Creditor Protection Mechanisms in Capital Reduction Procedures
During capital reduction, the company must notify creditors within the statutory period. Creditors have the right to demand repayment or provision of a guaranty.
Under the applicable regulations, after a company adopts a capital reduction resolution, it shall notify known creditors within ten days and publish an announcement in a newspaper within thirty days. Notification and publication are concurrent obligations, not alternative options. In practice, where only a publication is made without notifying known creditors, courts generally hold that the capital reduction procedure is defective, and the shareholders shall bear supplementary liability for the company's debts within the scope of the capital reduction.
During capital reduction, the company must notify creditors within the statutory period. Creditors have the right to demand repayment or provision of a guaranty.
Before implementing a capital reduction, it is advisable for the company to comprehensively compile a list of known creditors, send written notices to each of them individually, and retain proof of delivery. It should also retain sufficient documentation of the public announcement to ensure the legality of the capital reduction procedure and to avoid subsequent disputes and legal risks.
