Research On The Defective Capital Reduction Of Companies

Currently,China’s capital reduction procedures can be divided into internal procedures centered on corporate resolutions and external procedures centered on public disclosure and creditor protection.The defective internal procedure of capital reduction is essentially the defective resolution of the company’s capital reduction.In the event of a defective resolution,the judgment confirms that the defective resolution takes several forms,such as inoperative,voidable and invalid.However,regardless of the form,the invalid resolution will lead to the consequence of invalidity from the beginning,and according to the general solution of the Civil Code,the invalid resolution and its implementation must be required to restore the status quo ante.But for the company such as the reduction of the company’s capital change behavior,in practice,it is difficult to restore the original based on the resolution is invalid.For the company based on defective resolutions formed by the civil legal relationship,now most of the civil law reliance on the protection of the rules of the idea to confirm its validity.However,there is no clear guidance on the effectiveness of the resolution itself,and the effectiveness of the internal changes caused by the company.For this issue,there are two mainstream solutions in foreign countries.One is the retroactivity limitation scheme represented by Japan,and the other is the registration barrier plus exemption procedure established by German commercial law.In current domestic practice,the former approach is usually adopted,with the time of the judgment as the point of distinction,and the legal relationship established by the defective resolution before the judgment is pronounced is not affected by the invalid judgment,and if the judgment is declared invalid,the company should apply to the relevant registration authority for a change.But for the resolution after the invalidation of the increase or decrease of capital caused by the change of the shareholding structure,capital changes and other issues,the decision also did not give the solution ideas.For cases where the resolution of capital reduction is defective and it is judged to be invalid,it is appropriate to draw on the approach of the scheme of limiting retroactivity.First,the validity of the capital reduction performed by the company should be confirmed and retained.After the process of capital reduction is completed,the company should complete the subsequent capital increase in accordance with the court’s invalidation decision and the capital increase requirement in the decision.The capital increase should be independent of the aforementioned capital reduction procedure,and since the implementation of the capital reduction has been completed,the company cannot request the shareholders to return the capital returned by the previous capital reduction,but should ask the shareholders to subscribe to the company’s capital again.Through the "first reduction and then increase" solution path,the implementation of the core idea of limiting the retroactive effect of the defective resolution before the judgment.The main defects of the external procedures of capital reduction are the violation of Article 177.of the Company Law,such as failure to notify creditors,failure to complete public notice,failure to pay off or provide guarantee in advance as required by the law.Since Article 177.of the Company Law does not clearly stipulate the effect of capital reduction in violation of its provisions and the liability of shareholders in case of illegal capital reduction,in practice,there are divergent ideas in dealing with the above issues,and it is not uncommon to see different judgments in the same case.According to the sorting and summarizing of the disputes on capital reduction in recent years,most courts have chosen to apply the provisions of other laws in the Company Law by analogy to the allocation of responsibility for illegal capital reduction,but the above practice has the defects of incompatibility between the specific case and the legal provisions applied by analogy,unclear reasoning and insufficient considerations,so it is still necessary to combine the characteristics of the case of external defects of capital reduction and the relevant experience of extraterritorial law to improve the domestic capital reduction procedures.