Application Of Law On Disputes Over Rescinding Post-Incorporation Subscription Contract

In P.R.China's judicial practice,the core issue of the dispute over rescinding the post-incorporation subscription contract is that based on the demand for the protection of the external creditors' interests under the company law,whether the right to rescind the post-incorporation subscription contract under contract law should be restricted and what kind of restrictions should be imposed on? And the core issue can be divided into three questions.The first one is that as the premise of restricting the right to rescind the post-incorporation subscription contract,when is the new capital subscribed to the company created? The second question is whether the interests of the external creditors of the company should be protected prior to the interests emerging from rescinding the post-incorporation subscription contract? The last one is how to restrict the right to rescind the post-incorporation subscription contract based on the demand for protection of the external creditors' interests under the company law? Further,how can the right to rescind the post-incorporation subscription contract be restricted by the capital maintenance principle under the company law? For these questions,the two opposite legal approaches in judicial practice,including the approach of contract law and the approach of the company law,have not given a satisfactory answer.The wavering judicial decisions produced under the two legalapproaches will seriously damage the security and efficiency of transactions in the unified market.First of all,it should be emphasized that if the new capital subscribed to the company has not been created at the time of the exercise of the right to rescind the post-incorporation subscription contract,then the legal effect of rescinding the contract will not harm the interests of the external creditors of the company,and the exercise of the right to rescind the contract should not be restricted.The creation of new capital depends on whether a consensus between the subscriber,the company and the existing shareholders regarding increase of a company's capital has been made.The internal capital increase procedure of a company is only one of the forms of a consensus that the subscriber and the existing shareholders agree on the increase of capital,and should not be regarded as one of the elements of the creation of new capital.And in order to strengthen the protection of creditors' interests of the company,registration should also not be identified as one of the elements of the creation of new capital.Secondly,as to the question regarding whether the protection of external creditors' interests of the company shall be given priority to the protection of the interests generated from rescinding the post-incorporation subscription contract,by drawing on the law of the United States,it holds that from the perspective of creating and protecting corporate property system concentrating on the independence of company's property and the limited liability of shareholders,the company law is closer to the property law than the contract law.Therefore,when it comes to the interests of creditors of companies and other commercial organizations,the application of company law and other organizational rules should take precedence over the contract law.In the context of the dispute over rescinding the post-incorporation subscription contract,the protection of external creditors' interests of the company shall be prior to the interests generated from rescinding the contract.Finally,on the basis of the demand for the protection of the external creditors' interests under the company law,the question of how to restrict the right to rescind the pre-incorporation subscription contract should be in the jurisdiction of the capitalmaintenance principle under the corporate capital system.It holds that the capital maintenance principle shall focus on setting a bottom financial line to make the company maintain a certain number of assets or the ability to repay the debt when the company legally return the capital to the shareholders,rather than restraining the improper erosion of the company's property by the shareholders which is under jurisdiction of rules of fraud trading and piercing the corporate entity.By drawing on the law of the United States,it is proper to take the dual liquidity standard as the bottom financial line.Specifically speaking,as long as the rescission of the post-incorporation subscription contract does not produce one of the following two consequences,the parties of the contract shall be allowed to exercise the right to rescind the contract: the first is that the company cannot repay the matured debt owed during the operation of business while the second is that the total assets of the company are lower than the total liabilities.