According to the provisions of the Company Law, the expiration of the business term specified in the company's articles of association is one of the reasons for the dissolution of the company. If the company is dissolved due to the expiration of the business term, a liquidation group should be established within 15 days from the date of the occurrence of the reason for dissolution to begin self liquidation. The question is, if the company's business term has expired but has not yet been dissolved, can its shareholders or creditors directly apply to the people's court for compulsory liquidation of the company on the grounds that the company has not established a liquidation team to conduct liquidation within the time limit? This article reveals the answer to this question through a case of the Supreme People's Court.

Referee gist

The premise for the people's court to accept a company liquidation case is that the company has been dissolved and is slack in liquidation; "If only the reason for dissolution occurs that the business term specified in the company's articles of association has expired, but all shareholders agree that the company's governance structure and governance status are normal, and no internal resolution has been formed on whether to extend the business term or whether to dissolve, the company cannot be considered to have been dissolved.". If the company has not actually been dissolved, and there are no exceptional legal causes for dissolution that can be applied for compulsory liquidation, such as revocation of the business license of the enterprise legal person, order to close down, or revocation, the people's court ruled that it would not be inappropriate to refuse to accept the liquidation application of the company on the grounds of the lack of legal facts about the dissolution of the company.
Brief Introduction to the Case

1、 The respondent Wanfang Sales Company was established on July 26, 2013 with a registered capital of 10 million yuan, and was invested and established by the applicant Shaanxi Automobile Company and the third party Dongfang Agriculture and Animal Husbandry Technology Co., Ltd. as shareholders. The applicant contributed 4.9 million yuan, accounting for 49% of the shares, while a third party contributed 5.1 million yuan, accounting for 51% of the shares.

2、 The Articles of Association of Wanfang Sales Company stipulates that the company's operating period is five years, from July 26, 2013 to July 26, 2018, but its business license indicates that the company's operating period is long-term.

3、 Later, Shaanxi Automobile Company filed a lawsuit to the Xi'an Intermediate People's Court on the grounds that the business term of Wanfang Sales Company expired and there was a cause for dissolution, requesting the court to establish a liquidation team to liquidate Wanfang Sales Company.

4、 After review, the Xi'an Intermediate People's Court ruled that it would not accept the application of Shaanxi Automobile Company to liquidate the assets of the respondent Wanfang Sales Company.

5、 Shaanxi Automobile Company refused to accept the ruling of the first instance and filed an appeal to the Shaanxi High Court, requesting the cancellation of the ruling of the first instance. The court of the first instance ruled to organize a liquidation team to liquidate Wanfang Sales Company according to law. After hearing, the Shaanxi High Court rejected the appeal, upheld the original ruling, and held that Shaanxi Automobile Company should first file a lawsuit for dissolution of the company, and then apply to the court for compulsory liquidation.

6、 Shaanxi Automobile Company still refuses to accept and applies to the Supreme People's Court for retrial. After examination, the Supreme People's Court finally ruled to reject its retrial application.
Key points of adjudication

The core fact of this case is that although the company's business term has expired in accordance with the provisions of the Wanfang Sales Company's Articles of Association, both parties recognize that the company's governance structure and governance status are normal, and no internal resolution has been formed on whether to extend the business term or dissolve the company. Wanfang Sales Company also has no cause for dissolution due to revocation of its business license, order to close down, or revocation.

On this premise, can the application of Shaanxi Automobile Company for compulsory liquidation of Wanfang Sales Company by the court be supported?

The first instance of the Xi'an Intermediate People's Court held that although the expiration of the business term specified in the company's articles of association was a cause for dissolution of the company, the parties to the case did not establish a clause in the company's articles of association for liquidation after the expiration of the company's business term; And another shareholder of the company, the third person in this case, believes that the company needs to continue to exist and does not agree to compulsory liquidation. According to the relevant provisions of "Interpretation II of the Company Law", the applicant in this case should first file a lawsuit for dissolution of the company, and then apply to the court for compulsory liquidation.

The second instance of the Shaanxi High Court held that if the respondent raised an objection to whether the dissolution occurred, the people's court should not accept the applicant's application for compulsory liquidation. The applicant may file a separate lawsuit or arbitration to confirm the relevant dispute, and then file a separate application for compulsory liquidation with the people's court. In this case, Shaanxi Automobile Company, as a shareholder of Wanfang Sales Company, applied for liquidation of Wanfang Sales Company on the grounds that the operating period of Wanfang Sales Company has expired since July 26, 2018. Wanfang Sales Company raised an objection to this and did not agree to liquidation on the ground that the dispute over land rights and interests between the parties to the case had not been resolved. Shaanxi Automobile Company also recognizes the fact that there are land rights disputes between the parties. Therefore, in accordance with the provisions of Article 13, Paragraph 7 of the Minutes of the Supreme People's Court's Symposium on Hearing Cases of Compulsory Liquidation of Companies, Shaanxi Automobile Corporation should first file a lawsuit for dissolution of the company, and then apply to the court for compulsory liquidation.

