Earth Research | Deciphering the New Company Law: Understanding Changes in Corporate Liquidation

Authors: Chen Xia & Wang Yueyu

Companies are the most important market entities, and company law is the fundamental law of the socialist market economy system. The formulation and amendment of the Company Law are closely related to the establishment and improvement of China's socialist market economic system, and have played an important role in establishing and improving the modern enterprise system and promoting the sustained and healthy development of the socialist market economy.

The statutory grounds for company dissolution remain unchanged compared to the old Company Law. Article 229 Paragraph 2 of the new Company Law adds that when a company encounters statutory grounds for dissolution, it should publicize the grounds for dissolution through the National Enterprise Credit Information Publicity System within ten days. The newly added statutory obligation is mainly to address information asymmetry, which may lead to stakeholders not being able to learn about the company's dissolution in a timely manner, and thus may not be able to fully protect the legitimate rights and interests of stakeholders. The newly added obligation also helps to reduce litigation and save judicial costs to a certain extent, and also helps various entities to supervise the company's dissolution process.

The period for publicizing the grounds for dissolution in this clause is 10 days. If the company fails to fulfill its public disclosure obligations in a timely manner, the company registration authority may, in accordance with Article 251 of the new Company Law, order the company to rectify and may impose a fine of more than 10,000 yuan but less than 50,000 yuan. In serious cases, a fine of more than 50,000 yuan but less than 200,000 yuan shall be imposed; a fine of more than 10,000 yuan but less than 100,000 yuan shall be imposed on the person directly in charge and other persons directly responsible.

The new Company Law adds the grounds for dissolution by resolution of the shareholders' meeting to the circumstances in which a company may continue to exist after voluntary dissolution, but adds restrictive conditions to the continuation of a company after voluntary dissolution, namely, "assets have not yet been distributed to shareholders." The addition of this condition is to prevent shareholders from falsely dissolving the company and thus withdrawing capital contributions or embezzling company assets, to a certain extent protecting the legitimate rights and interests of company creditors and other stakeholders. At the same time, in addition to amending the articles of association, the method of shareholders' meeting resolution is also added to the continuation path. For limited liability companies, this requires the approval of shareholders holding more than two-thirds of the voting rights; for joint-stock limited companies, this requires the approval of more than two-thirds of the voting rights held by shareholders attending the shareholders' meeting.

Article 232 Paragraph 1 stipulates that if a company has statutory grounds for dissolution, it shall be liquidated. The directors are the liquidators of the company and shall form a liquidation team to conduct liquidation within fifteen days from the date of occurrence of the grounds for dissolution.

The new Company Law clarifies that the directors are the liquidators and members of the liquidation team, determining the first person responsible for the liquidation obligation. Compared with the old Company Law, this solves to a certain extent the problem of disputes over members of the liquidation team, which leads to the inability or failure to perform liquidation obligations, and thus can only apply to the court for compulsory liquidation, solving the problem that the unclear members and obligors of the liquidation team may affect self-liquidation.

Article 232 Paragraph 2 stipulates that the liquidation team shall be composed of directors, unless otherwise provided in the company's articles of association or otherwise elected by resolution of the shareholders' meeting. This clause also gives the company a certain degree of freedom of choice in the composition of the liquidation team. The liquidation team is generally composed of directors, but can also be stipulated in the company's articles of association or by resolution of the shareholders' meeting, but it is not clear whether the resolution of the shareholders' meeting is a half-number resolution or a majority resolution.

Article 232 Paragraph 3 stipulates that if the liquidator fails to perform the liquidation obligation in a timely manner, causing losses to the company or creditors, he or she shall bear the liability for compensation. This clause clarifies that the liquidation responsibility is a statutory obligation that the liquidator must fulfill. If it is not fulfilled in a timely manner, the corresponding compensation liability shall be borne. At the same time, the provision that members of the liquidation team shall not use their positions to accept bribes or other illegal income, and shall not encroach on the company's property, has been deleted.

Article 233 Article expands the scope of applicants for compulsory liquidation. Stakeholders, departments that have revoked business licenses, ordered closures, or made cancellation decisions, and company registration authorities can all apply to the people's court for compulsory liquidation. This helps to more comprehensively protect the rights and interests of creditors and other stakeholders.

Article 240 Article stipulates the conditions for simplified cancellation of a company. If a company has not incurred debts during its existence, or has paid off all its debts, it may, upon the commitment of all shareholders, cancel its company registration through a simplified procedure according to regulations. Pass 。

To cancel company registration through a simplified procedure, it should be announced through the National Enterprise Credit Information Publicity Show System. The announcement period shall be no less than twenty days. After the expiration of the announcement period, if there is no objection, the company may apply to the company registration authority for cancellation of company registration within twenty days. Public 。

If a company cancels its company registration through a simplified procedure, and the shareholders' commitment to the content of paragraph 1 of this article is untrue, they shall bear joint and several liability for debts before the cancellation of registration. The above provisions clarify the conditions for simplified cancellation of a company, the announcement requirements, and the liability for false commitments by shareholders. 。

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Article 233 Paragraph 2 empower the company registration authority to initiate compulsory liquidation and cancellation registration procedures. Companies whose business licenses have been revoked, ordered to close, or have been cancelled, will generate a large number of zombie companies when shareholders fail to perform their duties. The newly added provisions in this article aim to solve the problem of zombie company clearance. 241条赋予了公司登记机关启动公司强制清算程序和注销登记程序的权利，被吊销营业执照、责令关闭或者被撤销的公司，在股东怠于履行职责时，将会产生大量的僵尸企业，本条新增的规定意在解决僵尸企业清退问题。

    Carrying out liquidation in accordance with the law is a statutory obligation before the cancellation of a company. Article 70 of the Civil Code stipulates that when a legal person is dissolved, except in the case of merger or division, the liquidation obligor shall promptly form a liquidation group to conduct liquidation. Attached is a flowchart of the enterprise liquidation process.