The equity of other companies held by the company was transferred to some shareholders, and one shareholder did not know it, and the court ruled invalid

Partnership Guide | Author: Li Li

This is the 912th text of Li Li's blog and partnership guide public account

The equity of other companies held by the company is transferred to some shareholders, and one shareholder is unaware, and the court rule is invalid

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Company A is the controlling shareholder of Company B.

The shareholders of Company A are: Ni Mou, holding 30.8%; Weng Mou, holding 32.31%; Tian Mou, holding 30.22%; Ge Mou, holding 6.67%.

Weng serves as a supervisor of the company, and Ge serves as an executive director of the company.

The dispute involved in this lawsuit occurred between shareholder Ni and other shareholders.

On August 1, 2017, Ni filed a litigation request with the court:

Confirm that the equity transfer agreements signed between Weng, Tian and Ge and Company A on January 1, 2014 and February 14, 2014 are invalid;

Weng X, Tian X and Ge X restored the equity currently held by Company B to the state before the signing of the aforementioned equity transfer agreement, that is, restored to 100% of the equity of Company B held by Company A;

Weng, Tian and Ge jointly returned to Company A the 2013 annual dividend of 10,851,740 yuan and the 2014 annual dividend of 4,805,775 yuan.

Ni believes that Weng, Tian and Ge, as shareholders of Company A, took advantage of their actual control position to take concerted action to conduct transactions with the company itself, and did not perform any internal decision-making procedures to transfer to themselves the important assets of Company A's main source of operating profits, that is, 100% of the equity of Company B. Company A has lost its independent legal entity status and is unable to make any substantive expression of intent on the abnormal transaction, and the transaction behavior of the three people acting in concert is obviously malicious collusion and abuse of shareholder rights, which not only leads to the loss of a stable source of income for Company A, but also on November 9, 2015, without the resolution and other procedures of the board of directors of Company A, the three of them issued a notice in the name of Company A to convene a shareholders' meeting on the dissolution and liquidation of the company, and once the liquidation will cause Company A to no longer seek remedies. It had voted against it, but Weng, Tian and Ge all voted to disband the company. In July 2017, Weng, Tian and Ge once again issued a notice in the name of Company A to vote again on the dissolution and liquidation of the company. For this reason, Ni, as a shareholder of Company A, sued this court.

To summarize briefly, Ni believes that the transfer of the major assets of Company A (the equity held by Company B) to themselves by several other shareholders is malicious collusion and abuse of shareholder rights, which should be found to be invalid and restore the original equity status.

So, does Ni's statement and reason have a legal basis?

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In this case, the main issue was the invalidity of a civil juristic act due to malicious collusion.

The judgment in this case was before the promulgation of the Civil Code of the People's Republic of China, so the applicable law was the General Provisions of the Civil Law of the People's Republic of China, which was implemented at that time.

However, the legislative provisions on malicious collusion have hardly changed in the Civil Code, so they do not affect the discussion in this article.

The relevant provisions of the original General Provisions of the Civil Law of the People's Republic of China are exactly the same as those of the current Civil Code of the People's Republic of China, and even the serial numbers of the first few articles are the same:

Article 154:Civil juristic acts in which the actor maliciously colludes with his counterpart to harm the lawful rights and interests of others is invalid.

Article 155:Invalid or revoked civil juristic acts are not legally binding from the outset.

Malicious collusion refers to civil juristic acts that harm the lawful rights and interests of others committed by the perpetrator and the counterpart in collusion with each other for the purpose of seeking private interests. Bad faith refers to a party knowingly knowing that the civil juristic act committed by the party will cause harm to others. Collusion mainly refers to the intentional contact or communication between the parties, all hoping to harm the legitimate rights and interests of a specific third party by implementing a certain civil juristic act, and also includes the meaning that the parties objectively cooperate with each other or jointly carry out the illegal civil juristic act.

In litigation practice, judges usually do not ask the plaintiff to produce evidence to prove that the other party's subjective intentions are malicious, but to judge whether it is malicious and collusive based on the analysis and judgment of the specific behavior and consequences of the perpetrator according to general social concepts, common sense and experience.

If it is possible to produce a record of communication or written agreement documents of the collusive parties, it can also prove that there is "collusion". In this case, the resolution documents of the shareholders' meeting signed by several other shareholders together basically proved that they had a common expression of intention before.

"Malicious collusion causing damage to the lawful rights and interests of others" is a statutory invalidity of a civil act. It cannot be excluded by means of agreed consultation. In this case, several shareholders who were defendants had discussed with the plaintiff to transfer their original equity interests to Company B, but the plaintiff rejected the specific plan they proposed. This act of negotiation does not affect the invalidity of the previous malicious collusion.

