PREFACE
Within the lifecycle of corporate operations, the liquidation phase serves as a critical procedure for businesses to end operations and exit the market. However, liquidation liability disputes often give rise to complex legal challenges that trouble creditors, shareholders, and company management.
During the 27th sharing session of the Corporate Committee of Guangdong Chenggong Law Firm, lawyers Maenna and Wu Ming conducted in-depth discussions on the legal application, practical key points, and typical cases of corporate liquidation liability disputes, delivering a remarkable legal symposium for attendees. This article synthesizes the insights shared by both lawyers to provide a comprehensive interpretation of the legal essentials and practical approaches in corporate liquidation liability disputes.
I Legal framework for liquidation liability disputes
(I) Definition of Liquidation
Corporate liquidation refers to a series of activities, including property settlement, debt repayment, and distribution of remaining assets, conducted by a company in accordance with the law after the occurrence of legally prescribed dissolution causes.
Under Article 229 of the Company Law of the People's Republic of China (2023 Revision), a company may be dissolved for the following reasons:
(1) Expiration of the business term specified in the articles of association or occurrence of other dissolution causes stipulated therein;
(2) Resolution to dissolve passed by the shareholders’ general meeting;
(3) Dissolution required due to company merger or division;
(4) Revocation of the business license, order to close, or cancellation by law;
(5) Dissolution ordered by a people’s court.
Additionally, if a company is unable to repay due debts and its assets are insufficient to cover all debts or it manifestly lacks solvency, it shall enter bankruptcy liquidation proceedings.
(II) Definition of Liquidation Liability Disputes
Liquidation liability disputes refer to conflicts arising when liquidation obligors fail to fulfill their liquidation obligations as required by law after a company encounters statutory dissolution causes, or when members of the liquidation group negligently perform their liquidation duties during the process, causing losses to the company or creditors and thereby incurring liability for compensation.
Under Articles 232 and 238 of the Company Law, liquidation obligors are required to promptly organize liquidation upon the occurrence of dissolution causes; failure to do so may result in corresponding liabilities.
(III) Legal Application of Liquidation Liability Disputes
1. Identification of Liquidation Obligors
Changes under the new Company Law: Article 232 of the new Company Law explicitly designates directors as liquidation obligors, without distinguishing between limited liability companies and joint-stock limited companies. This adjustment breaks from the previous shareholder-centric liquidation liability framework, requiring directors to actively fulfill liquidation obligations.
Alignment with the Civil Code: Article 70 of the Civil Code also stipulates that directors of legal entities are liquidation obligors but adds that "where laws or administrative regulations provide otherwise, such provisions shall prevail," leaving room for the application of the original Company Law.
Application of judicial interpretations: Although Interpretation II of the Company Law Article 18 does not explicitly define liquidation obligors, its wording implies that shareholders of limited liability companies, directors, and controlling shareholders of joint-stock companies may be deemed liquidation obligors in specific circumstances. However, conflicts arise between the new Company Law and Interpretation II regarding the identification of liquidation obligors. Determinations must be made on a case-by-case basis or await new judicial interpretations.
2. Types of Liability
Liquidation compensation liability: If a liquidation obligor fails to establish a liquidation group within the statutory timeframe to commence liquidation, resulting in depreciation, loss, damage, or extinction of the company’s assets, creditors may claim compensation for losses within the scope of such damages.
Joint and several liability: If a liquidation obligor neglects its duties, leading to the loss or destruction of the company’s major assets, accounting records, or critical documents, rendering liquidation impossible, creditors may demand joint and several liability for the company’s debts.
Direct liability for repayment: If a company is deregistered without undergoing liquidation, resulting in the inability to liquidate, creditors may claim that the liquidation obligor assumes direct liability for repaying the company’s debts.
(IV) Clearance Commitment Clauses and Their Application
A company’s clearance obligor refers to a party that promises to handle or assume the company’s debts during the deregistration process at the company registration authority. The nature of a clearance obligor’s liability depends on whether the company underwent lawful liquidation and the specific content of the commitment.
1. Clearance liability must first be differentiated based on whether the company underwent lawful liquidation.
If the company has undergone lawful liquidation, it should only settle debts with its post-liquidation assets. A clearance obligor’s commitment is merely an administrative procedure required by the registration authority and holds no civil legal significance, thus absolving the obligor of civil liability.
If the company is deregistered without lawful liquidation, the scope of the clearance obligor’s liability depends on the commitment’s content. If the commitment explicitly defines the scope of liability, liability is limited to the agreed terms; if unclear, the obligor assumes full liability for all unresolved debts.
(1) If the commitment merely states responsibility for handling the company’s debts and claims, it should be interpreted as assuming liquidation obligations, not direct repayment liability. The obligor must organize liquidation within a specified period and use the post-liquidation assets to settle debts.
