Research On The Capital Reduction Rules At The Time Of Company Law Revision

Since 2005,the capital reduction rules in the Company Law of our country have maintained unchanged.According to the analysis of judicial cases related to capital reduction in recent years,the major issue during the capital reduction process is the creditor protection procedure stipulated in Article 177 of the Company Law,which is,therefore,the focus of this essay.At this very moment when the Company Law is under revision,it is a proper time to conduct a comprehensive review of its capital reduction rules.This paper is constituted of three chapters:Chapter 1 firstly sorts out the dual functions of the capital reduction rules-it shall protect creditors as well as balance shareholders;moreover,as the end of the corporate capital system,it must face the struggle between its market function and its regulatory function.Chapter 1 then summarizes two major issues of the existing capital reduction rules set forth by the judicial practice.First,is the creditor protection procedure in the capital reduction rules of the Company Law always necessary? If,after the shareholders have fully performed their obligation of capital contribution,the company reduces its registered capital due to operating losses while the shareholders do not actually withdraw their capital contribution,is it still necessary to observe the creditor protection procedure? Since the Company Law does not distinguish the concept of formal capital reduction and substantial capital reduction and whether different capital reduction procedures should be applied in such two situations respectively,the judicial practice has no choice but to answer prior to legislation on this point.Second,if the company fails to perform the creditor protection procedure when it really needs to perform the procedure,what responsibilities should the company,shareholders and related personnel bear respectively? In view of the unclear stipulation on this issue in the Company Law,the judicial practice varies.Chapter 2and Chapter 3 take these two problems as the starting point to analyze and provide suggestions respectively.Chapter 2 makes a tentative construction of the simplified capital reduction rules.This chapter firstly demonstrates the necessity of the simplified capital reduction rules;it then draws on the details of the simplified capital reduction rules in Germany and the United Kingdom,which also strictly implement the capital maintenance principle,to provide reference to our country.When design the simplified capital reduction rules in a more detail way,on the one hand,we consider the standard of net asset outflow is inappropriate,because it might lead to a misunderstanding that the simplified capital reduction rules could also be applied to reduction of subscribed capital;on the other hand,after reviewing the simplified capital reduction rules in the Company Law Amendment(Draft),we put forward some minor suggestions for further improvement.Chapter 3 sorts out and responds to the disputes in the situation where a company fails to properly perform the creditor protection procedure in the general capital reduction procedure.First,based on the study of foreign law and our understanding of the targets of the capital reduction rules,the flawed capital reduction procedure should be deemed invalid.Second,shareholders,directors,supervisors,senior managers,etc.,shall respectively bear their liabilities(if any)in causing the flawed capital reduction;when calculating shareholders’ liabilities,the status of capital need to be taken into consideration.Finally,based on the such analysis,we put forward some suggestions for further improvement of the Company Law Amendment(Draft)regarding this issue.