Piercing Corporate Veils under Revised PRC Company Law Provisions
Revised PRC Company Law expands debt liability across sister affiliates and forces single shareholders to prove independence or assume full joint liability.
Article 54 Accelerated Capital Call
Meaning
A statutory mechanism under Chinese corporate practice allows a company or its creditors to demand the payment of unpaid registered capital before the date scheduled in the articles of association. This procedure under the revised company law allows an article 54 accelerated capital call when a company cannot pay its debts as they fall due. This action circumvents the standard protection of time limits historically enjoyed by shareholders.
Triggering Condition
Insolvency and cash flow shortages are the primary triggers. When a company is unable to satisfy a court judgment, the creditor can request an article 54 accelerated capital call to bring forward the subscription deadline. This ensures that equity holders cannot hide behind distant payment dates while the corporate entity fails to meet its immediate financial obligations.
Creditor Remedy
Creditors obtain a direct avenue to recover outstanding sums. If the court approves the action, the shareholder must pay the unpaid portion directly into the company assets, which are then used to settle the claims of the requesting creditor.
Enforcement Procedure
The claimant must initiate this action during the execution stage of litigation or through bankruptcy liquidation proceedings. In the execution stage, the creditor files an application to add the shareholder as a co-defendant or execution target. If the court approves, the executive department can freeze the personal bank accounts and seize the real estate of the shareholder.
This forces compliance by directly affecting the private assets of the delinquent equity holder.