(2) If the commitment explicitly assumes guarantee or security obligations, its nature falls under guarantee liability and shall be handled in accordance with guarantee laws.
(3) If the commitment explicitly assumes debt repayment obligations, it constitutes a direct assumption of liability, requiring the obligor to repay creditors directly.
2. Relationship between clearance liability and liquidation obligor liability.
(1) A clearance commitment may be made by the liquidation obligor or a third party unrelated to the obligor.
(2) If a third party signs a clearance commitment and later raises defenses such as "not being a shareholder" or "not being the actual contributor" to avoid liability, courts generally reject such claims. Similarly, nominal shareholders signing such commitments cannot evade liability by claiming they are not actual contributors.
(3) A third party’s liability as a clearance obligor does not absolve the company’s shareholders from liability for debts arising from non-liquidation.
Only when the liquidation obligor makes a clearance commitment to handle the company’s debts do their liabilities overlap. In other cases, clearance liability and liquidation obligor liability differ in subject or scope. Since a clearance commitment is a unilateral declaration by the obligor—not a mutual agreement with creditors—clearance liability does not exempt the liquidation obligor. Creditors may choose to pursue liability against either the clearance obligor or the liquidation obligor, based on principles favoring debt repayment.
III Practical Key Points in Liquidation Liability Disputes (I) Changes to Liquidation Entities
1.Entity Adjustment: The revised Company Law shifts the liquidation obligor from shareholders to directors. This change signifies that the core liability for liquidation transfers from shareholders to directors. Directors must form a liquidation group within 15 days of the occurrence of dissolution triggers; failure to do so may result in compensation liability.
2.Charter Autonomy: Although the liquidation obligor is now directors, the articles of association or shareholders’ general meeting resolutions may separately stipulate the composition of the liquidation group. Directors still bear ultimate liability.
3.Shareholders’ Liability: Even though shareholders are no longer statutory liquidation obligors, they may still assume liability equivalent to directors if they act negligently as members of the liquidation group or qualify as "de facto directors" or "shadow directors."
(II) Litigation Key Points
1. Jurisiction Issues
Viewpoint 1: Liquidation liability disputes are company-related disputes with organizational law characteristics. They should fall under the jurisdiction rules for "company-related disputes" in the Civil Procedure Law and Interpretation II of the Company Law regarding liquidation cases, with the court where the company is located having jurisdiction. For example, in Case No. (2022) Lu 02 Min Jie Zhong 127, the court held that a liquidation liability dispute should be under the jurisdiction of the court where the company undergoing liquidation is located.
Viewpoint 2: Liquidation liability disputes are essentially tort liability disputes. Jurisdiction should follow tort liability rules, allowing the court where the tort was committed (including the place of tortious conduct or harm) or the defendant’s domicile to exercise jurisdiction. In practice, the location of the deregistered company or the creditor’s domicile may qualify as the harm location. For instance, in Cases No. (2022) Yue 01 Min Jie Zhong 7 and (2023) Su 02 Min Jie Zhong 252, courts ruled that liquidation liability disputes are tort claims subject to jurisdiction where the tort occurred or the defendant resides.
Recommendation: When handling liquidation liability disputes, it is advisable to select the court where the deregistered company is located to minimize litigation costs.
2. Plaintiff and Defendant Eligibility
Plaintiff Eligibility: Creditors must prove the legitimacy of their claims and non-payment.
Defendant Eligibility: Liquidation obligors and potential liable parties, including directors, shareholders, actual controllers, etc.
3. Burden of Proof
Plaintiff’s Burden: The plaintiff must demonstrate that the liquidation obligor failed to organize liquidation, leading to unpaid claims, and provide prima facie evidence (e.g., in Fan Moubo v. Wang Moujiang and Che Moubin, the court held that creditors need only present reasonable suspicion of non-performance).
Defendant’s Burden: Defendants must prove they took proactive steps to fulfill liquidation obligations; otherwise, negligence may be presumed.
4. Statute of Limitations
The statute of limitations for liquidation liability disputes is three years from the date the plaintiff knew or should have known their rights were infringed. Courts will assess whether interruptions or suspensions apply based on case specifics.
(III) Determination of Causation
The determination of causation in liquidation liability disputes is pivotal. Plaintiffs must prove a causal link between the liquidation obligor’s failure to fulfill obligations and the loss of company assets, inability to liquidate, or harm to creditors’ interests, while defendants bear the burden of rebutting such claims. For example, in Case of A Company v. Zhang Mou et al., the court held that a prior termination of enforcement proceedings (due to temporarily undiscovered executable assets) did not equate to confirming the company’s insolvency post-liquidation, and thus the liquidation obligor could not escape liability. Conversely, in another case, the court ruled that where there is no contrary evidence to rebut, it may be inferred that the company was already insolvent at the time of triggering liquidation obligations. Therefore, even if the obligor neglected their duties, their inaction would not constitute tort liability if no causal relationship exists between their negligence and the loss of company assets or inability to liquidate.
