Research On The Rules For Determining The Effectiveness Of Corporate Capital Reduction

Capital reduction is a common behavior in the process of company operation and management.Due to the shackles of the principle of capital maintenance and the interests of creditors,it is easy to cause various disputes during capital reduction,and the determination of its effectiveness has become a major difficulty in judicial adjudication.The current company law in China clarifies the capital reduction system in terms of capital reduction channels,procedures,and prohibitive capital reduction rules,but there are still shortcomings such as unclear capital reduction regulations and unclear capital reduction procedures.The defects of the aforementioned capital reduction system in China have led to a diversified trend in the judgment of the effectiveness of capital reduction actions,including effective judgments,invalid judgments,relatively invalid judgments,and non judgment of capital reduction invalidity.This article intends to discuss the rules for determining the effectiveness of corporate capital reduction,and then propose suggestions for improving the capital reduction system in China’s company law,with a view to resolving disputes and reaching a common judgment in the same case.Currently,academic circles have proposed different rules for determining the effectiveness of capital reduction based on different theoretical foundations,mainly including the following three types: one is the unconditional validity theory,that is,determining the effectiveness of capital reduction based on company autonomy;The second is the validity theory under the substantive requirements,which is based on the principle of creditor protection or capital maintenance to determine that the reduction of capital that meets the substantive requirements is effective;The third is the theory of relative effectiveness under the principle of internal and external differentiation,which is based on the differentiation theory to determine the internal and external effectiveness of capital reduction.The first recognition rule and its theoretical basis overemphasize corporate autonomy while neglecting corporate capital maintenance and creditor protection;The second recognition rule and its theoretical basis overemphasize the capital maintenance and creditor protection of a company,limiting company autonomy to an excessively narrow range;The third recognition rule may have the drawbacks of both of the above due to its insufficient theoretical support and unclear distinguishing criteria.Therefore,the rules for determining the effectiveness of corporate capital reduction and its theoretical basis need to be further explored.The reduction of capital by a company is an act of the company,and the company is a commercial entity.Therefore,autonomy of the will should be respected,but at the same time,the rights and interests of creditors must be protected.The two objectives of capital maintenance and autonomy should be taken into account.Only when creditors’ rights and interests are involved,a company’s capital reduction needs to limit its autonomy.The theory of corporate capital reduction should follow the dual requirements theory consisting of substantive and procedural requirements: in terms of substantive requirements,corporate capital reduction does not affect the interests of creditors or obtain their consent;In terms of procedural requirements,special procedures must be passed to protect creditors.A capital reduction that meets the above requirements is an effective capital reduction.According to the dual element theory,the capital reduction system in China’s company law can be interpreted,and the dual element rule,remedy rule,and exception rule are used as the rules for determining the effectiveness of corporate capital reduction.Article 37,Article 46,and Article 204 of the Company Law of China should be considered as part of the substantive elements of a company’s capital reduction,respectively stipulating the powers of the shareholders’ meeting,the powers of the board of directors,and the responsibilities for capital reduction.Articles 43,103,177,and 179 of the Company Law should be considered procedural requirements,respectively stipulating the voting procedures for shareholders’ meetings of limited liability companies and joint stock limited companies to make capital reduction resolutions,the procedural requirements for capital reduction,and the registration procedures for capital reduction.The main method of capital reduction is equity buyback.Article 74 of the Company Law stipulates that shareholders who vote against a resolution of the shareholders’ meeting can request the company to purchase their equity at a reasonable price;Article 142 stipulates the prohibitions and exceptions for the acquisition of company shares.Therefore,a special effectiveness judgment rule composed of substantive elements,procedural elements,and supporting norms has been established.In terms of substance,China’s company law needs to improve the substantive elements of capital reduction.First,capital reduction does not affect the interests of creditors,second,with the consent of creditors,and third,clarify the subject of responsibility for company capital reduction.In terms of procedures,China’s company law should improve the creditor notification procedure,improve the procedures for early repayment and guarantee,improve the registration procedure for capital reduction,and establish a creditor objection procedure to make the procedural links more comprehensive.As the main form of capital reduction,the repurchase system should increase the reasons for capital reduction due to excess capital and serious operating losses,as well as the "other circumstances stipulated by laws and administrative regulations" to provide appropriate space for companies to reduce capital autonomy.According to the above effectiveness determination rules,the specific nature of Articles 43,103,and 177 of the Company Law should be clarified in judicial decisions;We should implement comprehensive values and combine legal and social effects.