<Juridical Interpretation of Company Law of PRC (Second)> originates from < Juridical Interpretation of Disbandment of an Enterprise as a Legal Person>. The major concern to issue this juridical interpretation is that enterprises as a legal person are the main body in our Chinese market economy; they shall not only follow the qualification requirement but also have the entire disbandment regulations during the market competition. However, different people hold different opinions on the relationship between the disbandment and termination of a legal person which lead to result that lots of enterprises do not promptly start liquidation procedure while they meet the requirements of termination so that they could intentionally escape the debt which seriously infringe upon creditor’s right . As this phenomenon spread far and wide, not only the economy order but the legal person system are being tremendously spoiled. In order to construct a healthy, orderly system for legal person’s disbandment and protect creditor’s lawful rights, the Supreme Court issues Juridical Interpretation for the purpose of people’s court correctly judge the disbandment and liquidation case based on < Juridical Interpretation of Disbandment of an Enterprise as a Legal Person>.

This article mainly focuses on and analyzes several important articles stipulated in <Juridical Interpretation of Company Law of PRC (Second)> :

(1) The prerequisite for the shareholders file a litigation of disbandment of an enterprise:

As the very special case in company litigation, the people’s court shall not only examine whether it comply with Article 108 of The Civil Procedure Law of the People s Republic of China but consider the 2 other conditions including the reason for disbanding the enterprise and the entity qualification of the shareholders while accepts the case regarding the shareholders claim for disbanding the enterprise.

First of all, the shareholders shall file the litigation on the basis of “where a company meets any serious difficulty during its operation or management so that the interests of the shareholders will be subject to heavy loss if it continues to exist and it cannot be solved by any other means” which stipulated in Company Law of PRC. <Juridical Interpretation of Company Law of PRC (Second)> positively list 4 conditions. These 4 conditions mainly represent that the company’s serious difficulty during its operation or management is due to “shareholder’s deadlock” or “director’s deadlock” which means that the company is in the deadlock. The administrative department of the company loses its function and could not normally operate or manage the company. If this situation continually exists, the interests of the shareholders will be subject to heavy loss, in this situation, the shareholders shall be granted the right to file the litigation of disbanding the company, protect its lawful rights. If when the reason of shareholder’s request for disbanding the company is not the suitable reason for disbanding the company as it stipulated in Company Law of PRC including the deficit of company or the interests of the shareholder have been infringed or the company has not been liquated after its business license had been invalidated, thus the request shall be rejected. These 4 conditions are not only the standards for form examine but also the practical examine in company disbandment cases.

Secondly, it is positively stipulated in Company Law that the shareholders who hold ten percent or more of the voting rights of all the shareholders of the company may plead the people's court to dissolve the company, if the shareholders who plead to the people's court do not meet the requirement of said conditions, the court has right to reject its request. Whereas the Company Law set certain provisions to prevent individual shareholder plead to court with malice so that the relationship between shareholder who plead to the court and other shareholders become balanced, thus <Juridical Interpretation of Company Law of PRC (Second)> stipulates that the (several) shareholders who hold add up to ten percent or more of the voting rights of all the shareholders of the company may plead the people's court to dissolve the company.

Last but not least, the <Juridical Interpretation of Company Law of PRC (Second)> does not interpret the prerequisite -“it cannot be solved by any other means”, but I think that the reason of this is that the Company Law consider the permanence characteristic of a company. Whenever a company meets any serious difficulty during its operation or management, it is still hoped to be solved the deadlock between shareholders and directors by company itself. Thus, the people’s court shall examine this condition before judge the disbandment case. However, the people’s court only does the formal examination on “it cannot be solved by any other means”, so the shareholders shall claim that they have taken all the methods but it cannot be solved and the shareholders have to request for the legal relief.

(2) Several opinions on Article 2 of <Juridical Interpretation of Company Law of PRC (Second)>, “The shareholders plead to court for disbanding the company while request the court to liquidate the company, the people’s court shall do not accept the request for liquidation”:

The request of disbanding the company and the request of liquidation of the company are two separate requests. The reason why the juridical interpretation stipulates that “The shareholders plead to court for disbanding the company while request the court to liquidate the company, the people’s court shall do not accept the request for liquidation” is because of as listed below: (1) these two litigations are totally different litigations, the litigation of disbanding the company is the litigation of modification while the litigation of liquidation of the company is non-litigation case, the procedure to judging these two cases are different; (2)the company actually has not been disbanded while the shareholders plead to the court to request for disbanding the company so that whether the company to be disbanded shall be decided by the court. Even though the court decides to disband the company, a liquidation group which appointed by the company shall be formed, within fifteen days as of the occurrence of the causes of disbandment to carry out liquidation. Where no liquidation group is formed within the time limit, the creditors may plead the people's court to designate relevant persons to form a liquidation group. The people's court shall accept such request and form a liquidation group so as to carry out the liquidation in a timely manner.

(3) Research on who is the defendant in the case of disbanding a company:

In common law system, a company is in dual position in the litigation which the shareholders plead to the court. Thus the organ of the company reject to look into the person who infringe upon the right of the company which lead to that the company can not plead to the court as the plaintiff. As the company is the “real” plaintiff in this sort of litigations and has the right to file the litigation and has to undertake the legal consequence after the shareholders win the litigation, so the company shall be one party in this kind of litigation. But in common law system, company normally considered as the nominal defendant and has the right to provide its opinion in the court and the true person who infringes shareholders’ right (directors and senior staffs) shall be considered as the third party to take part in the litigation. The reason why the juridical interpretation consider the company as the defendant is because that the law require the shareholders shall be denied by the company upon the request of compensation of damage before plead to the court, thus the court shall examine whether this prerequisite is fulfilled. As the object of this examination is company, so that the company shall be considered as the defendant. In continental law system, company has not been considered as the defendant in this kind of litigation, but it can voluntary take in the litigation. For instance, article 404 in says that “the company has the right to take part in the litigation as represented in No 3 and No 4 provisions in last article.”

Whereas the litigation of disbanding the company is the litigation of modification which lead to that the relationship between the shareholders and company has been changed which related to the litigation of organization of the company. Thus, the company shall be the defendant in the disbanding litigation. The liability on investment of setting up the company of shareholders has been performed as the company had been already set up so that the other shareholders shall not been considered as the defendant but as joint plaintiff or third party in this kind litigations .

----Steven Hang