Research On Supplementary Liability Of Shareholder

Shareholder's supplementary liability in China is a unique system of corporate law with Chinese characteristics developed from China's legal practices.It not only directly provides creditors with approach to make claims against shareholder,but also stands in the corporate law ecosystem as a new form of commercial liability that lies between shareholder's limited liability and piercing the corporate veil.To conduct research whereon,therefore,has important theoretical and practical value.This paper takes the Supplementary liability of shareholder as the subject,and consists of nine part,including introduction,chapter one to chapter seven and conclusion.The introduction directly points out that the systematic value of shareholder's supplementary liability in the academic researches has been severely underestimated,especially after the subscribed capital reform.Influenced by the liberalization of corporate capital contribution,this system that specially designed to protect the interest of creditors,is almost forgotten by the academic community.The review of current research works indicates that China's academic community exists two distinct and contradicting views toward shareholder's supplementary liability,and overall speaking,the basic theoretic researches whereon is still comparatively insufficient.The first chapter is an empirical study on shareholder's supplementary liability,answering the question of “how is it”.With an aim to point out the issues,it adoptsstatistics and case analysis approaches to reveal the judicial practice of shareholder's supplementary liability.In the course of statistics analysis,it samples 256 decisions made by courts as object that concerns the most controversial issue in judicial practices: accelerated expiration of shareholder's supplementary liability.It discovers that,regardless of whether the courts are for or against the judicial opinion of accelerated expiration of shareholder's supplementary liability,there are defects in the courts' reasoning,which is rooted in misunderstanding of its basic principle and severe phenomenon of rigid application of judicial interpretation.In the course of case law analysis,eight real cases are chosen to analyze the loopholes and Rechtsfortbildung in the implementation of shareholder's supplementary liability,and the rigidification and defects when responding to subscribed capital reform.The process and conclusion of this empirical analysis establishes a solid foundation for further discussion of this paper.The second chapter examines “the origins of shareholder's supplementary liability system”,answering the question of “where it comes from”.This part seeks to reveal the theoretical,historical and social roots for its development.Firstly,its theoretical origin is the supplementary liability theory in civil law,which is characterized with a form of multi-party debt,of which the secondary order of liability assumption is the main sign that distinct from both joint liability and shared liability.Secondly,since 1980 s,the system of shareholder's supplementary liability has witnessed a historical evolution that can be divided into three stages: from the liability of establishing institution at the beginning,to the liability of contributor later,then arrived at shareholder's supplementary liability.Such an evolution indicates that the system of shareholder's supplementary liability does not come into being out of thin air,it is a nature result of China's economic transformation and corporate law's establishment and improvement in China,demonstrating typical characteristic of “path dependence”.Finally,the realistic factor whereof is failures of creditor protection mechanism of China's corporate law,mainly reflected by unsatisfactory effect of public law regulation on corporate capital,insufficient incentives to bring civil suit concerning the corporate capital supervision after the subscribed capital reform,and extremely limited sphere of application of piercing the corporate veil in practice.Additionally,the weakness of other corporate creditor protection mechanisms,to a certain degree,helps to shape the formation of the shareholder's supplementary liability system,such as the absence of fiducially obligation born by director to creditor and rules of internal debt liquidation in China's corporate law,and creditors' ineffective participation in corporate governance.The third chapter explores “the legal constitution of shareholder's supplementary liability”,answering the question of “what is it”.From perspectives of both external legal characteristics and internal legal nature,this part analyses the fundamental legal theory ofshareholder's supplementary liability.In terms of external legal characteristics,although it shares the same characters of supplementation,implication and uncertainty with other secondary liabilities,it has unique character of being non-causative,limited and final.Therefore,it has an attribute of commercial liability,and differentiation between civil law and commercial law should also be made in the area of Supplementary liability.In terms of legal nature,its constitution mainly reflects in the following three dimensions.Firstly,concerning the liability origin,the traditional subrogation right theory and liability for tort theory have flaws.corresponding to limited liability,shareholder's supplementary liability should be considered as “implied contractual term” in corporate capital system.Secondly,in regard to nature of liability,it is a capital adequacy liability that shareholders should assume at the end of corporate's life period.Thirdly,as for liability positioning,shareholder's supplementary liability is a system that not only firmly defends the idea of limited liability and improves its structure,but also insightfully refers to the approach of piercing the corporate veil and restraints its abuses at the same time.Therefore,shareholder's supplementary liability is a form of liability that lies between shareholder's limited liability and piercing the corporate veil.The fourth chapter tries to prove “the theoretical establishment of shareholder's supplementary liability”,answering the question of “why it should stand”.Firstly,in terms of the function of shareholder's supplementary liability,it can be considered,from the perspective of “Cameron Framework”,as transforming the creditor protection rules from property rules to liability rules.From the perspective of capital