To print this article, all you need to do is register and log in to Mondaq.com.
1. SUMMARY OF THE LEGAL PROCUREMENT SYSTEM
The special nature of the corporation and the limited liability of shareholders are the two main cornerstones of the modern corporate system. The corporate system plays an important role in encouraging investment and promoting the rapid accumulation of capital. But, on the other hand, this system has been abused and used as a tool to promote illegal products.
Deregulation of the legal enterprise system was introduced in China when the “Company Law” was amended in 2005.1However, since the above methods are very theoretical and abstract, there are many problems in the application of this system and the decision of each court. Some examples are the different results of the same tests and the lack of motivation of the fathers and the logic of the test results.
Therefore, in 2019, the Supreme People’s Court of China (“SPC”) published the “Minutes of the National Courts’ Civil and Commercial Trial Work Conference,” which sets out detailed criteria for deciding on the ignore legal entities. The determination of whether there is a so-called problem in corporations and shareholders or partnerships, does not have private property, employees, or business, even if the shareholders have too much control over the corporation, and if it is an independent authority. borrowers are at a high risk.
Since the introduction of this system, the proportion of cases that have not been considered a legal entity has increased to 70%. Therefore, some experts say that the discrimination system of legal entities should be used under strict conditions.
In recent years, courts have rarely accepted a party’s claim of contempt of a legal entity. This is partly due to the lack of clear circumstances regarding the contempt of a legal entity, but more importantly, the court is cautious in its application because it is difficult for the spouse to prove clear evidence of abuse of a legal entity.2.
2. THE CONCEPT OF LEGAL PRACTICE
a. The General Theory of Liability
According to the Civil Procedure Law of China, “Who advocates who proves,” (the party bears the burden of proof for its claims). In other words, the classification theory of legal requirements is a principle3.
However, without regard to a legal entity, the creditor cannot demonstrate “difficulty in property, personnel, or business” because such information, in particular information about assets such as debtor’s books and financial transactions, belongs to them. to the debtor. Therefore, it is very dangerous for the weight of the award to be distributed to the borrowers based on the priority of the item.
Of course, the burden of proof in Chapter 63 is different4 of the Chinese Company Law which disregards the legal entity of a one-person company (“OPC”). However, this law only applies to OPCs and is not discussed in this article.
b. Measures for Reducing the Conformity of Signal and Performance Problems
The SPC has introduced some flexible rules to address the issues that creditors handle with property evidence, as it is difficult for creditors to obtain such evidence in disputes that differ from their legal status.
(1) Provision for Relief from the burden of the Award
As mentioned above, Article 47 of the “Several Provisions of the Supreme People’s Court” states that the party handling evidence such as books must present evidence to reduce when it is difficult to obtain evidence that the other side is conducting.
In addition, Article 67(2)5 of the Civil Procedure Law states that the Civil Court must gather evidence that is difficult for the parties to obtain for practical reasons.
Therefore, for disputes related to the negligence of a legal entity, creditors should obtain important evidence, such as financial transaction information, by applying for an order to examine the evidence and court.
The above requirements are consistent with the order of the written system and the investigative evidence collection system of the court to ensure the balance of arms and the right to collect evidence from the jury. Of course, this is controversial. For example, a written order system violates a judge’s decision, and a written order system violates the parties’ right to not submit documents that are not relevant to the case, such as commercial loss.6
However, the main purpose of the trial is to find the truth and heal the victims. If there is a problem in the implementation of a system, it is better to add the system by law rather than to eliminate the system.
(2) Work problems
The main reason is that the court has discretion in using the above two systems of evidence. In a civil litigation case, there are very few cases where the court has the power to conduct an investigation and gather evidence. Generally, at the party’s request, the court issues an investigation order to him, and the party collects evidence. However, the evidence provider will not cooperate without a court appearance, even if the court orders a hearing.
