Case Summary
Our client was involved in a sales contract dispute with a Beijing-based company. The court ruled that the Beijing company shall pay the client approximately RMB 1 million in total for goods payment and interest losses. After the judgment took effect, the Beijing company failed to settle the payment within the time limit specified in the judgment.
The client then applied to the court for compulsory enforcement. As there were temporarily no enforceable assets under the Beijing company’s name, the court eventually issued a ruling to terminate the current enforcement procedure.
Later, the client applied to add A, the former sole shareholder of the Beijing company, as a person subject to enforcement, demanding that A bear joint and several liability for the company’s debts. However, the court rejected the application on the ground that the Beijing company was no longer a one-person limited liability company. The client did not file an action for enforcement opposition within the statutory time limit.
Case Handling Process
Given that the client had missed the time limit for enforcement opposition litigation, Shengzhi’s legal team promptly adjusted the strategy. Pursuant to Article 23 of the Company Law of the People’s Republic of China (formerly Article 63), the team filed an independent lawsuit with the court at shareholder A’s domicile, under the cause of “dispute over shareholder liability for damages to company creditors”.
Shengzhi’s team retrieved the company’s industrial and commercial archives, confirming it was formerly a one-person limited liability company, and that shareholder A had failed to prepare annual financial reports and audit reports as required during his tenure, indicating strong suspicion of asset commingling.
Shareholder A submitted an audit report and bank statements to prove the independence of his personal assets from the company. After analysis, Shengzhi’s legal team put forward the following counterarguments:
- First, the audit report was not a statutory year-end audit conducted at the end of each fiscal year, but a retroactive report prepared after the case judgment. It only reflected the company’s operating and financial status, not the capital flow between the company and the shareholder, thus failing to prove asset independence. In addition, the accountant who issued the report had been disciplined by the Beijing Institute of Certified Public Accountants for practice quality issues, which further undermined the report’s credibility.
- Second, the bank statements failed to prove asset separation; on the contrary, they fully verified asset commingling. For example, shareholder A had collected payments and paid expenses on behalf of the company dozens of times, with a large number of unexplained fund transactions between the two parties.
During the litigation, shareholder A raised a statute of limitations defense. Shengzhi’s team argued that the client’s previous application for adding a person subject to enforcement had the legal effect of interrupting the statute of limitations, so the separate lawsuit did not exceed the time limit.
After assessing the high risk of losing the case — which would require him to pay both the principal and substantial interest — shareholder A agreed to a settlement in court. The debt recovery is currently being carried out as scheduled.
Legal Insights
Termination of current enforcement is not a dead end; it is even a common outcome in enforcement proceedings. For such cases, creditors may pursue shareholder liability through two core approaches:
- Enforcement addition procedure. An application shall be filed within 15 days after receiving the termination ruling, with preliminary evidence of unpaid capital contribution, capital withdrawal or asset commingling. This procedure is faster and requires no advance court fees, but the review is limited to formal examination.
- Separate litigation procedure. This applies when the enforcement addition fails or the time limit is exceeded. Though it involves advance court fees and a longer cycle, it breaks through the limits of enforcement proceedings, allows simultaneous property preservation, and enables substantive review of complex scenarios such as capital withdrawal and alter ego commingling.
With in-depth research and rich practical experience in terminated enforcement cases, Shengzhi’s legal team has effectively safeguarded the client’s legitimate rights and interests. The firm will continue to focus on such cases and provide targeted legal support for creditors.
(Note: The case details in this article have been desensitized. For customized enforcement solutions, please contact Shengzhi’s legal team for a special analysis report.)
