On June 22, 2021, our lawyers, representing the enforcement applicant, participated in a discussion organized by the enforcement bureau of the Hongkou District People’s Court in Shanghai.

The case originated from a common sales contract dispute between companies. During the enforcement process, we discovered that two former shareholders of the debtor company had withdrawn their capital contributions. We therefore applied to add these former shareholders as subjects of enforcement, requiring them to bear joint and several liability for the company’s debts within the scope of the withdrawn capital.

During the discussion, the former shareholders claimed they were "wronged." One was the ex-wife of the company’s de facto controller, and the other was a close friend of the ex-wife. They stated that when they acquired the equity, they "did not review anything" and "knew nothing," signing the equity transfer agreement based solely on trust in "love" and "friendship."

After acquiring the equity, they neither participated in the company’s operations nor understood its situation, remaining completely unaware of the withdrawal of capital contributions. In this way, they became puppets of the company’s de facto controller.

Later, they transferred the equity to two current shareholders they had never met, without receiving any payment for the equity transfer.

While their situation may seem sympathetic, it is not legally defensible!

According to judicial interpretations of the Company Law, former shareholders who transfer equity without fully paying their capital contributions (including cases where withdrawn capital has not been replenished) are jointly and severally liable for the company’s debts within the scope of the unpaid or withdrawn capital.

As for the current shareholders who acquired the equity, they have an obligation to conduct due diligence on the company’s debts and liabilities when acquiring the equity. By acquiring the equity, they inherit the obligation to pay or replenish the capital contributions. Therefore, the current shareholders are also jointly and severally liable for the company’s debts within the scope of their unpaid or unreplenished capital contributions.

In this regard, we have already represented the creditor in filing a lawsuit against the two current shareholders for damaging the interests of the company’s creditors. The case will be heard at a later date.

To this day, the company’s de facto controller remains at large. However, we believe that justice will prevail, and no matter how cunning a debtor may be, they will ultimately not escape the sanctions of the law.