The Improvement In The System Of China's Company Capital Reduction

Capital reduction is a common business,and an unavoidable business issue in judicial practice.Compared with the company capital increase,the company capital reduction is usually accompanied with the outflow of the capital.For shareholders,the company capital reduction is an important way to achieve capital withdrawal and affective allocation of capital.For creditors,the company capital reduction will directly affect the company's external solvency and the security of clearing off the debts.At the end of 2013,China carried out major reforms to the capital system,realizing the transformation of registered capital from the contributed capital system to the subscription registration system.However,this reform is more aimed at the capital formation stage,the capital maintenance stage is still a “blind zone” for reform.China's capital reduction system is mainly reflected in the Company Law of the People's Republic of China and Regulation of the People's Republic of China on the Administration of Company Registration,but the relevant provisions are only few and simple,so that it is difficult to deal with the complicated disputes in the judicial practice.From the statistical results,the number of case of capital reduction is increasing,so it is urgent to improve the current rules and regulations to meet the needs of judicial practice.This article will discuss from the following aspects:The first chapter mainly introduce the legislative status and the problems of China's capital reduction system.The first section defines the concept and value of the capital reduction.Now the capital reduction refers to the act of reducing the registered capital of the company.A good capital reduction is not only conducive to realization of shareholders' equity,but also conducive to maintaining transaction security.The second section firstly introduces the design of the capital reduction in China and other countries.In comparison,the design of China's capital reduction system is relatively simple,and the biggest difference is the lack of provisions on the protection of creditors.Next,it analyzes the problems existing in China's capital reduction system,including the lack of the reason and the method of capital reduction,the rough notification and announcement procedures,insufficient debts settlement or guarantee mechanism,vague standard of recognition of the validity of capital reduction,the lack of relief system,and so on.The second chapter mainly analyzes the judicial practice of the company capital reduction cases in recent years,and expounds the common disputes and the court's viewpoint.The first section introduces the basic situation of the cases from the referee time,the trial areas and trial courts,the trial procedures and referee results,the amount of capital reduction and the amount of claims,the timing of capital reduction,and the reasons for capital reduction.The second section analyzes the common problems in the judicial practice of capital reduction disputes.First,the creditor is not directly notified,but the court has different opinions for the identification of the person who should go to notice and the known creditor.Second,the nature of illustration for debt settlement or guarantee is unclear.One view is that it is an acceptance for the company's debt,another view is that it constitutes a guarantee for the company's debt,besides there is a view that it does not constitute a legal guarantee.Third,there is a difference in the basis of the court's judgment.In practice,it is usually determining the responsibility of the company and its shareholders based on the acceptance to repay debt,referred to that shareholders have not performed capital contribution obligations,withdraw their capital contribution,and constitutes the infringement.The fourth is that the validity of the defect capital reduction process is unclear.Some courts did not explain the validity of the capital reduction,some courts mentioned that the company capital reduction procedure was illegal,but there were no additional explanations,and some courts explained that the capital reduction did not have legal effect or did not have the effectiveness of confrontation for creditors.The fifth is the diversification of shareholders' responsibilities.The majority of courts ruled that the shareholders bear supplementary compensation liability,another court ruled that the shareholders bear joint liability.The third chapter expounds the regulation of the China's capital reduction system from the macro level.First,after the capital system reform,it is necessary to strengthen the alternative regulation of the capital maintenance stage.On the one hand,information disclosure shall be strengthened to fully protect the creditor's right to know and the right to dissent.On the other hand,there is a need to improve the creditor's relief mechanism.Secondly,by comparing the capital reduction models of foreign countries,it is found that the creditor protection model under the information disclosure mechanism is most suitable for China.Therefore,China should focus on strengthening the information disclosure mechanism of the company capital reduction by learning from the experience of foreign countries,including the improvement of the notification and announcement procedures for capital reduction,and the addition of capital reduction signs on the industrial and commercial system,and so on.Thirdly,it should distinguish between real capital reduction and nominal capital reduction.For nominal capital reduction,it is need to perform the internal decision-making procedures of the company and the information disclosure procedures outside the company,the creditor protection procedure is not required.For the real capital reduction,it should be improved from the pre-existing prevention,the regulation in the event,and the aftertreatment relief which mentioned in the fourth chapter of this article.Finally,the system of invalid capital reduction should be suspended,and alternative relief is provided by giving creditors a right to dissent the capital reduction,or to investigate the liability of the shareholders or the relevant directors.The fourth chapter puts forward to improvement measures for China's capital reduction system from the pre-existing prevention,the regulation in the event,and the after-treatment relief.The pre-existing measures include establishing operational losses and excess capital as reasons for capital reduction,and introducing the right to dissent the capital reduction.The regulation in the event requires improving the methods and contents of notification and announcement for capital reduction,adding the signs on the industrial and commercial system,improving the mechanism on debts settlement and guarantee,and establishing a statement of directors' solvency,etc.The aftertreatment relief system includes a clear identification of the effectiveness of the defect capital reduction and a clarification of the shareholders' liabilities.