Accelerated Expiry of Shareholders’ Capital Contribution in China
The shareholders of a China company are allowed to freely agree on the amount of the subscribed capital and term of capital contribution under the subscribed registered capital system as stipulated in the Company Law of the PRC. If the term of capital contribution of the shareholders has not expired, is it possible for the company creditors to ask for the accelerated expiry of shareholders’ capital contribution obligation so as to realize their creditor rights?
In judicial practice, the Chinese courts generally do not uphold the claim made by a creditor of the company for accelerated expiry of shareholders’ capital contribution obligation. However, under special circumstances such as the bankruptcy, dissolution of the company or the shareholders maliciously extend the term of capital contribution to avoid fulfilling the capital contribution obligation, the court may consider to uphold the claim for accelerated expiry of shareholders’ capital contribution obligation. Provisions relating to the accelerated expiry of shareholders’ capital contribution obligation are mainly contained in the following laws and regulations.
According to Article 35 of the Enterprise Bankruptcy Law of the PRC, where after the people’s court accepts an application for bankruptcy, any of the debtor’s capital contributors that fails to fulfill the obligation of capital contribution in full, the administrator shall require the capital contributor to contribute the subscribed capital, irrespective of the time limit set on capital contribution.
According to Article 22 of the Provisions of the Supreme People’s Court on Certain Issues Concerning the Application of the Company Law of the PRC (II):
At the time of dissolution of a company, the portion of the capital contribution remained to be paid in by the shareholders shall be deemed properties to be liquidated. The portion of the capital contribution remained to be paid in by the shareholders shall include both the due and payable portion of the capital contribution and the portion of the capital contribution to be paid in by instalments pursuant to the provisions of Articles 26 and 81 of the Company Law, of which the payment is not due.
Where the properties of a company are not sufficient to pay off its debts, and the creditors allege to hold the shareholders that fail to make capital contribution, and the other shareholders or sponsors at the establishment of the company, jointly and severally liable for the repayment of the debts of the company to the extent of their unpaid capital contribution, the relevant people’s court shall uphold that allegation in accordance with the law.
According to the Minutes of the National Court of Civil and Commercial Trial Work issued by the Supreme People’s Court of the PRC on 8 November 2019:
Under the subscribed registered capital system, shareholders shall be entitled to the time benefits therein. Where a company creditor requests shareholders whose capital contribution is not due to assume complementary compensation liabilities for the debts the company is unable to pay, to the extent of unpaid subscribed capital, the people’s courts shall not uphold such request, except under the following circumstances:
(1) where the company is subject to an enforcement proceeding and the people’s court has exhausted all enforcement measures and found no assets available for enforcement, and the company has met the conditions for bankruptcy but does not apply for bankruptcy.
(2) after the debts of the company are incurred, the shareholders meeting resolves or otherwise extends the term of capital contribution of the shareholders.
In conclusion, accelerated expiry of shareholder’s capital contribution obligation shall be applied when a China company is under bankruptcy or dissolution liquidation process; it shall not be applied in non-bankruptcy or dissolution cases, except for the two circumstances specified in the Minutes of the National Court of Civil and Commercial Trial Work issued by the Supreme People’s Court of the PRC.