CHINA Trends and Developments Contributed by: Chen Ma, Michelle Gon, Xinjie Li and John Fitzpatrick, Han Kun Law Offices
Conclusion In summary, the revised Company Law has brought about a fundamental change in how corporate gov - ernance is regulated in China, moving away from for - malistic requirements and towards substantive com - pliance. This change means that defences to D&O liability that MNCs have historically relied upon may no longer serve that purpose. Accordingly, local D&Os should no longer act as passive execution tools for overseas parent companies, lest they face personal risk exposure, including statutory penalties, creditor claims and administrative exit controls. In response, MNCs need to proactively restructure their subsidiary governance frameworks – leverag - ing active audit committees, implementing exhaus - tive, contemporaneous record-keeping protocols, and mandating ex-ante solvency tests for all significant capital movements. Ultimately, transforming compli - ance from a check-the-box formality into a robust, localised corporate defence mechanism is the only viable pathway to insulate local management and secure sustainable cross-border operations in China.
management shall bear joint and several liability with the withdrawing shareholder for any losses caused to the company. Article 117 enacts equivalent joint and several liability provisions for JSCs. By comparison, the previous version of the Com - pany Law only prohibited shareholders from unlaw - fully withdrawing capital, without providing for D&O joint liability. This expansion of liability for joint and several liability exposes any subsidiary D&O who approves, assists or conceals the unlawful outward flow of funds in the compliance workflow to joint and several liability. This introduces complex cross-border governance challenges for MNCs that utilise multi-tier holding structures or frequently leverage intra-group cross-border cash pooling for centralised fund sweep - ing in China.
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