III Analysis of Typical Cases (I) Fan Moubo v. Wang Moujiang and Che Moubin – Creditors Are Only Required to Provide Prima Facie Evidence of Reasonable Suspicion
Case Summary: After a mining company had its business license revoked, shareholders Wang Moujiang and Che Moubin failed to promptly liquidate the company. Creditor Fan Moubo claimed that their failure to liquidate caused the loss of company assets and demanded joint and several liability for compensation.
Judicial Key Points: The court held that creditors need only provide prima facie evidence of reasonable suspicion. Liquidation obligors, who typically participate in company management, have access to financial records, and are aware of the company’s asset status, bear the burden of rebutting such suspicions. Therefore, the evidentiary burden to disprove reasonable suspicion lies with the liquidation obligors. Ultimately, the court ruled that the liquidation obligors were liable.
(II) Case of Company A v. Zhang Mou et al. – Discussion on "No Assets, No Liability"
Case Summary: After Company B, a joint-stock company, had its business license revoked, its controlling shareholders and directors failed to promptly liquidate the company. Creditor Company A claimed that their inaction led to the loss of company assets and demanded joint and several liability for compensation.
Judicial Key Points:First Instance Court: Held that since Company B’s liquidation obligations were triggered after its business license was revoked, and a prior court ruling had terminated enforcement proceedings (due to temporarily undiscovered executable assets), it could be inferred that the company had no assets at the time of dissolution. The court concluded that delayed liquidation did not cause asset loss, as even timely liquidation would not have satisfied Company A’s claims. Thus, no causal link existed between Zhang Mou’s inaction and the alleged harm, and liability was denied.Second Instance Court: Rejected this reasoning, stating that Zhang Mou and other liquidation obligors failed to provide evidence proving the specific whereabouts of the company’s major assets, accounting records, or the absence of a causal relationship between their negligence and asset loss. The prior termination of enforcement proceedings only indicated that assets were temporarily undiscovered during enforcement, which is distinct from confirming insolvency post-liquidation. Therefore, the controlling shareholders and directors could not evade liquidation liability.
(III) "Professional Store Closer" Case
Case Summary: Xue Mouliang, acting as a "professional store closer," used false materials to deregister a company, resulting in creditor Wang Mouyue being unable to recover her debt.
Judicial Key Points: The court held that Xue Mouliang abused the company’s independent legal person status and shareholders’ limited liability by assisting the company in evading debts, and thus should bear corresponding civil liability for compensation.
IV Questions and Discussions (I) Scope of Liquidation Liability Subjects under the Revised Company Law
The revised Company Law explicitly designates directors as liquidation obligors but does not clarify whether independent directors or employee directors bear equivalent liability. This issue requires further exploration in practice.
(II) Shareholders’ Liquidation Liability
Although shareholders are no longer statutory liquidation obligors, they may still assume liability in specific circumstances. For example, shareholders may bear liability if they act negligently as members of the liquidation group or qualify as "de facto directors" or "shadow directors," potentially assuming responsibilities equivalent to directors.
(III) Applicability of *Interpretation II of the Company Law*
Conflicts arise between the revised Company Law and Interpretation II regarding the identification of liquidation obligors. For instance, if shareholders include clearance commitment clauses (e.g., "undertaking to repay outstanding debts") in the Company Deregistration Application Form after non-compliant liquidation, whether such clauses directly serve as a basis for courts to add them as enforcement defendants remains subject to case-specific analysis.
(IV) Shareholders’ Right to Sue Liquidation Group Members
Article 23 of the Interpretations of the Supreme People's Court on Several Issues Concerning the Application of the Company Law of the People's Republic of China (II): If liquidation group members violate laws, regulations, or the company’s articles of association during liquidation, causing losses to the company or creditors, courts shall support claims for compensation.
LLCs and Joint-Stock Companies: Shareholders of limited liability companies or joint-stock companies holding 1%+ shares individually or collectively for over 180 days may file lawsuits against liquidation group members under Article 152(3) of the Company Law. Courts shall accept such cases.
Post-Liquidation Claims: Even after liquidation and deregistration, shareholders may directly sue liquidation group members (with other shareholders as third parties) under Article 152(3), and courts shall accept these cases.
Corporate liquidation liability disputes are critical issues in corporate law, involving the identification of liquidation obligors, classification of liability types, and mastery of litigation key points. The implementation of the revised Company Law presents new challenges and opportunities for resolving such disputes. Lawyers handling these cases must accurately grasp legal application, focus on contentious issues in practice, flexibly utilize judicial reasoning from landmark cases, and provide professional legal services to clients.
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