The Supreme Court held that the premise for the People's Court to accept the company liquidation case was that the company had been dissolved and was negligent in liquidation. As there was no legal fact in this case that Wanfang Sales Company was dissolved, the court of second instance ruled that it was not improper to refuse to accept the liquidation application of Shaanxi Automobile Company.
Summary of practical experience

According to the provisions of the Company Law, the expiration of the business term specified in the company's articles of association is one of the reasons for the dissolution of the company. If the company is dissolved due to the expiration of the business term, a liquidation group should be established within 15 days from the date of the occurrence of the reason for dissolution to begin self liquidation. Can shareholders or creditors apply to the court for compulsory liquidation on the grounds that the liquidation obligor is negligent in liquidation when the company has only had reasons for dissolution but has not yet been dissolved?

According to the judgment of the Supreme Court, if the company only has an understanding of the cause of dissolution, but has not made a resolution of the shareholders' meeting to dissolve the company, since the premise for the people's court to accept the company's liquidation case is that the company has been dissolved and delayed in liquidation, the court will not accept the company's shareholders or creditors' application for compulsory liquidation of the company. However, there are also exceptions: According to Article 13 of Item 7 of the "Minutes of the Symposium on Hearing Cases of Compulsory Liquidation of Companies" of the Supreme People's Court, when the cause for dissolution of a company has been determined by effective legal documents, or when matters such as the company's business license has been revoked, ordered to close down, or revoked occur, the people's court should accept the application for compulsory liquidation.
Relevant laws and regulations

Civil Code of the People's Republic of China

"Article 70 If a legal person is dissolved, except in the case of merger or division, the liquidation obligors shall promptly form a liquidation team to carry out liquidation.".
The directors, directors, and other members of the executive or decision-making bodies of a legal person are liquidation obligors. "Where laws and administrative regulations provide otherwise, such provisions shall prevail.".

"If a liquidation obligor fails to perform its liquidation obligations in a timely manner and causes damage, it shall bear civil liability;"; The competent authority or interested parties may apply to the people's court to designate relevant personnel to form a liquidation team to carry out liquidation.

Company Law of the People's Republic of China

Article 180 The company is dissolved due to the following reasons:

（1） The business term specified in the company's articles of association expires or other causes for dissolution specified in the company's articles of association occur;

（2） The shareholders' meeting or shareholders' meeting resolves to dissolve;

（3） Dissolution is required due to merger or division of the company;

（4） The business license is revoked, ordered to close down, or revoked according to law;

（5） The people's court shall dissolve the company in accordance with the provisions of Article 182 of this Law.

Article 181 Where a company falls under the circumstances specified in Article 180 (1) of this Law, it may survive by amending its articles of association.

To amend the articles of association in accordance with the provisions of the preceding paragraph, a limited liability company must be approved by shareholders holding more than two-thirds of the voting rights, and a joint stock limited company must be approved by shareholders attending shareholders' meetings holding more than two-thirds of the voting rights.

Article 183 If a company is dissolved due to the provisions of Items (1), (2), (4), and (5) of Article 180 of this Law, a liquidation group shall be established within 15 days of the occurrence of the cause of dissolution to begin liquidation. The liquidation group of a limited liability company is composed of shareholders, while the liquidation group of a joint stock limited company is composed of directors or personnel determined by the shareholders' meeting. "If a liquidation group is not established to carry out liquidation within the time limit, creditors may apply to the people's court to designate relevant personnel to form a liquidation group to carry out liquidation.". The people's court shall accept the application and promptly organize a liquidation team to conduct liquidation.

Provisions of the Supreme People's Court on Several Issues Concerning the Application of the Company Law of the People's Republic of China (II)

Article 7 A company shall, in accordance with the provisions of Article 70 of the Civil Code and Article 183 of the Company Law, establish a liquidation group within 15 days of the occurrence of the cause of dissolution to begin its own liquidation.

Under any of the following circumstances, if a creditor, company shareholder, director, or other interested person applies to the people's court for appointing a liquidation team for liquidation, the people's court shall accept the application:

（1） The company is dissolved and fails to establish a liquidation group to carry out liquidation within the time limit;

（2） Deliberately delaying liquidation despite the establishment of a liquidation group;

（3） Illegal liquidation may seriously harm the interests of creditors or shareholders.

