Introduction

Liquidation is a statutory procedure prior to the deregistration of a company. To prevent infringement of creditors’ interests, a company must complete the clearance of its claims and debts before formal deregistration. According to Article 232 of the Company Law of the People’s Republic of China (2023), and Article 11 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of the Company Law of the People’s Republic of China (II), except where a limited liability company needs to be dissolved due to merger or division, a liquidation committee composed of shareholders shall be formed within fifteen days from the date on which the cause for dissolution occurs to liquidate the company’s claims and debts. Shareholders shall notify all known creditors in writing of the dissolution and liquidation of the company and make a public announcement in a newspaper. Where shareholders fail to perform their notification and public announcement obligations, resulting in creditors’ failure to declare their claims in a timely manner and thus failing to receive payment, they shall bear compensation liability for the losses caused thereby.

Based on the aforementioned legal provisions, it is clear that current Chinese law explicitly provides that when shareholders of a limited liability company fail to perform their notification and public announcement obligations during liquidation, they shall bear liability for compensation for the creditors’ losses. However, what constitutes “losses caused”? What kind of compensation liability do shareholders actually bear? The current law does not clarify this.

In practice, there are divergent views on the determination of liability for shareholders’ failure to perform notification and public announcement obligations. The first view holds that shareholders should bear liability for compensation for the entire unpaid claims that creditors failed to declare; the second view holds that shareholders should bear liability for compensation limited to the total amount of the company’s remaining assets; yet another view holds that shareholders should bear liability for compensation limited to their capital contribution.

This article will analyze the above three views in detail to explore their underlying logic, and present some observations on what liability the shareholder liquidation obligor should bear when a limited liability company fails to notify creditors during liquidation.

I. Viewpoint Analysis: Shareholders should bear liability for compensation for the entire unpaid claims that creditors failed to declare

In judicial practice, this view is the majority opinion. Courts generally believe that the failure of shareholder liquidation obligors to perform notification and public announcement obligations deprives creditors of the opportunity to declare their claims, and this behavior is essentially a tort. When hearing cases, courts usually proceed from the four elements of tort, holding that when shareholder liquidation obligors, fully aware that relevant claims and debts have not been processed, still obtain deregistration from the company registration authority through false liquidation reports, resulting in the creditors’ claims being unpaid, there is a causal relationship between the tortious conduct of the shareholder liquidation obligors and the tortious outcome, and they should bear liability for compensation for all unpaid claims of the creditors.

Typical cases are as follows:

Case 1:

In the case of Jinghan Real Estate Group Co., Ltd. v. Beijing Jingshi Jianye Construction Engineering Co., Ltd., a dispute over shareholder liability for damaging the interests of company creditors [(2022) Jing 01 Min Zhong No. 905], the Beijing No. 1 Intermediate People’s Court held: “As the sole shareholder of Xianghe Jinghan Real Estate Company, Jinghan Company is the statutory liquidation obligor. Although the liquidation committee of Xianghe Jinghan Real Estate Company was composed of individuals, Jinghan Company’s liquidation obligation to known creditors cannot be automatically discharged. Xianghe Jinghan Real Estate Company failed to notify Jingshi Company during liquidation, resulting in Jingshi Company’s claims not being paid. Jinghan Company should bear the compensation liability of a liquidation obligor for this. At the same time, as the sole shareholder of Xianghe Jinghan Real Estate Company, Jinghan Company failed to review the status of claims and debts of Xianghe Jinghan Real Estate Company, and carried out deregistration with a liquidation report stating that ‘the company’s claims and debts have been fully liquidated.’ It should also bear the shareholder’s compensation liability for the damage caused by the inability to satisfy Jingshi Company’s claims due to the issuance of a false liquidation report.”

