Research On The Shareholder Liability When Company Fails To Fulfill Its Notification Obligation In Capital Reduction Procedure

As an important method to facilitate company operation,capital reduction is conducive to improving the efficiency of capital utilization and attracting foreign investment.On the other hand,capital reduction reduces the company’s registered capital,weakens the company’s ability to payback external debt,thus adversely affects creditor protection.So as to prevent the company from arbitrarily reducing its capital and infringing on the trust of creditors,Article 177 of the "Company Law" stipulates that the company shall notify creditors within ten days after the capital reduction resolution is made,while it has not clarified the responsibility of shareholders who reduce their capital and gain benefit in the process of capital reduction.In practice,for such cases,the court not only holds the company to be liable,but also decides that the shareholders shall bear the corresponding liability,while there are disputes about the conditions,types of liability,and legal basis for shareholder liability in judicial practice,due to the imperfect legal provisions.In view of this,this paper attempts to clarify the main difficulties and key points in shareholder liability disputes by organizing and analyzing shareholder liability disputes in which the company has not fulfilled its notification obligation.Then,by referring to legal theory and relevant principles,it tries to demonstrate the legitimacy of shareholders’liability in such cases,with a view to clarifying the conditions for shareholders’ liability,legal basis of such liability,type of liability,scope of liability,etc.,and how to improve the shareholder responsibility rule when the company breaches its duty of notifying creditors.This paper is divided into four parts.The first part summarizes the relevant issues in the judicial cases on the shareholder’s liability for the company’s failure to fulfill the notification obligation in the judicial practice.The main problems in judicial practice include:whether shareholders should bear the responsibility,which type of responsibility they should take,the pre-conditions of shareholder responsibility is unclear,and that the legal basis for shareholder responsibility is disputable.The second part analyzes the legitimacy of shareholders’ liability under the circumstances that the company has not fulfilled its obligation of notification when conducting capital reduction.There are three main theories that support shareholders’responsibility,namely the theory of capital maintenance doctrine,the theory of third-party infringement of creditor’s rights,and the theory of shareholder duty of care.However,the shareholders are not responsible for ensuring that the company fulfills the notification obligation,and there is no malicious or evasive behavior that subjectively damages the creditor’s rights.Therefore,it does not meet the constitutive requirements of the third-party infringement of the creditor’s rights theory.At the same time,based on domestic and foreign legal theories,the duty of care generally applies to controlling shareholders,and controlling shareholders are only responsible for their own actions,not for corporate actions.Therefore,it is more reasonable to identify shareholders as liable based on the principle of capital maintenance.According to the principle of capital maintenance,shareholders have the obligation to contribute capital to the company.When a company reduces its capital,if it fails to notify the creditors of the company by appropriate means within the specified time,the effectiveness of the capital reduction is defective for the creditors,and the shareholders’ obligation of capital contribution has not been reasonably exempted,so they still have to bear the liability to the extent of the capital contribution before the capital reduction.The third part aims to explore the pre-conditions and applicable laws for determining that the shareholders shall be liable for company’s failure of fulfilling its notification obligation.There are three prerequisites to assume responsibility of shareholders:first,the company’s capital reduction resolution is valid,and the capital reduction procedure is flawed;second,the company’s capital reduction should be a substantial capital reduction,and third,the company cannot pay off its debts.At present,the court rules that shareholders should be liable mainly through analogy with the rules of withdrawal of capital contributions and failure to fully fulfill the capital contribution obligations.However,there are differences in the constitutive elements between these rules and the fact in cases that company fails to fulfill the notification obligation when reducing capital.In this sense,direct analogy cannot be convincing.Therefore,the author suggests the Supreme People’s Court to formulate relevant judicial interpretations on responsibilities of shareholders under such situation.The fourth part focuses on clarifying the responsibility of shareholders when the company has not fulfilled its notification obligation,including the subject,type of responsibility,and scope of responsibility.More specifically,the subject shall be the shareholder who has reduced the capital,and the shareholder who has not reduced the capital shall not be liable.The type of liability shall be supplementary compensation liability,and the scope of liability shall be within the amount of the reduced capital with interests.