On June 2, 2021, the first hearing was held for a case involving liability for damaging creditors’ interests, represented by our firm.

We argue that if the original shareholder withdrew capital contributions before transferring the company’s equity, and the transferee failed to conduct due diligence, the transferee would be deemed to have "should have known" and would bear joint and several liability for the debts arising from the original shareholder’s withdrawal of capital. So, what constitutes "due diligence," and how is "should have known" defined?

On this issue, our views are as follows:

1.According to customary transaction practices, before engaging in a large equity transaction, the transferee typically conducts due diligence on the target equity, such as comprehensively understanding the company’s financial status and thoroughly reviewing the company’s business registration records. Relying solely on verbal assurances without investigation and confirmation can hardly be considered "due diligence."

2.If the transferee fails to take necessary and basic review measures and acquires defective equity, resulting in adverse consequences, they should bear the responsibility. This is because if the transferee had conducted "due diligence" beforehand, they could have avoided such unfavorable outcomes.