• Document Number：No. 33 [2003] of the Enforcement Work Office of the Supreme People's Court
• Area of Law： Contract
• Level of Authority： Documents of Judicial Interpretation Nature
• Date issued：12-11-2003
• Effective Date：12-11-2003
• Issuing Authority： Supreme People's Court
• Status： Effective

Reply of the Enforcement Work Office of the Supreme People's Court on Issues concerning Whether a Company's Shareholders Should Assume Liabilities for the Company's Creditors Due to Defects in Capital Increase after the Formation of the Company
(No. 33 [2003] of the Enforcement Work Office of the Supreme People's Court on December 11, 2003)
The Higher People's Court of Jiangsu Province:
Your Request for Instructions on the Application of Nantong Development Zone Fuma Materials Company for Enforcement on Shenzhen Longgang Film City Industries Co., Ltd. (No. 171 [2002], HPC, Jiangsu) has been received. Upon deliberation, the following reply is hereby made:
This Court holds that an increase in a company's registered capital, for which the original shareholders agree to assume liabilities in accordance with the original proportion of capital contribution, is an act of expanding the scale of operation and enhancing the ability to assume liabilities, and is not different from the initial capital contribution in the formation of the company. If the shareholders have capital increase defect, they should assume the same liabilities as those when the company was formed. However, the capital increase after the formation of the company and the capital contribution in the formation of company are different in that the shareholders' delivery of capital was at different times. Because of this difference in time, the traders (the company's creditors) have different expectations for the company's ability to assume liabilities. The obligation (or responsibility) for capital increase or contribution as fulfilled by shareholders in accordance with their commitments is a statutory obligation for capital adequacy in relation to the society, and such a responsibility should be corresponding with a judgment that is made by creditors based on the company's registered capital for the company's ability to assume liabilities. In the case at bar, a transaction between Nantong Development Zone Fuma Materials Company (hereinafter referred to as “Fuma Company”) and Shenzhen Longgang Film City Industries Co., Ltd. (hereinafter referred to as “Longgang Film City”) was made before Longgang Film City changed its registered capital, and therefore Fuma Company should make a judgment for the ability of Longgang Film City to assume liabilities based on its registered capital of 5 million yuan at that time. In addition, there is no direct causal relationship between whether Longgang Film City can repay debt to Fuma Company and whether the registered capital increased subsequently by Shenzhen Great Wall (Hui Hua) Industrial Enterprise Group (hereinafter referred to as “Hui Hua Group”), a shareholder of Longgang Film City, was put in place. Hui Hua Group would only assume liabilities corresponding with its capital increase defect for the traders (the company's creditors) after the registered capital of Longgang Film City was increased. Fuma Company cannot require Hui Hua Group with the subsequent capital increase defect to assume liabilities for the creditor's rights arising out of the transaction with Longgang Film City prior to the capital increase.