structure theory,it can be deemed as turning the agency cost control from administrative supervision into judicial relives.And in terms of capital regulation model,shareholder's Supplementary liability has also fulfilled the transformation from traditionally being dominated by public law to being oriented by private autonomy in private law.Secondly,in terms of comparative study,there are shared similarities and various differences between shareholder's supplementary liability system in China and creditor's direct claim right against shareholder in Germany,derivative litigation brought by creditor in American jurisdiction,shareholder's supplementary liability in Russian corporate law and direct lawsuit initiated by creditor against shareholder in China's Macau jurisdiction,demonstrating that various approaches are taken by different jurisdictions to solve the conflicts between liberalization of capital contribution and creditor protection.Finally,several arguments presented by academic community that shareholder's supplementary liability violates the basic principle of corporate law and damages the internal coherence of bankruptcy law,are insufficient to denial the legitimacy of shareholder's supplementary liability.The fifth chapter discusses “the components of shareholder's supplementary liability”,trying to answer the question of “what does it consists in”.This part expounds on the elements,triggering reasons and conditions whereof.This paper defends the “dual components” view that “corporate's failure to repay the due debt” and “shareholder's illegal capital activity” are the components of shareholder's supplementary liability.Specifically,the judgment criteria of the former should combine cash flow test as substantive criteria with incapability of judgment execution as procedural standard.The judgment criteria of the later should differentiate “unlawful capital activity”,which consists in illegal acts in the stages of contribution,operation and reduction of capital,and “incomplete contribution”,in which the special function of holding shareholder accountable under the subscribed capital reform should be focused.These two components are the keys to comprehend shareholder's Supplementary liability.Additionally,the academic views that consider “shareholder's subjective fault”,“corporate's debt has been settled”,“corporate is reluctant to collect shareholder's capital contribution” as the components of shareholder's supplementary liability is incorrect.The sixth chapter is about “the effectiveness structure of shareholder's supplementary liability”,responding to question of “what does it do”.This part covers contents like the affected legal subject and liability range whereof.According to relevant judicial interpretation,its effectiveness structure can be divided into basic structure,reflective structure and derivative structure.Thebasic structure is the primary structure,in which the approach of judicial guiding cases can be taken to preclude internal creditors' qualification to make claim,and under the circumstance of incomplete contribution,narrow the liability range to “principal” of contribution instead of “principal and interest”.The reflective structure is a structure of “creditor—accountable shareholder—incorporator,director,manager and real controller”,showing a liability form that multiple subjects should jointly assume liability with accountable shareholder.Under this circumstance,incomplete contribution should be taken into consideration,incorporator's joint liability to shareholder who is fail to make complete contribution should be excluded after the subscribed capital reform,and prudential and self-restraint attitude toward expansion of liability to any other subject except accountable shareholder should be upheld.The derivative structure is a structure of “creditor—accountable shareholder—acquiring shareholder”,which shows the legal relation that under the circumstance of equity transfer,acquiring shareholder and assigning shareholder should jointly assume supplementary liability.In this situation,the complexities of internal and external effects of shareholder's supplementary liability after share transfer should be carefully examined,in which matured experience from several and joint liability rule of common guarantee in civil law and the rule of liability redistribution in tort law should be fully referred to,so that pertinent parties' liability range can be clearly and properly defined.The seventh chapter covers “the procedural forms of shareholder's supplementary liability,which answers the question of “how does it functions”.This part analyzes the ought-to-be procedure that should be taken to realize shareholder's supplementary liability in practice.Prelitigation demur right is the theoretical safeguard to realize the supplementary function ofshareholder's supplementary liability.On this issue,the rule of prelitigation demur right of general guarantor is inappropriate to be fully adopted,and the combination of substantive and procedural components should be insisted.Because of the special nature and sophisticated structure of shareholder's supplementary liability,traditional joint action theory that has little explanatory power to it,can only describe,in a narrative form,that this litigation form is a unilateral and similar necessary co-litigation,rather than theunilateral and inherentnecessary co-litigation that provided by the laws concerning other forms of supplementary liability.The participations in litigation of different subjects from the reflective and derivative structure,may present different characteristics,the forms of these co-litigations,therefore,may vary from case to case.The specific procedures for realizing shareholder's supplementary liability include ordinary action,bankruptcy liquidation and appending procedure in the course of execution.From practical point of view,appending shareholder as the person subjected to execution after ineffective execution of corporate asset,and concurrently empowering shareholder with relief to bring objection action against execution,at present is proved to be a comparatively balanced,effective and ideal procedural approach for creditor to hold shareholder accountable.The conclusion part summarizes the research conclusion on the basic theory of shareholder's supplementary liability,direction for improvement that judicial interpretation and corporate law should take in the coming future,and issues needed to be explored further.