Case 2:

In the case of Wang Meihui and Yang Kai v. Xin Ling, a liquidation liability dispute [(2022) Jing 02 Min Zhong No. 2859], the Beijing No. 2 Intermediate People’s Court held: “Wang Meihui and Yang Kai, as the liquidation obligors of Fuuwei Company, processed the deregistration while the company’s claims and debts had not yet been fully cleared, and claimed in the Liquidation Report that the claims and debts had been cleared, which constitutes a false liquidation… The illegal liquidation conduct of Wang Meihui and Yang Kai has a causal relationship with the losses of Xin 1, and they are liable for compensating Xin 1’s losses… Regarding the scope of liability that Wang Meihui and Yang Kai should bear, according to the aforementioned legal provisions, the failure of liquidation committee members to perform notification obligations and their false liquidation fall within the scope of tort liability, and they should bear liability for compensation for the actual losses of the creditors. The claim of Wang Meihui and Yang Kai that they should bear liability only within the scope of their unpaid registered capital has no basis in law, and this Court does not support it.”

Case 3:

In the case of Ruijie Networks Co., Ltd. v. Fu Bingnan et al., a contract dispute [(2021) Jing 0108 Min Chu No. 18756], the Beijing Haidian District People’s Court held: “Liquidation compensation liability refers to the liability system under which compensation should be made for economic losses caused to the company, shareholders, or creditors due to failure to perform liquidation obligations after the dissolution of the company. Its legal nature belongs to tort. Therefore, the failure of the aforementioned persons to perform liquidation obligations must meet the constitutive elements of civil liability for tort, namely: subjectively, the liquidation obligor fails to perform statutory liquidation obligations, possessing subjective fault of intent or negligence; objectively in terms of conduct and outcome, the omission of the liquidation obligor results in the creditor’s claim not being paid; in terms of causation, the infringement of the interests of the company and creditors is caused by the omission of the liquidation obligor.”

In addition to the cases detailed in this article, the following cases also hold the same view, believing that the failure of shareholder liquidation obligors to perform notification and public announcement obligations constitutes a tort, and they should bear liability for compensation for the entire unpaid claims that creditors failed to declare.

Case No.	Hearing Court	Judicial Viewpoint
(2023) Jing 02 Min Zhong No. 5983	Beijing No. 2 Intermediate People’s Court	The actions of the liquidation committee in preparing a false liquidation report, making false statements, and fraudulently obtaining deregistration intentionally harmed the interests of the creditors and violated the statutory duty to legally perform liquidation obligations.
(2021) Zuigao Fa Zhi Min Zhong No. 1688	Supreme People’s Court	Shareholders and members of the liquidation committee, fully knowing that the company owed debts, failed to notify creditors in writing and made false statements in the report that the debts had been cleared. Having failed to perform statutory liquidation obligations, resulting in the debts not being paid, they should bear liability for compensation.
(2021) Jing 03 Min Zhong No. 3045	Beijing No. 3 Intermediate People’s Court	A liquidation liability dispute is essentially a dispute over tort compensation. Conducting liquidation and deregistration without notifying known creditors constitutes a joint tort, depriving creditors of the opportunity to declare claims. Members of the liquidation committee should bear joint and several liability for compensation for the creditors’ losses.
(2021) Jing 03 Min Zhong No. 10005	Beijing No. 3 Intermediate People’s Court	Liquidation liability is an operational responsibility for handling affairs. If the liquidation obligor fails to legally perform liquidation obligations in accordance with legal procedures, the court may hold them civilly liable by supporting the right holder’s claim for damages.
(2020) Zuigao Fa Min Shen No. 5085	Supreme People’s Court	The head of the liquidation committee, fully knowing that the debts were not fully cleared, still failed to notify the creditors and fraudulently obtained the deregistration of the legal person with a false liquidation report, showing gross negligence and should bear liability for compensation.
(2020) Zuigao Fa Min Shen No. 1412	Supreme People’s Court	Members of the liquidation committee failed to perform their obligations to notify creditors in writing and make public announcements, resulting in creditors’ inability to declare claims in a timely manner and fail to receive payment. Shareholders and members of the liquidation committee should bear liability for compensation for the creditors’ losses.

