Tips on legal risks
A resolution to be passed on the debtor’s shareholders’ meeting allowing the company to enter the bankruptcy procedures requires the shareholders representing at least two thirds of the voting rights to pass the resolution, and the chops applied on the shareholders’ meeting resolution by corporate shareholders that are already dissolved are invalid
[Basic facts]
On October 20, 2021, Company A, the applicant, on the grounds that it suffered operation difficulties and serious losses, has ceased operation for years, is unable to pay off debts due, and evidently lacks the ability to pay off such debts, applied to the court for bankruptcy liquidation, and submitted the shareholders’ meeting resolution (meeting date: August 25, 2021) stamped by all shareholders of the company allowing the company to apply to the court for bankruptcy liquidation. The court examined and decided to accept the application, and appointed by law an administrator to carry out the liquidation works. The administrator after investigation found, however, that the capital contributors of the company as recorded in the industrial and commercial registration are Company B (49% shares) and Company C (51% shares), and that Company B was declared dissolved and deregistered in October 2017.
[Rationale of the people’s court]
Company B, a shareholder holding 49% of Company A’s shares, had been declared dissolved and deregistered before Company A’s shareholders’ meeting passed the resolution allowing the company to apply to the court for bankruptcy liquidation, therefore, the shareholders’ meeting resolution that Company A submitted to the court allowing the company to apply to the court for bankruptcy liquidation represents only the will of 51% of the company’s shareholders, is not passed by shareholders representing at least two thirds of the voting rights, and does not truly reflect Company A’s will to allow the company to go bankrupt. Company A’s application for bankruptcy liquidation submitted to the court, therefore, does not meet the acceptance conditions as stipulated in the law, and thus the court decision: Company A’s application for bankruptcy liquidation is rejected.
[Tips on legal risks]
Entering the bankruptcy and liquidation procedures means life and death to a company. According to the Company Law of the People’s Republic of China, Article 37 (1.9) and Article 43 (2), the resolution of a company’s shareholders’ meeting allowing the company to enter the bankruptcy procedures requires the shareholders representing at least two thirds of the voting rights to pass. Therefore, a company’s shareholders’ meeting, before passing any resolution giving green light to the company’s bankruptcy and liquidation, should verify the survival of the company’s corporate shareholders, to ensure the resolutions passed by corporate shareholders are valid, and, in turn, ensure the validity of the shareholders’ meeting resolution.