Minutes of the Symposium on Hearing Cases of Compulsory Liquidation of Companies by the Supreme People's Court

"The creditors or shareholders of a company who apply to the people's court for compulsory liquidation shall submit a liquidation application.". The application shall contain the basic information of the applicant and the respondent, as well as the facts and reasons for the application. At the same time, the applicant shall submit to the people's court relevant evidence that the dissolution of the respondent has occurred and that the applicant enjoys creditor's rights or equity interests in the respondent. "After the dissolution of the company, a liquidation group has been established on its own to conduct liquidation, but if creditors or shareholders apply to the people's court for compulsory liquidation on the grounds that their intentional delay in liquidation or other illegal liquidation may seriously harm the interests of creditors or shareholders, the applicant shall also submit corresponding evidence materials to the people's court that the company's intentional delay in liquidation or other illegal liquidation may seriously harm their interests.".

"The people's court shall, within 10 days from the date of the hearing or the expiration of the objection period, make a ruling according to law on whether to accept the application for compulsory liquidation.".

"If the respondent raises an objection as to whether the applicant has creditor's rights or equity interests in it, or whether there is a cause for dissolution of the respondent, the people's court shall not accept the applicant's application for compulsory liquidation.". The applicant may file a separate lawsuit or arbitration to confirm the relevant dispute, and then file a separate application for compulsory liquidation with the people's court. "Except where there is a valid legal document confirming the above objections, and there is clear and sufficient evidence of the cause of dissolution such as the revocation of the business license of the enterprise legal person, the order to close down, or the revocation.".

14. If the applicant fails to provide evidence to the contrary after providing corresponding evidence that the respondent intentionally delayed liquidation during self liquidation, or there are other illegal liquidation that may seriously harm the interests of creditors or shareholders, the people's court shall accept the applicant's application for compulsory liquidation. "If a creditor applies for compulsory liquidation and the principal property, account books, important documents, etc. of the respondent are lost, or the whereabouts of the respondent's personnel are unknown, resulting in the inability to liquidate, the people's court may not use this as an excuse to reject the application.".

"After accepting an application for compulsory liquidation, the people's court may, upon examination, rule to reject the application for compulsory liquidation if it is found that the application for compulsory liquidation does not comply with legal provisions.".

"The people's court has ruled not to accept or rejected the application for acceptance. If the applicant is not satisfied, he may file an appeal with the people's court at the next higher level.".
Court decisions

After examination, the Supreme People's Court stated in the "Opinions of the Court" section:

"The question that needs to be examined in this case is whether the court of second instance ruled that it was wrong not to accept the liquidation application of Shaanxi Automobile Company.".
The dissolution and liquidation of a company is an act with certain legal consequences that is carried out by the company liquidation authority in accordance with the law for the purpose of terminating the legal personality of the company. Although the company's business term has expired in accordance with the Articles of Association of Wanfang Sales Company, both parties acknowledge that the company's governance structure and state of governance are normal, and no internal resolution has been formed on whether to extend the business term or dissolve the company. Wanfang Sales Company also has no cause for dissolution due to revocation of its business license, order to close down, or revocation. According to the relevant provisions of the "Provisions of the Supreme People's Court on Several Issues Concerning the Application of the" Company Law of the People's Republic of China "(II) and the" Minutes of the Supreme People's Court's Symposium on Hearing Compulsory Liquidation Cases of Companies ", the premise for the people's court to accept a company liquidation case is that the company has been dissolved and delayed in liquidation, as there is no legal fact in this case that Wanfang Sales Company has been dissolved, "The court of second instance ruled that it was not improper to refuse to accept the liquidation application of Shaanxi Automobile Company."
Case Source

Shaanxi Automobile Industry Co., Ltd. and Shaanxi Wanfang Automobile Sales Service Co., Ltd. Application for Company Liquidation, Retrial, Review, and Trial Supervision Civil Ruling Document [Supreme People's Court, (2021) Supreme Law, Minshen No. 2310]

Extended Reading

In the "Hunan Yucheng Investment Co., Ltd. and Gansu Xinsheng Industry and Trade Co., Ltd. Application for Company Liquidation, Reexamination, Review, and Trial Supervision Civil Ruling Paper" [(2020) Supreme Court Minshen No. 5903], the Supreme People's Court also held that:

"After review, our court believes that the scope of the retrial review of this case is whether the liquidation application of Yucheng Company should be accepted. The business term of Xinsheng Company expires on August 15, 2019, and thereafter, no internal resolution has been formed on whether the company should be dissolved. The premise for the court to accept the company liquidation case is that the company has been dissolved and delayed in liquidation. Due to the absence of legal facts for the dissolution of the company, the court of first instance will not accept the liquidation application of Yucheng Company." "There is nothing improper."