Convenient methods are not ways to avoid paying debts

This article is adapted from: Fuzhou Daily

Trying to cancel your company to dodge debt?

Convenience is not a way to evade what you owe

Reporter: Ruan Guanda

Our report: (Reporter: Ruan Guanda) In recent years, to optimize the business environment, our country has introduced simplified procedures for canceling (deregistering) companies, using “credit commitments” in place of “substantive liquidation,” but this does not mean that one can evade debts. Recently, the Minhou Court concluded a dispute case involving liability for liquidation.

Chen Qiangqiang (a pseudonym) is an employee of Anliao Company (a pseudonym). Not long ago, during his work, Chen Qiangqiang suffered an industrial injury. Because the two sides failed to reach an agreement on compensation with the company, Chen Qiangqiang applied for arbitration. After mediation, the labor arbitration commission confirmed that Anliao Company should pay Chen Qiangqiang a total of 150,000 yuan in various expenses. If Anliao Company failed to fulfill the mediation agreement as scheduled, Chen Qiangqiang had the right to apply to the court for compulsory enforcement for an amount of 183,000 yuan.

However, on the day the commission issued the mediation award, an Anliao Company shareholder signed the “Simplified Cancellation Commitment Letter for All Investors,” committing that “the company’s creditor-debtor claims and liabilities have been fully settled.” On that basis, the shareholder applied to the market supervision and administration authority for simplified company deregistration and succeeded in having the company’s registration canceled. Because the mediation payment had nowhere to be claimed, Chen Qiangqiang sued the court, requesting that Anliao Company’s shareholders assume joint and several liability for the 183,000 yuan debt owed to Chen Qiangqiang.

“As specified in the Company Law revised in 2023, if the company meets either of the conditions of ‘no debts arising during the existence period’ or ‘all debts have been fully paid off,’ only after all shareholders make commitments may the simplified procedure be used to deregister the company.” A judge from the Minhou Court said that where there are circumstances such as abnormal operations or frozen equity, a simplified deregistration should not be applied for. For cases like Anliao Company that made false commitments, the relevant party must assume joint and several liability for debts incurred before the deregistration. Ultimately, after trial, the Minhou Court held that Anliao Company’s conduct subjectively involved an intent to evade debts, and it ruled that Anliao Company’s shareholders shall assume joint and several liability for the 183,000 yuan debt owed by the company to Chen Qiangqiang for payment. The judgment has taken effect.

A judge from the Minhou Court also reminds that when shareholders apply for simplified company deregistration, although there is no need to establish a liquidation group to carry out liquidation procedures, they should nevertheless carefully fulfill their liquidation obligations and make truthful commitments upon deregistration; under no circumstances should they take the shortcut out of greed for convenience or out of wishful thinking, thereby bearing joint and several liability for false commitments. Creditors also need to enhance risk prevention awareness, closely monitor the other party’s business registration status, and if the other party maliciously deregisters the company, they should promptly safeguard their rights in accordance with the law.

（The full text is 723 Chinese characters in length）