In the above cases, the courts did not limit the conduct of shareholder liquidation obligors to “failure to perform notification and public announcement obligations” when rendering judgments, but expanded the interpretation of the essence of their conduct. Combining the consequences of failing to perform notification and announcement obligations with the process of company deregistration, the courts found that the shareholder liquidation obligors had a clear intention to evade debts, and further characterized the shareholders’ conduct as an active illegal act of “conducting company deregistration with a false liquidation report without going through lawful liquidation.” Based on the theory of creditor-related torts, the courts held that there is a causal relationship between the unpaid debts and the improper conduct of the shareholder liquidation obligors, who should bear liability for compensation for the creditors’ unpaid claims.

As for the scope of compensation of the shareholder liquidation obligors, the courts held that when shareholders, fully aware of the existence of claims and debts, still voluntarily executed illegal liquidation, they severely infringed upon the interests of the company’s creditors, which constitutes an abuse of the corporate independent status and the shareholders’ limited liability. Based on the system of piercing the corporate veil, the shareholders are no longer protected by the principle of limited liability, and should bear joint and several liability for the unpaid debts at the time of the company’s liquidation.

Furthermore, the courts held that when applying for deregistration, the shareholder liquidation obligors made a commitment regarding the complete clearance of the company’s claims and debts and the handling of subsequent claims and debts, which is practically an indemnity commitment (clearance commitment) to assume liability for clearing outstanding debts upon deregistration. Therefore, from the perspective of debt assumption, the shareholder liquidation obligors should also bear liability for compensation for the entire unpaid claims of the creditors.

II. Viewpoint Analysis: Shareholders should bear liability for compensation limited to the total amount of the company’s remaining assets

This view is consistent with the first view in that both characterize the shareholders’ liquidation compensation liability to creditors as tort liability. However, this view narrows the scope of the shareholders’ compensation liability, holding that if shareholders fail to perform notification and announcement obligations, they only need to bear compensation liability within the limit of the total amount of the remaining assets at the time of the company’s liquidation.

Typical cases are as follows:

Case 1:

In the case of Wuhan Lingyun Building Decoration Engineering Co., Ltd. Shanghai Branch v. Dawson International LLC, et al., a sales contract dispute [(2021) Hu 0115 Min Chu No. 19744], the Shanghai Pudong New Area People’s Court held: ”…Regarding the scope of civil liability, the basis of the liquidation obligors’ liability is tort liability. Therefore, the scale of civil liability should be commensurate with their degree of fault, and the amount of compensation should be limited to the losses caused to the company’s creditors, and should not exceed the total amount of remaining assets at the time of the company’s dissolution. Regarding the plaintiff’s claim requesting the defendants徐跃 (Xu Yue) and叶宇申 (Ye Yushen) to bear joint and several liability based on the shareholders’ commitment, this Court believes that the premise for shareholders promising to bear civil liability to the public during deregistration is deregistration without liquidation, which does not apply to the circumstances of this case. Therefore, this Court does not adopt this ground of the plaintiff.”

Case 2:

In the second instance of the liquidation liability dispute of Rugao Economic and Technological Development Zone Management Committee v. Shennong Solar Energy Development Co., Ltd. et al. [(2020) Jing 02 Min Zhong No. 7684], the Beijing No. 2 Intermediate People’s Court held: ”…Third, regarding the scope of compensation, for an infringed party to demand compensation from an infringer, they must prove that the claimed damage outcome has a legal causal relationship with the infringer’s tortious conduct… The evidence submitted by the Rugao Development Zone Management Committee cannot prove that even if it had participated in the liquidation process of Beijing Shennong Company, its claim of RMB 3,066,400 could have been fully paid. That is, it cannot prove a causal relationship between its claimed losses and the faulty conduct of Zhang Yixi and Shennong Solar Energy Company. Its appeal claim demanding that Zhang Yixi and Shennong Solar Energy Company bear joint and several liability for compensating its loss of RMB 3,066,400 has no factual and legal basis, and this Court does not support it.”

An analysis of the above cases shows that the second view is actually a characterization of the shareholders’ compensation liability to creditors as civil liability of a compensatory nature, based on the principle of full compensation (damage filling principle). The courts believe that even under normal liquidation procedures, the claims declared by creditors may not be paid in full; the amount of recovered claims depends on the remaining assets of the company prior to deregistration. That is, the recoverable scope of creditors’ claims is limited to the remaining assets of the company prior to deregistration.