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The basic facts of the case

On January 1, 2014, Weng, Tian and Ge signed the Equity Transfer Agreement with Company A respectively, and transferred 38.4%, 32% and 9.6% of the equity of Company B held by the latter (the transfer price was the net asset value of the financial statements at the end of December 2013, excluding undistributed profits), at a price of 5.808 million yuan (the original capital contribution was 4.8 million yuan), 4.84 million yuan (the original capital contribution was 4 million yuan), and 1.452 million yuan (the original capital contribution was 1.2 million yuan), respectively. The three paid the full amount of the equity transfer by the end of January 2014. As of the end of January of the same year, Weng, Tian and Ge had paid 5,808,000 yuan, 4.84 million yuan and 1,452,000 yuan to Company A respectively.

On February 14 of the same year, Weng, Tian and Ge signed the Equity Transfer Agreement with Company A respectively, and transferred 9.6%, 8% and 2.4% of the equity of Company B held by the latter (the transfer price is the net asset value of the financial statements at the end of January 2014, excluding undistributed profits), which were priced at 1.452 million yuan (the original capital contribution was 1.2 million yuan), 1.21 million yuan (the original capital contribution was 1 million yuan), and 363,000 yuan (the original capital contribution was 300,000 yuan), respectively. The three paid off the entire equity transfer by the end of February 2014. As of the end of February of the same year, Weng, Tian and Ge had paid 1.452 million yuan, 1.21 million yuan and 363,000 yuan to Company A respectively.

After the above two equity transfers, all the equity of Company B held by Company A has been transferred to the three shareholders of Company A, Weng, Tian and Ge.

On November 3, 2015, Company A issued a notice to shareholders to convene a shareholders' meeting on November 9 of the same year to discuss the company's closure and liquidation. On November 9 of the same year, Company A made a resolution of the shareholders' meeting and agreed to the dissolution of the company, and Ni voted against this resolution.

On July 5, 2017, Company A issued a notice to Ni that an extraordinary shareholders' meeting would be held on August 2 of the same year, and the main agenda included the consideration of the liquidation and dissolution of the company; the consideration of the replacement of the shareholders of the company with the shareholders of Company B in the same proportion, and the request for Ni to clarify whether to replace the shareholders of Company B with the proportion of shares in Company A (30.8%). The amount of capital contribution is calculated based on the net assets of Company B (totaling RMB1.21 per rmb) as of December 31, 2013 and February 14, 2014, totaling RMB4,658,500. On July 28 of the same year, Ni issued a notification letter to Company A and Ge, saying that they had filed relevant lawsuits with the people's court, so the provisional shareholders' meeting scheduled for August 2 did not have the objective conditions for convening. On August 2 of the same year, Company A held an extraordinary shareholders' meeting to vote on the aforementioned matters, Ni voted against it, and Weng, Tian and Ge voted in favor.

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The court of first instance held that:

Ni, Together with Weng, Tian and Ge as shareholders of Company A, through which they held shares in Company B, and Company B held shares in an electronic network company limited by shares; and between December 2013 and January 2014, through the convening of the shareholders' meeting of Company A and Company B, Weng, Tian and Ge directly became shareholders of Company B, but the relevant parties failed to submit valid evidence to confirm that the corresponding shareholders' meeting had legally notified Ni as a shareholder of Company A, for which this court held, The act of signing the Equity Transfer Agreement between Weng X, Tian X, Ge X, as shareholders of Company A at that time, and Company A, as shareholders of Company B, objectively deprived Ni of the right to indirectly enjoy the equity rights and interests of Shanghai Jinling Electronic Network Co., Ltd. through Company A, thus harming ni's legitimate rights and interests, and was an invalid act of malicious collusion to harm a third party. Invalid civil acts have no legal binding force from the beginning of the act, and the consequences of the corresponding acts should be restored to their original state, so Company B and the remaining parties should go to the Market Supervision and Administration Bureau to go through the formalities for the registration of the change of shareholders in industry and commerce. Although the shareholders involved in the case held an extraordinary shareholders' meeting of Company A on August 2, 2017 to vote on the matter of "the shareholders of Company A shall be replaced by the shareholders of Company B in the same proportion", at this time, nearly four years have elapsed since the convening of the aforementioned shareholders' meeting, the relevant replacement matters are not the same as the aforementioned restitution, and Ni mou also does not agree with the alternative, so this case can only be sentenced to restitution according to law based on the invalid consequences.

With regard to Ni's claim that Weng, Tian and Ge jointly return to Company A the dividends of RMB22,036,972.20 received during their holding of Company B's equity, this court does not support the relevant litigation claims because Company B and Company A have made it clear that Ni has no right to represent their company. However, it is precisely because of the statement of the relevant company that if Ni has evidence to prove that the loss caused to him by the above-mentioned acts, according to the principle that "after the civil juristic act is invalid, revoked or determined not to be effective, the property acquired by the actor as a result of the act shall be returned; if it cannot be returned or there is no need to return, it shall be compensated at a discount." The party at fault shall compensate the other party for the losses suffered as a result", which it may claim separately. During the trial, Mr. Ni withdrew his claim that Weng, Tian, and Ge jointly return to Company B the undistributed profits of RMB8,985,205.71 and that Weng, Tian, and Ge jointly compensate Company A for dividend losses of RMB2,562,000, which was their right to dispose of their own entities, and this court approved it.

