Meaning
Interim judicial remedies issued by Chinese courts prevent a defendant from transferring or pledging corporate shares during a pending lawsuit. A plaintiff secures an equity preservation order to lock the defendant’s registered capital in a target company, thereby ensuring that any future monetary judgment can be executed against valuable corporate holdings rather than empty bank accounts. This judicial instruction is registered directly with the local Market Regulation Administration to block any changes in the corporate registry and maintains the status quo of the defendant’s assets throughout the trial.
Commercial Impact
Freezing corporate shares under an equity preservation order halts the defendant’s ability to receive dividends or execute share buybacks. While the defendant retains basic operational voting rights, any attempt to register a share transfer or create a pledge on the frozen equity is rejected by the registry.
Statutory Threshold
Courts require the applicant to provide a litigation security bond or insurance policy before issuing an equity preservation order, ensuring that the defendant is compensated if the claim proves groundless. The applicant must submit detailed information about the target company, including the exact registration number and the shareholding percentage of the defendant. This prevents arbitrary freezing of unrelated corporate assets.
Removal Process
Once the main lawsuit is settled or the defendant provides alternative security of equivalent value, the court issues a new ruling to lift the restriction. The plaintiff or the defendant must present this ruling to the Market Regulation Administration to restore the shares to an unencumbered state, allowing commercial transactions to proceed.