In liquidation dispute cases, if the court rules that shareholders must bear liability for compensation for the entire unpaid claims of creditors, the benefits obtained by creditors would clearly exceed their losses. Based on the principle of damage filling, the courts believe that if creditors cannot prove that their claims could have been paid out of the remaining assets of the company prior to deregistration, shareholders should bear liability for compensation limited to the total amount of remaining assets of the company prior to deregistration.

As for the guarantees and commitments made by shareholders regarding outstanding debts in deregistration applications, liquidation reports, or shareholders’ resolutions, the courts believe that the shareholders’ guarantee liability only applies to situations where deregistration is processed without liquidation. The failure to notify individual creditors during liquidation constitutes a defect in the liquidation process, rather than deregistration without liquidation, and thus shareholders’ debt guarantees do not apply.

III. Viewpoint Analysis: Shareholders should bear liability for compensation limited to their capital contribution

In liquidation liability dispute cases, “shareholders should bear liability for compensation limited to their capital contribution” is a defense frequently raised by defendants, but is rarely supported by judges. In judicial practice, judges have basically reached a consensus that the failure of shareholder liquidation obligors to perform notification and public announcement obligations, causing damage to creditors’ claims, constitutes a tort. Therefore, regarding the defendant’s defense that shareholder liquidation obligors should bear liability for compensation limited to their capital contribution, judges mostly reject it on the ground that “the failure of shareholder liquidation obligors to perform notification obligations and their false liquidation fall within the scope of tort liability, and they should bear liability for compensation for the actual losses of the creditors.”

Case 1:

In the second instance of the liquidation liability dispute of Yang Kai et al. v. Zhang Weijing [(2022) Jing 02 Min Zhong No. 3180], the appellant argued: ”…At the same time, because the outcome of the liquidation showed a loss, even if notification had been made, Zhang’s loss would only be borne by Wang Meihui and Yang Kai within the scope of their unpaid registered capital; otherwise, it would violate the basic principle of corporate law regarding shareholders’ limited liability… Then, even if direct notification had been made, the shareholders would only be liable within the scope of their unpaid capital contributions, and it is impossible to exceed the shareholders’ limited liability to pursue unlimited liability. One cannot be required to bear unlimited liability just because of a minor defect such as failure to perform the direct notification obligation.”

The Beijing No. 2 Intermediate People’s Court held: “Regarding the scope of liability that Wang Meihui and Yang Kai should bear, according to the aforementioned legal provisions, the failure of liquidation committee members to perform notification obligations and their false liquidation fall within the scope of tort liability, and they should bear liability for compensation for the actual losses of the creditors. Wang Meihui and Yang Kai’s claim that they should bear liability only within the scope of their unpaid registered capital has no basis in law, and this Court does not support it.”

Case 2:

In the second instance of the loan contract dispute of Beijing Zhongda Desheng Trading Development Co., Ltd. v. Zhang Xiujuan et al. [(2022) Jing Min Zhong No. 274], the appellant argued: “In this case, the court of first instance failed to correctly apply the law and strictly distinguish the fault of each shareholder, nor did it allocate the corresponding proportion of liability. The simplistic and generalized ruling infringed upon the legitimate rights and interests of Zhongda Desheng Trading Company as a minority shareholder. Zhongda Desheng Trading Company believes that since it holds a 1% equity interest in Horgos Company, according to the provision that ‘shareholders of a limited liability company shall bear liability to the company to the limit of their subscribed capital contributions,’ it does not need to bear liability for compensation. Even if the court determines that it needs to bear corresponding liability for compensation, it should be based on the basic corporate law principle of allocation according to capital contribution ratios, and the debt borne by Zhongda Desheng Trading Company should at most not exceed 1% of the total debt.”

