We should have written this post earlier.
On this blog, in old posts, we mentioned the shareholder liability in regard of their subscribed capital contribution:
The main point is that a creditor of a company may go after the company’s shareholders who have subscribed to the company’s registered capital but have not paid it up to the extent of the amount of such unpaid capital.
The rule was initially provided in an interpretation by China Supreme Court of China Company Law back in 2010. Over the years, courts have found it unfair to shareholders who are said to enjoy the time benefits of deferring the payment of the subscribed capital, esp when the company may still have other assets available to repay its debts.
To balance the two opposing claims, China Supreme Court has issued new guidelines in applying this rule in judicial practice. Here is what it says:
Under corporate capital subscription regime, shareholders have the time benefits therein. Where a company creditor requests shareholders to assume complementary compensation liabilities for the debts the company is unable to pay, to the extent of unpaid subscribed capital that has not come due, the people’s courts shall not support such requests, except as otherwise provided below:
where the company is subject to an enforcement proceeding and the court has exhausted all enforcement measures and found not assets available therefor, and the company is de facto bankrupt and doesn’t apply for bankruptcy.
where, in the wake of the creation of the debts, the shareholders meeting resolve or otherwise decide to extend the term of capital contribution to company
So, the new guidelines have narrowed the application of the rules regarding corporate shareholder liabilities for debts incurred by the company they invest, making it more difficult for creditors to go after corporate shareholders.
In other hand, this equally means that it is riskier to deal with limited liability company in China that is often undercapitalized and used for defrauding creditors, in particular, foreign creditors.