29 July 2021
Recently, the Higher People's Court of Zhejiang concluded an appeal case of the second instance. A Chongqing wind energy industry company sued a Zhejiang-based wind energy equipment manufacturing company and its parent company with 100% equity in respect to a sales contract dispute and confusion regarding the corporate personality. The amount of money involved in this case was more than RMB 109 million. The Higher People’s Court made a typical effective case on the confusion of corporate personality of the parent company and the subsidiary company and the independent property of the shareholders of the one-person limited company. This was after the Supreme People's Court issued the Minutes of the National Court Civil and Commercial Trial Work Meeting (hereinafter referred to as the "Meeting Minutes") in November 2019.
In this case, the controlling shareholder of the defendant entered into bankruptcy and reorganization procedures. Mr. YANG, Li, Mr. ZHAO, Min and Ms. SHEN, Feng were the leading partners, and Mr. Zhao Min and other persons, as the agents of this case, provided litigation services in the second instance to clients.
During the first instance of this case, a Chongqing Wind Energy Industrial Co., Ltd., (the plaintiff) sued a Zhejiang based Wind Energy Equipment Manufacturing Co., Ltd., (the defendant) to repay the total price due under more than ten sales contracts worth over RMB100 million. Meanwhile, it sued the parent company that held 100% equity interest in Defendant I (Defendant II), requesting Defendant I to bear joint and several liability for the claim on the ground of confusion of corporate personality. The court of first instance ruled that the Defendant II shall be jointly and severally liable for the Defendant I. JunHe’s team filed an appeal to the Higher Court of Zhejiang Province on behalf of the parent company, requesting the court to rule that the parent company is not jointly and severally liable for the debts of its subsidiary.
During the second instance, JunHe’s team closely focused on and studied the five key considerations in Article 10 and Article 11 of the Meeting Minutes regarding confusion of corporate personality cases, and the four key considerations in determining the controlling shareholder's excessive dominance and control. So as to prepare corresponding evidence to fully demonstrate the financial independence and do not have corporate personality confusion between the parent company and its wholly-owned subsidiaries in light of past cases and point out that the plaintiffs failed to fulfill the burden of proof, the evidence provided did not prove the confusion of corporate personality between the two defendants, and the provisions of Article 63 of the Company Law were not completely applicable to this case. Finally, Higher People’s Court of Zhejian fully adopted the opinion of JunHe’s team. It ordered the parent company to the subsidiary not to bear the joint and several liability.
In this case, the client was an A-share listed company. The outcome of this case had an impact on its share price and the bankruptcy proceedings of its controlling shareholders. The success of the case not only assisted the client to boost investor confidence, but also relieved the client of the huge debt risk of joint and several liability for other potential debts of its wholly owned subsidiaries. The clients have highly praised the performance of JunHe’s team.
For further information, please contact:
SHEN, Feng, Partner, JunHe
shenf@junhe.com