The Beijing High People’s Court held: “The liability for compensation that shareholder liquidation obligors should bear for the actual losses of creditors is a tort liability. Shareholders’ compensation liability is neither protected by the shareholder limited liability system, nor should it be limited to the remaining assets obtained by shareholders in the liquidation of the company. Zhongda Desheng Trading Company was a shareholder of Horgos Company and participated in its liquidation. It failed to perform the ‘point-to-point’ written notification obligation to Yaolai Film and Television Company in accordance with Article 11 of the Judicial Interpretation (II) of the Company Law, which constitutes a situation of failing to go through lawful liquidation.”

Based on the above cases, this article believes that the underlying logic of the defense raised by defendants that “shareholders should bear liability for compensation limited to their capital contribution” is the principle of limited liability of shareholders. Defendants holding this view mostly believe that the liquidation committee of a limited liability company is usually composed of shareholders, and shareholders bearing liability to the company limited to their subscribed capital contributions is the core cornerstone of the modern corporate system. When shareholders of a limited liability company act as liquidation obligors, even if they fail to perform liquidation obligations in accordance with legal provisions, or have certain defects in performing their liquidation obligations, they should not be easily required to bear joint and several liability for the company’s debts; otherwise, it would violate the basic legal theory of shareholders’ limited liability. Moreover, where the liquidation committee is composed of multiple shareholders, internal recourse among shareholders also needs to be allocated based on their fault or capital contributions. Defendants will often argue to the court that they should bear liability for compensation limited to their capital contributions for the purpose of a one-time resolution.

Obviously, the defense raised by the defendants that “shareholders should bear liability for compensation limited to their capital contribution” can find support within the framework of the corporate law system. However, in liquidation liability disputes, courts need to simultaneously consider both corporate and tort-related regulations. Currently, since courts characterize the failure of shareholder liquidation obligors to perform notification and public announcement obligations as a tort, it is difficult for defendants’ defense of “bearing liability for compensation limited to their capital contribution” to be supported.

IV. This Article Agrees with the First View: Shareholders should bear liability for compensation for the entire unpaid claims that creditors failed to declare

As can be seen from the above analysis, the view that shareholders should bear liability for compensation limited to their capital contribution is basically not supported by courts, while the first and second views mentioned earlier are fiercely debated in judicial practice. Both the first and second views agree that the failure of shareholder liquidation obligors to perform notification and announcement obligations, which causes damage to creditors, constitutes a tort. However, the two views differ on the scope of the compensation liability of the shareholder liquidation obligors. The first view holds that shareholder liquidation obligors should bear liability for compensation for all unpaid claims of creditors, while the second view holds that shareholder liquidation obligors should bear liability for compensation limited to the total amount of the company’s remaining assets.

Upon closer examination, this article finds that although courts holding the second view render judgments based on the principle of damage filling, their assessment of the scope of damage to claims is essentially still conducted within the framework of shareholders’ limited liability. In a normal liquidation, the claims declared by creditors are paid out of the company’s remaining assets, a provision which itself isolates shareholders from liability for company debts and protects shareholders under the principle of limited liability. Therefore, when courts use this to determine the scope of creditors’ claims that can be paid due to illegal liquidation by shareholder liquidation obligors, the deepest underlying logic is clearly still shareholders’ limited liability, except that the courts balance the interests of creditors and do not limit the liability of shareholder liquidation obligors to their capital contributions.

Combining cases and underlying legal theories, this article believes that there are two reasons for the divergence in judicial opinions on “what liability shareholder liquidation obligors bear when an LLC fails to notify creditors during liquidation”:

1. Whether to pierce the system of shareholders’ limited liability;
2. Whether to recognize that the commitments made by shareholders regarding unpaid debts have the effect of joint and several guarantees.

This article will proceed from these two reasons to analyze why shareholder liquidation obligors should bear liability for compensation for the entire unpaid claims of creditors when they fail to perform notification and announcement obligations.

1. Where shareholder liquidation obligors, fully knowing of the existence of debts, still fail to perform notification and announcement obligations, such conduct meets the elements of disregard of corporate personality, and they should bear joint and several liability for all unpaid claims of creditors.

