In addition to the precaution measures we suggested in “Legal Representative in China: Risk Control”, we would like to further provide you with some advice about the remedies available if some problems occur anyway. One of the major problems is related to the failure of change of registration. As Chinese lawyers engaged in foreign investment, we will analyze a case of the Supreme People’s Court in this article for your reference and summarize some remedies available in the following article, “Legal Representative in China: Remedies for Failed Change of Registration after Resignation (II)”.
Case:
Mr. Wang, the legal representative of a company, requested the company to handle the procedures of change of registration after his resignation but the company turned a deaf ear to his request. Wang went to the registration authority to change the registration on his own but was refused by the registration authority on the grounds that the company had not issued the relevant resolution on such change. Afterwards, the company’s shareholders went missing after the company became insolvent. Wang, as the company’s legal representative, was put on a blacklist, which affected Wang’s legitimate rights concerning transportation and bank loans. After Wang’s repeated requests, the company has not handled the change of registration until now, so Wang filed a lawsuit.
The court of first instance ruled that this case was inadmissible and the court of second instance affirmed such ruling. Then this case was brought to the Supreme People’s Court and was ordered to be retried. The Supreme People’s Court holds that this dispute over the change of registration submitted by the legal representative against the uncooperative company is a civil dispute between two equal entities and thus shall be admissible.
Based on this case and other similar cases, the opinions of local courts in the trial process are mainly divided into two categories. One is that such cases are internal management affairs of the company. If no valid resolution is made, the judiciary should not intervene. The other is that without other remedies, in order to protect the legitimate rights and interests of the parties, the people’s court may order the company to go through the relevant procedures for changing the legal representative within a time limit. However, judicial intervention should also respect the company’s autonomy. Only when certain conditions are met, the judiciary will intervene in the matters under the company’s autonomy. As far as existing cases are concerned, the following aspects are considered:
1. Whether the legal representative has any connection with the company in terms of labor law or company law
If the legal representative was the manager, consider whether the labor relationship between him and the company exists at the time of the lawsuit, and whether there is such evidence as social security payment records, labor contracts, and salary payments;
If the legal representative was the executive director or the chairman of the board of directors, consider whether his term of appointment has expired and whether the company has elected a new executive director or the chairman of the board of directors, as the case may be.
2. Whether the legal representative has a substantial connection with the company at the time of the lawsuit
It is necessary to judge whether the legal representative can still represent the company to engage in business activities, such as whether he still holds the company’s official seal, business license, and whether he has control or knowledge of the company’s financial books, information about the company’s income and expenditure and business development.
3. Whether the legal representative has informed the relevant personnel of his resignation or requested the company to register the change for him
It can be seen from the above case that the court focused on examining whether the legal representative had informed the relevant personnel in writing about his resignation, and whether he had explicitly requested the company to change the registration. The relevant personnel here mainly refer to the company, the company’s actual controller and shareholders.
4. Whether the legal representative has exhausted private remedies
This point is one of the key considerations in deciding whether judicial intervention is involved. For example, for a legal representative who is also the executive director, he should have taken all necessary measures, such as trying to convene a shareholders’ meeting, negotiating with the actual controller of the company on his resignation and change of registration, or urging the company in writing to request the change of registration.
For specific remedies, please see “Legal Representative in China: Remedies for Failed Change of Registration after Resignation (II)”. As Chinese lawyers experienced in the field of foreign investment for a long time, we have assisted many foreign invested enterprises in their legal issues related to legal representatives. If you have any legal questions regarding the legal representative, please feel free to contact us via administrator@35.93.49.201.