In China’s judicial process, for financial transaction information, which is very important evidence in disputes about a legal entity, the applicant must submit the accounting information to the court when applying for the investigation of financial transaction information. However, the only account that creditors can legally obtain is the debtor’s officially registered business account. However, in many cases, borrowers hide their money by using multiple accounts, including those of affiliated companies. Therefore, it is very difficult for creditors to prove “mistake in property.”
In order to provide evidence of financial transaction information in South Korea, the holder’s financial information is strictly enforced in accordance with Article 4 of the “Law on Real Name Financial Transactions and Guarantee.” However, if there is an order to provide such information by the court, the owner must disclose the financial information. Accordingly, in the judicial process, the creditor can examine all the financial information related to the case without submitting evidence such as the creditor’s account number to the court.
Ultimately, it is important to balance the protection of personal information with its use. In China, as the general research and regulations on personal information protection systems are still in the new stage, the level of management system for the protection and use of personal information is not high. Therefore, in litigation, the court will be very careful when dealing with requests for investigation of financial information, etc., for fear of possible harm due to the violation of personal information.
Fortunately, in this regard, China is actively researching and finding solutions for information and legal technologies.7 Therefore, it is expected that the difficulties faced by borrowers in getting credit will be carefully determined.
c. Academic Discussion of the Convention on the Dissolution of Legal Entity
In academia, there is an opinion that argues for a change in the share of the burden of proof in the case of a lawsuit against a legal entity. From this point of view, after the plaintiff first proves the bad behavior of the defendant on behalf of the private person of the legal entity and the limited liability of the shareholders, the worst of the effects of the plaintiff, and the relationship between the plaintiff’s abuse and the plaintiff’s harm. , the weight of the signal is horizontal. It is alleged that the defendant must show that there is no problem in the property, business or employees.
Plaintiff’s evidence is, of course, sufficient to prove this issue at the most basic level. For example, “春人马，两坝牌子” (two corporations with individual members are the same.)
When justice is considered to be the highest value pursued by litigation, the foregoing suggests that part of the burden of proof in litigation should be shifted to a corporation.
3. ADVICE FOR BUSINESSES
In a lawsuit against a corporation, the creditor must bear the burden of proof. Businesses should always be vigilant and exercise judgment when making transactions. When multiple relationships of a partner are involved in a transaction, ensuring the responsibility of these relationships is very useful.
In the absence of joint liability negotiations, it is necessary to identify the minimum transaction risks and determine the countermeasures through basic research on matters including capital, principal, and shareholders. share of the contracting party.
1. According to Article 20(3) of the Company Law, if the shareholders of a company abuse the exclusive right of the company and the limited liability system of the shareholder to avoid debt, if or detrimental to the interests of the company’s creditors. jointly for the company’s debts.
2. Miao Wang, “A Study on the Theory of Deregulation of Corporate Entity in China’s Corporation Law, 「North Asian Law Journal」 Volume 14 No. 1, p5.
3. According to Article 67(1) of the Social Security Law of the People’s Republic of China, the party shall provide evidence to support its allegations.
4. According to this provision, in the case of a single-shareholder company, the shareholder must prove the separation of the company from its assets. In other words, the burden of proof is placed on the creditor, not the creditor. This is to protect creditors because an OPC is closer to a general company with two or more shareholders, and often abuses the corporate image. This article is about general companies, not OPCs.
5. According to Article 67(2), if the parties and clients are unable to gather evidence for reasons beyond their jurisdiction, or if the Civil Court deems it necessary to trial of the case, the People’s Court will investigate and collect the evidence. .
6. Pengxiaoye(彭箫野), discuss the preparation of the written order，the location of the Hunan provincial high people’s court https://hunanfy.chinacourt.gov.cn/article/detail/2017/09/id /2994258. shtml， accessed on 31-08-2022.
7. The law on social credit information promulgated in different cities, such as Shanghai and Hebei provinces in China, specifies the scope of inquiry and use depending on the type of information.
The content of this article is intended to provide a general guide to the topic. Seek expert advice for your specific circumstances.