Paragraph 2 of Article 11 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of the Company Law of the People’s Republic of China (II) (hereinafter referred to as “Judicial Interpretation (II) of the Company Law”) provides: “Where the liquidation committee fails to perform notification and public announcement obligations in accordance with the provisions of the preceding paragraph, resulting in creditors’ failure to declare their claims in a timely manner and thus failing to receive payment, and the creditors claim that the members of the liquidation committee should bear liability for compensation for the losses caused thereby, the people’s court shall support such claim in accordance with the law.” Article 19 provides: “Where the shareholders of a limited liability company, directors and controlling shareholders of a joint stock limited company, as well as the actual controllers of the company, maliciously dispose of company property after the dissolution of the company, causing losses to creditors, or, without going through lawful liquidation, fraudulently obtain deregistration of the legal person from the company registration authority with a false liquidation report, and the creditors claim that they should bear corresponding liability for compensation for the company’s debts, the people’s court shall support such claim in accordance with the law.”

Article 11 of the Judicial Interpretation (II) of the Company Law provides for the compensation liability that shareholder liquidation obligors should bear for creditors’ losses due to failure to perform notification and announcement obligations. Article 19 provides for the compensation liability that shareholders should bear for company debts under circumstances of unlawful liquidation or the provision of false liquidation reports. The unpaid debts of creditors belong to company debts. When the conduct of shareholder liquidation obligors concurrently involves failing to perform notification and announcement obligations and providing false liquidation reports, the determination of the scope of the shareholders’ compensation liability for creditors’ claims naturally falls within the regulatory scope of corporate law.

In judicial practice, a company must issue a Liquidation Report to the company registration authority during general deregistration, and submit a Commitment Letter of All Investors for Simple Deregistration during simple deregistration. Where shareholder liquidation obligors, fully knowing of the existence of creditors, still fail to perform notification and announcement obligations and proceed with company liquidation, it is inevitably accompanied by a false liquidation report or commitment letter. At this point, the conduct of the shareholder liquidation obligors concurrently falls under both “failure to perform notification and announcement obligations” and “fraudulently obtaining deregistration of the legal person from the company registration authority with a false liquidation report.” The compensation liability of the shareholder liquidation obligors to creditors also shifts from a pure personal tort to the assumption of the company’s debts.

During the company liquidation phase, the company still retains its corporate status. Where shareholder liquidation obligors, fully knowing of the existence of debts, still fail to notify creditors, such conduct not only constitutes deregistration without going through lawful liquidation, but also constitutes an abuse of the company’s independent status and shareholders’ limited liability to evade debts. Based on the system of piercing the corporate veil, the shareholders should bear joint and several liability for all unpaid claims of the creditors.

2. The commitments made by shareholder liquidation obligors regarding unpaid debts constitute a parallel debt assumption, and they should bear liability for compensation for the entire unpaid claims of creditors.

The Liquidation Report and the Commitment Letter of All Investors for Simple Deregistration submitted by shareholder liquidation obligors during deregistration have the same legal effect. Their commitment that “if the company has any outstanding debts before applying for deregistration, all investors shall bear the corresponding legal consequences and liabilities” represents the true intention of the shareholder liquidation obligors and should be legal and valid.

Article 24 of the Opinions of the Beijing High People’s Court on Several Issues Concerning the Determination of Litigation Subjects and Civil Liability After Enterprises Go Missing, Suspend Business, Are Revoked, Have Their Business Licenses Revoked, or Are Deregistered (Trial) explicitly provides: “When an enterprise’s registration is cancelled, if the liquidation subject or a third party commits to the industrial and commercial administration department to be responsible for the remaining claims and debts after the deregistration of the enterprise, they shall bear the liability for clearing such debts.” Paragraph 2 of Article 20 of the Judicial Interpretation (II) of the Company Law also provides: “Where a company processes deregistration without going through lawful liquidation, and the shareholders or a third party commit to bear liability for the company’s debts at the time of processing deregistration with the company registration authority, and the creditors claim that they should bear corresponding civil liability for the company’s debts, the people’s court shall support such claim in accordance with the law.”