In summary, in accordance with Article 22 of the Company Law of the People's Republic of China, Articles 154 and 155 of the General Provisions of the Civil Law of the People's Republic of China, and Article 90 of the Interpretation of the Supreme People's Court on Application, the judgment is as follows:

1. Confirm that the equity transfer agreements signed between Weng, Tian and Ge on January 1, 2014 and February 14, 2014 respectively with Company A are invalid;

2. Company B shall, within 10 days after this judgment takes effect, reinstate the shareholders from Weng X, Tian X and Ge X to Company A, and record the matter of 100% of the shares held by Company B in the articles of association and the register of shareholders of Company B, and publicize them in the "Enterprise Publicity Information" section of the national enterprise credit publicity system;

3. Company B shall, within 30 days after the effective date of this judgment, apply to the Market Supervision administration for the reinstatement of the names of shareholders from Weng X, Tian X and Ge X to Company A, and all parties shall assist;

4. Ni's remaining litigation claims are not supported.

The case also went through a second instance trial. In the second-instance judgment, in addition to repeating the first-instance judgment's determination of the determination of malicious collusion, it also added a discussion on constituting an "abuse of shareholders' rights":

...... This court believes that China's Company Law stipulates that shareholders enjoy the rights of asset returns, participation in major decision-making and selection of managers in accordance with the law. The shareholders' meeting determines the company's business policy and investment plan. As a shareholder of Company A, Mr. Ni shall enjoy the right to return on assets according to the amount of capital he has invested in Company A, and participate in the choice of major issues such as the direction of Operation, investment objectives and profit distribution of Company A by participating in the shareholders' meeting. In this case, Company A, as the sole shareholder of Company B, transferred the equity of Company B held by it, and transferred all the shares to the remaining shareholders of Company A except Ni, who had the right to know the relevant matters and the right to participate in decision-making. Weng X, Tian X and Ge X claimed that Company A had formed a shareholders' meeting resolution on the Equity Transfer Agreement, but it could not be proved that at the time of the shareholders' meeting, Weng X, Tian X, Ge X or Company A had adopted a legal and effective method of service to notify Ni in accordance with the provisions of China's Company Law and the articles of association of A company. Weng X, Tian X and Ge X also could not prove that before the signing of the Equity Transfer Agreement, they had informed Ni of the equity transfer matters and consulted Ni X's opinion. Therefore, As a shareholder holding 30.8% of the equity of Company A, Mr. Ni failed to fully state his opinion on the transfer of the equity of Company B by Mr. Weng, Mr. Tian and Mr. Ge, resulting in Mr. Ni losing the possibility of transferring the equity of Company B under the same conditions, and also depriving Mr. Ni of his right to participate in major decision-making as a shareholder of Company A. ......

Regarding the "abuse of shareholders' rights", the legal provisions are the Company Law of the People's Republic of China:

Article 20 The shareholders of a company shall abide by the laws, administrative regulations and the articles of association of the company, exercise the rights of shareholders in accordance with the law, and shall not abuse the rights of shareholders to harm the interests of the company or other shareholders; shall not abuse the independent status of the company as a legal person and the limited liability of shareholders to harm the interests of the creditors of the company.

Where the shareholders of a company abuse the rights of shareholders and cause losses to the company or other shareholders, they shall bear the liability for compensation in accordance with law.

Where a shareholder of a company abuses the independent status of the company as a legal person and the limited liability of the shareholders to evade debts and seriously harm the interests of the company's creditors, it shall bear joint and several liability for the company's debts.

This part of the second-instance judgment actually points out the basis for the "Equity Transfer Contract" that was found to be invalid, that is, the resolution of the shareholders' meeting is also illegal and invalid, but the conclusion that the shareholders' meeting resolution is invalid is not written.

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Looking at the entire case, it can be understood that although the Company Law does not make specific corresponding provisions on the internal decision-making mechanism of such matters, in practice, as long as it involves the disposal of the company's major assets, it is absolutely not recommended to take the way of throwing away individual shareholders, otherwise it will be like the case in this case, there will be a toss and risk that after a few years it will be found to be invalid and all will be returned.

The way to pass the resolution of the shareholders' meeting without notifying individual shareholders is not only problematic in terms of legal effect, but also unreasonable in the management of shareholder relations. If there are different ideas in advance communication, the contradiction will be more concentrated on the matter; however, if the communication is not concealed and the operation produces contradictions, the contradictions will be completely concentrated on people, and the "human union" between the shareholders of this company will be destroyed.