whether the company's external guarantee contract is valid depends on whether the counterparty is in good faith
1. The counterparty is in good faith, and the practice of the legal representative constitutes "apparent agency", and the guarantee contract is effective against the company. Where the counterparty requests that the company bear the guarantee liability, the people's court shall support it.
2. If the counterparty is not bona fide, the guarantee contract shall not be effective against the company.
If the counterparty requests the company to bear the liability for compensation, the court may refer to and apply the provisions of Article 17 of the Interpretation, that is, that:
(1) The main contract is valid and the guarantee contract is invalid
(1) If both the creditor and the guarantor are at fault, the liability of the guarantor ≤ 1/2 of the part that the debtor cannot repay
(2) If the guarantor is at fault and the creditor is not at fault, the liability of the guarantor = 100% of the debtor's inability to pay off
(3) If the creditor is at fault and the guarantor is not at fault, the liability of the guarantor = 0
(2) The main contract is invalid, resulting in the invalidity of the guarantee contract
(1) If the guarantor is not at fault, the liability of the guarantor = 0
(2) If the guarantor is at fault, the liability of the guarantor ≤ 1/3 of the part that the debtor cannot pay off
(2) If the legal representative exceeds his authority to guarantee, he shall be liable for compensation
If the legal representative exceeds his authority to provide guarantees, causing losses to the company, the company may claim that the legal representative bear the liability for compensation, and the people's court shall support it.
(3) Determination of the counterpart's "good faith".
1. Circumstances in which it may be determined that the counterpart has "good faith":
(1) The counterparty did not know, and should not have known, that the legal representative exceeded his authority at the time of entering into the guarantee contract.
(2) The counterparty has evidence to prove that it has conducted a reasonable review of the company's resolution.
2. It cannot be determined that the counterparty has "good faith".
(1) The counterparty knew or should have known that the legal representative had exceeded his authority at the time of entering into the contract.
(2) Although the counterparty provides evidence to prove that it has reviewed the company's resolution, the company has evidence to prove that the counterparty knew or should have known that the resolution was forged or altered.
3. Exceptions to the company's external guarantee without the company's resolution:
According to Article 18 of the Interpretation, the company may also provide external guarantees without the need for a resolution of the company in the following three circumstances:
1. A financial institution issues a letter of guarantee or a guarantee company provides a guarantee;
2. The company provides guarantees for its wholly-owned subsidiaries to carry out business activities;
3. The guarantee contract shall be signed and agreed by more than two-thirds of the shareholders who hold the company individually or jointly and have the right to vote on the guarantee matters.
Where a listed company provides external guarantees, the provisions of items 2 and 3 above do not apply.
Relevant jurisprudence:
Civil Judgment of the People's Court of Futian District, Shenzhen, Guangdong Province, (2021) Yue 0304 Min Chu No. 49707
With regard to the guarantee liability of the defendant H Company, according to Article 16 of the Company Law of the People's Republic of China, the company's investment in other enterprises or the provision of guarantees for others shall be resolved by the board of directors or the shareholders' meeting or the general meeting of shareholders in accordance with the provisions of the articles of association; If the articles of association of the company have a limit on the total amount of investment or guarantee and the amount of a single investment or guarantee, it shall not exceed the prescribed limit. If a company provides a guarantee for the company's shareholders or actual controllers, it must be resolved by the shareholders' meeting or the general meeting of shareholders. The shareholders provided for in the preceding paragraph, or the shareholders under the control of the actual controller provided for in the preceding paragraph, must not participate in the voting on the matters provided for in the preceding paragraph. The vote shall be passed by a majority of the voting rights held by the other shareholders present at the meeting. Since the defendant Company D was a shareholder of Company H, the provision of guarantee by Company H for the external debts of Company D must be resolved by the shareholders' meeting. There were negligences in the internal governance of the defendant Company H. In accordance with Article 7 of the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the Security Law of the People's Republic of China,
Note: The views in this article are for reference only, any case has legal risks, and improper operation may lead to the failure to obtain support for relevant claims, so readers should not simply imitate them.
Author: Huang Weisheng, a practicing lawyer in Shenzhen.
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