On The Protection Of Creditors When Chinese Companies Illegally Reduce Their Capital

Due to the profit-seeking nature of its business entities,the company pursues the maximum use of the company's capital and improve the capital utilization ratio,and bring about value-added income for shareholders.Capital reduction becomes a necessary activity for the company when there is too much capital and a large deficit.However,in addition to the normal capital reduction behavior,there is also a malicious capital reduction in order to avoid debts in the company's capital reduction practice,resulting in creditors filing a lawsuit in the court because the creditor's rights cannot be fully paid,causing litigation and disputes.Because of our company law does not require the liability of shareholders who reduce capital when the company violates the capital reduction procedures,company directors and executives do not perform their notification obligations and are not liable.The new company law also changed the registered capital system from actual payment to subscription,which caused the company to reduce capital.It is more common for capital to damage the interests of creditors,and the interests of creditors are not fully protected.In practice,different courts and judges have different interpretations of creditor protection in the company's capital reduction.Referee not the same standard,lead to different co-contracting occurs,dampen investor enthusiasm,hurt the authority of the law,malicious behavior urgent regulation of capital reduction.This paper systematically sorts out the cases in which the company's capital reduction harmed the interests of creditors from 2014 to 2019,summarizes,analyzes,studies,and categorizes the primary problems in the current judicial practice: 1.For improper capital reduction,creditors can only pass after the fact.Remedies are available through lawsuits to prevent improper capital reductions in advance;2.The effectiveness of illegal capital reductions is not clear,the time when the company's capital reductions take effect is not clear,and the application of invalid capital reductions requires clear grounds and standards;3.The company's concealment of creditors' capital reduction is becoming more and more serious,and the capital reduction procedures are just a form;4.The situation of reducing subscription capitalization has become mainstream,reducing the time limit benefits enjoyed by shareholders and the creditor's trust benefits when subscription capital contribution the contradiction of which one should be prioritized is highlighted;5.Judgment grounds are various,and article 177 of the Company Law has become the most extensive and other legal basis.The situation of different judgments in the same case is very serious;6.Whether the commitment made by executives and shareholders in the "Declaration of Debt Settlement and Guarantees" should be recognized as general guarantees is still a matter of great debate.For the effectiveness analysis of the company's capital reduction,we need focus on the company's capital reduction procedures firstly,especially the creditor protection procedures.Failure to perform creditor protection procedures will harm the interests of creditors.Different countries have different understandings of creditor protection procedures,and generally make specific regulations on notifications,announcement methods and deadlines,declaration of claims,and methods and effects of creditor objections.German stock law states companies must provide guarantees for the declaration of creditor claims not yet expired.The United States adopts the solvency statement model,which clearly stipulates the prohibition of the company's capital reduction and the invalidation of the behavior.The Japanese Company Law has established a lawsuit for confirmation of invalidation of capital reduction.When talking about the invalidation system of capital reduction has its rationality: if the capital reduction that fails to perform the legal procedures is found to be valid,and the shareholders of the capital reduction are judged to be liable for the unliquidated creditor's rights,it will seriously deviate from the principle of limited liability of shareholders;illegal capital reduction violates the principle of capital maintenance;invalid reduction of capital makes the company's capital return to the state before reduction,which can prompt the company to pay sufficient attention to the performance of its obligations to notify creditors.At present,the concept of good faith reflected in the company's capital reduction practice is lacking.Taking into account the operating efficiency factors,China should set up different capital reduction systems according to the different circumstances of the capital reduction subject.It is more appropriate for public companies to adopt the information disclosure mechanism model,and it is more suitable for closed companies to adopt the solvency statement model.Therefore,the capital reduction procedures set to protect the rights of creditors should also be adjusted accordingly.Keep the closed company's obligation to notify creditors and increase the submission of a debt-resolving capacity statement,which is signed by the capital reduction shareholder and the actual controller.If the statement is false,each body shall be jointly and severally liable for the debt that cannot be achieved.The disclosure obligation of the company to creditors shall be maintained,and the announcement shall be made clearer and stricter.The option of guarantee or liquidation should be determined according to the circumstances.For unexpired debts,based on respect of the term interests of the company,the company has the right to decide to provide guarantees or pay off;for the maturing debt,the interest there is no time limit,according to the principle of freedom of punishment,the creditors have the right to choose.For debt settlement and guarantees,content and form need to be clear in the law,which should bear responsibility commitments according to the commitment.In addition,French regulations on suspending capital reductions can also be introduced.If the company cannot guarantee or pay off in advance,the creditor can request the company to stop reducing capital in accordance with the right to suspend capital reduction.This right can be exercised by filing with the business registration authority,and no change registration for the company's capital reduction can be made without the creditor's claims being liquidated or effectively guaranteed.In summary,this article sorts out the situation in China's judicial practice,combines the regulations of companies' capital reduction systems in various countries,and references the opinions of scholars.On the basis of balance between efficiency and security of the transaction,taking the protection of creditors' interests as the starting point,some suggestions and suggestions are made to improve China's capital reduction system,expecting to make a little contribution to help improve the capital reduction system in our country.