As can be seen from the aforementioned legal provisions, where shareholder liquidation obligors, fully knowing that the company has outstanding debts, maliciously proceed with the deregistration of the company, the public commitments made by the shareholders should be interpreted based on the principle of protecting the interests of creditors. This article believes that when shareholder liquidation obligors make a public commitment, the company has not yet processed deregistration, its corporate personality still exists, and the company remains the debtor in the debtor-creditor relationship. The commitment made by the shareholder liquidation obligors meets all the elements of a parallel debt assumption (debt joining), and they should join the original debtor-creditor relationship as parallel debtors. That is, the shareholder liquidation obligors, as debt joiners, should bear repayment liability for the entire unpaid debts of the creditors prior to the company’s deregistration.

V. Special Provisions on the Liquidation of One-Person Limited Liability Companies

Compared with limited liability companies with multiple shareholders, one-person limited liability companies often experience the commingling of shareholder assets and company assets. Search results show that during the liquidation of a one-person company, if the shareholder’s failure to legally perform liquidation obligations causes losses to creditors, and the shareholder cannot prove that their personal assets are independent of the company’s assets, the courts, based on the joint and several liability they should naturally bear, will usually rule that the sole shareholder of the one-person company must bear liability for compensation for all unpaid claims in the illegal liquidation.

Relevant Cases:

In the second instance of the power supply and consumption contract dispute of A certain power company et al. v. Yang [(2023) Jing 01 Min Zhong No. 2484], the Beijing No. 1 Intermediate People’s Court held: “As the liquidation obligor of a certain warehousing company, Yang failed to provide evidence proving that he notified the power company during the liquidation process. Now that the warehousing company has been deregistered and the power company claims the debts against Yang, Yang should bear liability. Even if, as Yang stated, the warehousing company was deregistered in accordance with the law and he was unaware of the existence of the relevant debts, legal deregistration does not lead to the discharge of debts incurred prior to deregistration… As the sole shareholder of the warehousing company, Yang should provide evidence to prove that his personal assets are independent of the warehousing company’s assets. During the second-instance hearing of this case, when asked by this Court whether there was any evidence to submit regarding the independence of his personal assets from the warehousing company’s assets, Yang explicitly stated that no evidence was submitted. Therefore, Yang should also bear joint and several liability for the debts of the warehousing company on this basis.”

In the first instance of the contract dispute of Li v. Beijing Wei… Technology Co., Ltd. et al. [(2023) Jing 0112 Min Chu No. 15537], the Beijing Tongzhou District People’s Court held: “Where the shareholder of a one-person limited liability company cannot prove that the company’s assets are independent of the shareholder’s own assets, the shareholder shall bear joint and several liability for the company’s debts… The company has now been deregistered. Prior to deregistration, Lei was the sole shareholder and a member of the liquidation committee of the company, and failed to issue a notice to declare claims to the creditor Li before deregistration, which constitutes gross negligence. Lei should bear liability for compensating Li for the aforementioned cargo payment of RMB 188,000 and the losses from fund occupation.”

This article believes that the compensation liability borne by shareholder liquidation obligors for the unpaid claims of creditors is not a single tort liability, but is closely related to the assumption of liability for company debts. The commitment made by shareholder liquidation obligors regarding the company’s unpaid debts constitutes a debt joining. Where shareholder liquidation obligors, fully knowing that there are unpaid debts, still refuse to perform notification and announcement obligations, they not only show a clear subjective intent to evade debts, but also objectively committed acts that infringed upon the interests of creditors, resulting in actual damage to claims. During the liquidation of a one-person limited liability company, courts impose a higher burden of proof on the shareholder liquidation obligor. If the shareholder cannot prove that their personal assets are independent of the company’s assets, they should bear liability for compensation for all unpaid claims that creditors failed to declare.

In summary, based on the parallel debt assumption and the system of piercing the corporate veil, this article believes that the liability of shareholder liquidation obligors for unpaid claims of creditors should not be limited to the shareholders’ capital contributions, nor should it be supplementary liability within the scope of the company’s remaining assets; rather, they should bear liability for compensation for the entire unpaid claims of the creditors.