CHINA Trends and Developments Contributed by: Yaxing Zhang, Bing San, Lubin Qiang and Jiahui Zhu, Han Kun Law Offices
Joinder of additional parties in enforcement proceedings Under PRC Civil Procedure Law and Provisions of the Supreme People’s Court on Several Issues Concern - ing the Modification and Addition of Parties in Civil Enforcement, creditors may request that parties other than the named debtor be added as judgment obli - gors if certain statutory conditions are met. This rem - edy aims to pierce the formal limitations of judgments to hold substantively liable parties accountable. Com - mon scenarios for the joining of parties are as follows. • Unpaid capital contributions – shareholders who default on their subscribed capital contributions, or withdraw contributions, may be joined as parties to the enforcement proceeding. Such sharehold - ers shall remain liable for the unpaid contribution amount, even if they have since transferred their shares. • Illegal deregistration – if a company is deregistered without liquidation, its shareholders, directors or controlling shareholders may be held jointly liable for its outstanding debts. • Post-dissolution asset distribution – if a dissolved company’s assets were distributed to sharehold - ers who failed to satisfy outstanding debts, such shareholders may be liable within the amount received. • Companies with sole shareholders – if a sole share - holder cannot demonstrate that corporate assets are independent of their personal assets, courts may pierce the corporate veil and hold the share - holder directly liable. • Partnerships – general partners are jointly and sev - erally liable for partnership debts. Limited partners may also be held liable within the scope of unpaid capital contributions. The PRC Company Law (the “new Company Law”), effective on 1 July 2024, has substantially simplified the procedure for adding undercapitalised share - holders as enforcement targets. Previously, creditors had to prove company insolvency or acceleration of capital contribution deadlines. Courts were cautious to address substantive disputes during enforcement, often requiring separate litigation with full court fees. Now, the new Company Law dispenses with the need for acceleration or separate proceedings. Judges
prices or providing guarantees for others’ debts; and (iii) damage to or transfer of assets provided as security to the people’s court. • Object of the offence – this includes not only final judgments and rulings but also court-approved settlements, arbitration awards and rulings on the recognition and enforcement of foreign judgments. • Temporal scope – the offence now applies to con - duct from litigation commencement through final judgment. In practice, some courts have extended its application to post-default conduct. Individuals convicted may face imprisonment or fines, while companies are subject to financial penalties and confiscation. The relevant assets of the convict - ed individual may be directly recovered or ordered to be returned and disposed of by the enforcement court, and the applicant for enforcement will not be required to seek relief through separate proceedings. For example, in Case (2024) Gan 08 Xing Zhong No 140 , an individual subject to enforcement was sen - tenced to eight months of imprisonment for waiving a claim of CNY400,000 against a third party after the judgment rendered by the court had become effective. In Case (2023) Ji 04 Xing Zhong No 537 , a company was fined CNY100,000, and its legal representative was sentenced to one year and four months of impris - onment for transferring approximately CNY240,000 to a third party instead of compliance with a final and binding judgment. Since the end of 2024, the successive issuance and implementation of judicial interpretations and policy guidance has reflected a clear stance by Chinese judi - cial authorities to strengthen criminal enforcement of judgments and rulings. We believe that the criminal route for refusal to comply with judgments or rulings will become an effective remedy for creditors in situa - tions where the judgment debtor is unable or unwilling to perform. Applicants for enforcement are encour - aged to examine whether the judgment debtor has engaged in acts of refusal and to promptly report any leads to the enforcement court or, where applicable, initiate private prosecution proceedings.
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