Companies cannot evade debts; the behind-the-scenes boss must bear joint liability.

[6] Compiled and organized from: Boxing Court
 
Case review
An eco-friendly building materials company was established on May 9, 2016. Duan Moumou was originally the legal representative of the company and passed away due to illness in May 2019. Wang Yanyan is Duan Moumou's wife, Duan Moshuai is their son, and Duan Moxi is Duan Moumou's father. On July 23, 2019, the company's legal representative was changed from Duan Moumou to Wang Yanyan, shareholders were changed from Duan Moumou and Wang Yanyan to Wang Yanyan and Duan Mofei (a third party), the executive director was changed from Duan Moumou to Wang Yanyan, and the supervisor was changed from Wang Yanyan to Duan Mofei. On May 21, 2020, the company's shareholders were changed from Wang Yanyan and Duan Mofei to Wang Yanyan and Duan Moxi, and the supervisor was changed from Duan Mofei to Duan Moxi. On December 25, 2020, the company's legal representative was changed from Wang Yanyan to Duan Moxi, and shareholders were changed from Wang Yanyan and Duan Moxi to Duan Moxi.

 
 

From May to December 2019, the eco-friendly building materials company purchased fly ash from Zhang Mou in multiple installments for production and operation, with a total payment of 1.18 million yuan, of which 950,000 yuan had been paid, leaving an outstanding balance of 230,000 yuan. Zhang Mou filed a lawsuit against the eco-friendly building materials company and Wang Yanyan as defendants, demanding payment of the outstanding amount.
 
 
《 Civil Code of the People's Republic of China 》
Article 83
Contributors to a for-profit legal person shall not abuse their contributor rights to harm the interests of the legal person or other contributors; if abuse of contributor rights causes losses to the legal person or other contributors, they shall bear civil liability in accordance with the law.
 
Contributors to a for-profit legal person shall not abuse the independent status of the legal person and the limited liability of contributors to harm the interests of the legal person's creditors; if abuse of the independent status of the legal person and the limited liability of contributors to evade debts and seriously harm the interests of the legal person's creditors occurs, they shall bear joint and several liability for the legal person's debts.
 
 
[1] Court Opinion
The Boxing County People's Court held after trial that the focus of the dispute in this case was whether Wang Yanyan should bear liability.
 
The actual controller refers to a person who, although not a shareholder of the company, is able to actually control the company's actions through investment relationships, agreements, or other arrangements. Wang Mouyan admitted that the company had no income and used personal accounts to make external payments. Wang Mouyan was a shareholder from the company's establishment, later served as the company's legal representative and executive director, and on December 25, 2020, changed the legal representative to her father-in-law Duan Mouxi, and the shareholders from Wang Mouyan and Duan Mouxi to Duan Mouxi. It should be determined that Wang Mouyan has direct control over the company and is the actual controller.
 
According to Article 83 of the Civil Code, it is clarified that company shareholders shall bear joint liability for company debts when they evade debts and cause serious harm to the company's creditors. Although this provision does not explicitly state that the actual controller shall bear joint liability for company debts under the same circumstances, the actual controller holds a status equivalent to that of a shareholder. If the actual controller's debt evasion behavior is indulged, it will harm the fairness and justice of the law.
 
In summary, Wang Mouyan, as the actual controller, should bear joint liability for the involved payment.

 

 
[1] The author's perspective
Company shareholders who abuse the independent legal personality of the company and the limited liability of shareholders may bear joint liability for company debts. In practice, some actual controllers of companies hide behind the scenes, using "shell companies" to evade debts, while the nominal legal representative has no operational authority or debt repayment ability. In such cases, requiring the actual controller to bear joint liability for company debts not only aligns with the essence of the corporate veil piercing system stipulated in the Company Law but also helps promote lawful and honest business operations, further regulate the company market order, and create a law-based business environment.